Prevailing wages, school construction costs, and bids by out-of-state contractors: evidence from the Minneapolis–Saint Paul metropolitan area

Abstract

In the United States, prevailing wage laws authorize minimum remuneration by locality and occupation for public construction. The policy’s goal of leveling the playing field between local and lower wage, nonlocal builders is shared by fair wage policies in Canada and posted worker rules in the European Union. This is the first paper to test if the wage policy reduces bid disparities between these two types of contractors. The statistical analysis of over 600 subcontractor bids for schools built within the Minnesota’s largest metropolitan area examines differences in low, winning bids between Minnesota-based contractors and those from neighboring states with lower average construction wages. Findings indicate that prevailing wage requirements substantially reduce bid disparity between in- and out-of-state subcontractors. Additional results illustrate estimation issues related to measuring the influence of prevailing wage laws and unionized construction labor on construction costs.