The effect of prevailing wages on building costs, bid competition, and bidder behaviour: evidence from Ohio school construction

Abstract

The Davis-Bacon Act and other state prevailing wage laws are instituted to, among other things, protect local compensation standards from possible degradations associated with public construction and create a level playing field for all competing contractors. The impact of prevailing wages on the cost of construction projects to the taxpayers is an issue that continues to be debated at the state and federal levels. In this paper, data from recent school construction projects in Ohio are used to examine the impact of federal prevailing wage standards on construction costs and bid competition. Results from the examination of all bids and winning bids indicate that prevailing wage requirements do not have a statistically significant effect on building costs or the level of bid competition. Results from endogenous treatment estimators provide additional evidence that the prevailing wage policy does not increase costs or limit competition. Additional analysis of all bids indicates that the cost-reducing effect of increased competition is stronger on projects covered by the prevailing wage policy.