By Mark Price, Third and State

The Pennsylvania Department of Labor and Industry released new data for March on Pennsylvania’s employment situation. According to the household survey, the unemployment rate edged down slightly to 7.5%, and the survey of employers showed healthy growth in nonfarm payrolls of 7,800 jobs.

As always, caution should be exercised in interpreting a month change in employment statistics.

In terms of levels, there were big gains in Leisure and Hospitality (7,000), Trade Transportation and Utilities (4,000) and Manufacturing (2,100). We will not have full information until the fall whether the job losses in the public sector will put a drag on employment growth in 2012, but the March data shows we are off to an uncomfortable start, with 2,500 jobs lost.

Over the last several months, Pennsylvania nonfarm payroll counts have been particularly volatile, showing big one-month gains and losses thanks to a combination of unusually warm weather and some technical issues. On average over the last six months, Pennsylvania has added just under 6,000 jobs a month. We need about 10,000 jobs a month to move back to full employment by March 2015 (three years from now).

While unemployment remains high today and for the foreseeable future, the distance between CEO pay and the pay of the typical worker reached an all time high in 2011.

• Ann Belser, Pittsburgh Post-Gazette – Report: Pay gap at record high between U.S. CEOs, workers:

Corporate CEOs are now making 380 times the salary of the average American worker, a record high and the biggest pay gap in the whole world, according to the 2011 AFL-CIO’s Executive Paywatch.

By Stephen Herzenberg, Third and State

I’ve got an idea: let’s employ low-wage, low-skill, and sometime out-of-state workers on small and medium-sized state-funded construction projects, with no benefit to taxpayers and negative impacts on local economies.

Sound like a stupid idea? That’s because it is.

Here’s the backdrop: Pennsylvania’s prevailing wage law requires that workers on state-funded construction projects be paid a wage in line with what most other workers in their trade are paid within a certain geographical area.

Research in peer-refereed academic publications shows that the law could be called the quality construction law because it helps ensure the use of skilled workers on state projects. Where prevailing wage laws exist, training investment, worker experience, wages, benefits, and safety levels are all higher than where these laws do not exist.

Overall construction costs are the same with or without prevailing wage laws. The prevailing wage law, however, makes it impossible for contractors that employ low-wage, out-of-state workers to win bids on state projects: it ensures that jobs go to local workers, who spend their money at local businesses.

More middle-class jobs, stronger local economies, higher quality construction, no cost to taxpayers: what’s not to like?

Unfortunately, some members of the Pennsylvania Legislature seem unwilling to leave well enough alone. Through House Bill 1329, these lawmakers want to make the prevailing wage law to apply to less state-funded construction work. How so? By exempting projects of less than $185,000 from prevailing wage standards. Currently, the law applies to all state-funded projects of $25,000 or higher.

Why one wants a threshold at all is not clear; eight states don’t have one. They have, instead, a clear policy of supporting a high-wage, high-skill approach to all state-funded construction.

Of the 32 states that have a prevailing wage law, only three have a threshold as high as that proposed in House Bill 1329.

Raising the threshold may not be as stupid a policy as eliminating the prevailing wage law altogether, or carving big parts of public construction (e.g., school projects) out of the law. But it’s still dumb.

For a complete list of our research and commentary on Prevailing Wage see our Prevailing Wage Issue page.

The Final Part of a Three-part Series on Prevailing Wage by Mark Price and originally published at Third and State. Read Part 1. Read Part 2.

In the first two posts of this series, I explained why the numbers being tossed around by advocates of repealing prevailing wage don’t add up. I explained that the claims of cost-savings are not based on any actual experience and that they represent the result of laughable hypothetical, or “what if,” calculations. 

This leads to the most important point that the Pennsylvania School Boards Association, the Pennsylvania State Association of Boroughs, the Harrisburg Patriot-News Editorial Board and others keep missing: we can do much better than a hypothetical when assessing the impact of prevailing wage laws.

There is a body of research that examines construction costs (and other construction outcomes, like safety, training investment, wages, benefits, etc.) in states with and without prevailing wage laws as well as in states that eliminated prevailing wage laws. We don’t have to conjecture what “might” happen: we can look at what did happen. The preponderance of the evidence shows that prevailing wage laws do not raise construction costs.

Back in the late 1990s, Pennsylvania actually ran this real-world experiment itself — we lowered our prevailing wage levels, particularly in rural areas. That means we can look at what happened to construction costs. What happened is the same thing that has happened in other places — lower prevailing wages did not translate into lower construction costs. 

Specifically, the Keystone Research Center’s 1999 study of this late 1990s Pennsylvania policy experiment examined changes in public school construction bids when Pennsylvania’s prevailing wages were lowered substantially in rural areas. Keystone found no association between the number of occupations in which the prevailing wage was lowered and the price per square foot of school construction bids. If anything, construction bids appeared to go up more in areas where prevailing wages were lowered more.

Advocates of repeal often point to sympathetic construction managers in the public sector who testify, based on their expertise, that prevailing wage laws raise costs. Not only did the Keystone study find no statistical evidence of a cost difference during the period wages were lowered, but the study highlighted two revealing instances of construction managers making wild predictions that just didn’t come true:

The recent experience of two Pennsylvania school districts show that even increases in legally mandated prevailing wage and benefits rates do not necessarily increase public construction costs. In March 1999, after two months of legal uncertainty about required prevailing wage levels, [the Pennsylvania Department of Labor and Industry] began issuing prevailing wage rates that were higher than the 1999 rates. The Blue Mountain School District, in Schuylkill County, was planning to renovate its high school.  In April 1999, the school district’s construction manager estimated that construction costs would increase by about $670,000 as a result of the higher prevailing wage and benefit rates. But when bids for the project were opened on May 6, the low bids, which were expected to be about $15.1 million, came in at only about $13.8 million, almost 9 percent below the anticipated level. And in April, bids for a middle school construction project in Tamaqua, which used the same prevailing wage and benefit rates as the Blue Mountain bids, also came in under budget estimates.

Read the rest of this entry →

Commonly available statistic calculator, alas unused (photo: andresrueda/flickr)

Part Two of a Three-part Series on Prevailing Wage by Mark Price, originally published at Third and State. Read Part 1.

The overwhelming weight of evidence based on the actual cost of public construction projects shows that prevailing wage laws do not raise costs. Therefore, advocates of repealing the law in Pennsylvania ignore this evidence. Instead of “evidence-based policy,” we have “lack-of-evidence-based policy.” Go figure.

Repeal advocates use a hypothetical calculation that makes assumptions about cost, rather than empirically examining the relationship between higher wages and total construction costs. (As discussed here, even these hypothetical cost estimates don’t make sense once you apply real world data to how much labor costs represent of total construction cost.)

Another key ingredient in the hypothetical calculations used by proponents of repeal is the claim made most recently by the Pennsylvania State Association of Boroughs (PSAB) that “the prevailing wage is 30 percent to 60 percent higher than the average wage for the same occupation.”

This claim is based on an update of a flawed calculation by the Commonwealth Foundation. It compares the prevailing wage levels by trade as set by the Pennsylvania Department of Labor & Industry with the average wages for construction occupations reported in Occupational Employment Statistics (OES). The prevailing wages are 30% to 60% higher than the OES averages.

The problem is, the Commonwealth Foundation/PSAB calculation is the proverbial apples-to-oranges comparison: it measures different portions of the construction industry.

OES data include wages paid to workers employed in the residential construction sector — smaller, less-complex projects than prisons, bridges, schools and other state-financed construction. Residential construction relies on workers less skilled and experienced than those needed for larger state projects.

Indicative of this skill gap in Pennsylvania is the fact that construction workers employed in nonresidential construction — most of which is private sector, not public — earn 52% more than construction workers in the residential construction sector. In other words, the gap between the occupational prevailing wages set by the Pennsylvania Department of Labor & Industry and average construction wages reported by OES reflects the wage gap between residential and nonresidential construction.[1] (See Table 1 below.) Read the rest of this entry →

(photo: martinsphotoart, flickr)

Part One of a Three-part Series on Prevailing Wage by Mark Price and originally published at Third and State.

Prevailing wage laws have long operated nationally and in states as a check against the tendency of the construction industry to degenerate into destructive wage and price competition. Such competition can drive skilled and experienced workers from the industry, reduce productivity and quality, and lead to poverty-level jobs, all without saving construction customers any money.

In an exhaustive review of the research on the impact of prevailing wages on contracting costs, Nooshin Mahalia concluded:

At this point in the evolution of the literature on the effect of prevailing wage regulations on government contract costs, the weight of the evidence is strongly on the side that there is no adverse impact. Almost all of the studies that have found otherwise use hypothetical models that fail to empirically address the question at hand. Moreover, the studies that have incorporated the full benefits of higher wages in public construction suggest that there are, in fact, substantial, calculable, positive benefits of prevailing wage laws.

Although the weight of evidence suggests prevailing wage laws do not raise costs, advocates for repealing the law in Pennsylvania continue to repeat some version of the following:

Prevailing Wage law also harms taxpayers, as it forces them to pay higher labor costs on public construction projects. Construction companies forced to pay union-inflated wages and benefits will pay upward of 30 percent more in labor costs for identical work on private sector projects. This adds a little more than 20 percent to the cost of every taxpayer-funded construction project — resulting in an estimated $1 billion cost for state and local taxpayers each year.

- Matthew J. Brouillette
President & CEO of the Commonwealth Foundation
March 22, 2011

What is the source of this 20% saving claim? One source is Nathan Benefield, the research director of the Commonwealth Foundation, in this 2009 blog post. Read the rest of this entry →

A blog post by Mark Price, originally published at Third and State.

The Harrisburg Patriot-News reports this morning on a new study that predicts fiscal distress in Pennsylvania school districts thanks to state budget cuts.

• Jan Murphy, The Patriot-News — Pennsylvania State Education Association’s report says schools are at risk of bankruptcy:

In a report titled “Sounding the Alarm,” the Pennsylvania State Education Association describes the impact that state funding cuts and policies are having on school districts’ ability to meet the educational needs of students.

In it, the union calls on the Legislature and Gov. Tom Corbett to put more money into public schools and remove the limitations on property tax increases required by the state law known as Act 1.

But the Corbett administration suggests there’s no reason for alarm.

In a cringe-inducing moment from that Patriot-News story, a spokesman for the Corbett administration chose not to read the study before reaching into his trusty public relations rapid-response handbook:

Tim Eller, Department of Education press secretary, said having only one or two districts out of 747 public school entities encountering severe fiscal distress is no reason to sound the alarm.

From the study:

The authors of a study published recently in the refereed Journal of Education Finance conclude that districts that are relatively small, rely heavily on a single source of revenue, have little buffer within their budgets, and have relatively high amounts of debt are more likely than other districts to cut classroom expenditures by at least five percent in a given year (Trussel and Patrick, 2012). The strongest of these indicators of underlying fiscal weakness is heavy reliance on a single source of revenue.

Districts entered 2011-12 in varied financial shapes. Applying the model from the Trussel and Patrick study to Pennsylvania school districts, and combining those results with trend data from districts’ General Fund balances over the last few years, strongly suggests that many districts across the state faced elevated risks for making severe cuts to classroom services, even before the other cost and revenue pressures reviewed below are taken into account. Read the rest of this entry →

A blog post by Mark Price, originally published at Third and State.

Pennsylvania’s 2011-12 General Fund budget made deep cuts to education and health care while leaving unspent $620 million from a revenue surplus last year and other unused funds.

We have estimated the failure to spend that revenue will by itself translate into the loss of 17,714 jobs (including private jobs lost due to the ripple effects of public job cuts) over the course of the 2011-12 fiscal year.

So it is no surprise that Pennsylvania’s job growth slowed in 2011 compared to 2010 and when compared to most other states.

On Wednesday, Governor Tom Corbett resumed his business tour to pitch his 2012-13 budget, which offers another round of budget cuts for the coming fiscal year.

• Mary Young, Reading Eagle — Corbett likes views of window company: During tour, governor lauds Caernarvon firm for surviving recession by operating within its means:

A Caernarvon Township vinyl window manufacturer is a perfect example of a business that managed to survive the recession by living within its means, Gov. Tom Corbett said Wednesday after a tour of the facility…

The governor said the state has only two options for balancing its budget: raising taxes or cutting expenses…

“That’s why I’m trying to control the costs,” he said. “It’s not easy. I don’t want to make these tough decisions, but you elected me to make tough decisions. We expect everyone to live within their means. You had to do it here.”

Late Wednesday, officials in the Pocono Mountain and Stroudsburg School District discussed the implications of the Governor’s “tough decisions” aimed at controlling costs, which include laying off more math teachers. Read the rest of this entry →

Port Authority Bus Line (photo: pquan/flickr)

A blog post by Mark Price, originally published at Third and State.

The Pittsburgh Post-Gazette reports there will be a hearing today on the fare increases and service cuts facing the Port Authority of Allegheny County.

• Jon Schmitz, Pittsburgh Post-Gazette — Hearing set today on proposed transit cuts, fare hikes:

Financial problems are nothing new for the Port Authority; nor are public hearings on proposed fare increases and service reductions, like the one scheduled today at the David L. Lawrence Convention Center…

The agency has pinned its hopes on recommendations by the state’s Transportation Funding Advisory Commission in August. The panel, appointed by Gov. Tom Corbett, issued a proposal to raise as much as $2.7 billion in new revenue for highways, bridges and public transit. But Mr. Corbett has yet to embrace the plan and his spokesman has suggested that Port Authority funding is a local rather than state problem.

The July 1 fare increase is likely to occur regardless of whether the state comes up with additional funding. In addition to the 25-cent base fare increase, it would add 50 cents to a two-zone trip, making it $3.25. It would be the third fare increase in five years.

The service cut would eliminate 46 of the remaining 102 routes and reduce the frequency of trips on the others. It would be the third reduction in six years and leave the region with less than half of the service that existed before the cuts.

A 15 percent reduction last March caused severe overcrowding on some routes, and riders still get passed by buses that are filled to capacity.

The Patriot-News reports that offsetting proposed cuts in state support for higher education would require a 9% increase in tuition at state-owned universities. Read the rest of this entry →

A blog post by Mark Price, originally published at Third and State.

The Pittsburgh Post-Gazette reports this morning on the continued strain that high unemployment is putting on the safety net in Pennsylvania.

• Ann Belser, Pittsburgh Post-Gazette — Gradual economic recovery belies personal realities

There are 1.8 million people in Pennsylvania so short of cash that they qualify for food stamps. That translates to 14.4 percent of the state’s population receiving at least part of their food budget from the Supplemental Nutrition Assistance Program.

The slow economic recovery from the Great Recession is not yet translating into personal recoveries…

Pennsylvania does not keep unemployment trend records on a month-by-month basis but in the fourth quarter of 2011, 33 percent of the state’s unemployed had been out of work for more than six months and the state’s labor force participation rate was 62.8 percent, lower than in the fourth quarter of any of the previous three years…

When Just Harvest advertised a part-time job paying $12 an hour to help people apply for food stamps, the agency was inundated with applications — including people with doctorates seeking a job that just required some education past high school.

Laura Tobin Goddard, executive director of the Pennsylvania Hunger Action Center in Enola, Cumberland County, said food pantries around Harrisburg are still reporting seeing a lot of new faces even 2 1/2 years after the recovery began.

Her agency, which is also a nonprofit that helps people access government programs and directs them to food pantries, received 500 calls in 2007 from people seeking assistance. Now it receives 100 calls a month.

Those of you betting that 2012 will mark the year the housing market in Pennsylvania came roaring back need to pay up. The Pocono Record reports on the percentage of borrowers that owe more on their homes than those homes are worth if they were put up for sale.

• Howard Frank, Pocono Record — Monroe County leads Pennsylvania in underwater mortgages:

Almost half the homes in Monroe County are worth less than what homeowners owe on their mortgages, according to a recent study.

That’s the highest “underwater” rate in the state, according to data from RealtyTrac.

The data show nearly one-third of all Monroe County homes are seriously underwater. That’s where borrowers owe at least 25 percent more on their mortgages than their property is worth…

By comparison, about 27 percent of homeowners across the state are, on average, underwater.

A blog post by Mark Price, originally published at Third and State.

This morning’s theme is penny wise and pound foolish. We pass on news stories of state policy choices that are framed as reality-based budgeting but are, in fact, policy choices that will substantially raise future costs for taxpayers.

First, the Corbett administration is taking steps that will delay school construction and renovation throughout the commonwealth. While there is no evidence that state prevailing wage laws raise construction costs, there is strong evidence that the cheapest time for school districts to build is during periods of high unemployment. By taking steps that will delay school construction, Governor Corbett risks raising the future cost of school construction substantially to the Commonwealth and local school districts.

• Brian Wallace, Intelligencer Journal/Lancaster New Era — Schools have new worry: Corbett budget may cut funds for construction:

School officials are worried that the state is reneging on a promise to fund its share of school construction projects, which could cost school districts — and local taxpayers — millions of dollars in unplanned expenditures in the coming years.

Buried within Gov. Tom Corbett’s 2012-13 budget proposal is a provision calling for a one-year moratorium on accepting new applications for state reimbursements for school construction and renovation projects…

But school officials said they should have been told up front, before they committed time and resources to their projects, that there was no guarantee of state funding.

“It is unfair to change the rules in the middle of the game,” said Brenda Becker, superintendent of Hempfield School District, which could lose out on as much as $160,000 per year in construction reimbursements if funding is cut.

• Sarah Hofius Hall, Times Tribune — School construction could be on hold in NEPA: Area school districts are owed millions in construction reimbursements from the state, superintendents say:

The delay in promised payments comes at the same time Gov. Tom Corbett is proposing a moratorium on reimbursements for any new construction projects, as well as a review of the program.

The moratorium makes an uncertain future for renovation projects superintendents say their schools need, and the stall in funding has Western Wayne waiting for $6 million.

“If we don’t receive that money it could bankrupt us,” Superintendent Andrew Falonk said.

• Editorial, The Mercury — Corbett budget hides cuts in school construction aid

According to Pottstown schools business manager Linda Adams quoting information from the Pennsylvania Association of School Business Officials, 230 school projects in Pennsylvania are in the pipeline, awaiting funds or approval for funds. This is money local taxpayers will have to make up if the Department of Education decides not to resurrect PlanCon.

The projects that will have to be scrapped are not luxurious new facilities, it should be noted. Pottstown is trying to repair aging elementary schools — a process over which board members and the community have agonized for years.

Also this morning, the Pittsburgh Tribune-Review has a story on the financial challenges facing school districts over the next year. If the analysis is correct, we are likely to see more layoffs, rising class sizes and the end of specialized course work.

• Kari Andren, Tribune-Review — Analyst: Schools’ options scarcer

“My concern is this year, to get that (spending figure) down, there’s no more low-hanging fruit. It may require cutting some programs, increasing class sizes,” [Norwin School Board President Robert] Perkins said. “That’s what scares me, because then you are affecting students.”

Marcie Sinagra, member relations coordinator for the Norwin Chamber of Commerce and the mother of two Norwin students, said the roundtable gave her a better sense of the challenges confronting school officials.

“When you hear about cuts, you think there’s that much fat,” Sinagra said. “There’s not necessarily fat everywhere.”

[Ron] Cowell, a former state lawmaker from Wilkins Township, said he doesn’t envy the task that school administrators face in crafting a budget this spring.

“When the state is cheap, you end up with tougher decisions and usually higher taxes at the local level,” he said. “A community has to decide, what do you value? Is it important to give kids those opportunities or do they become casualties? That’s a tough decision. That’s a tough debate.”