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By: Mark Glennon*

James Sweeney is president and business manager of the International Union of Operating Engineers Local 150.

This week he published a rebuttal in Crain’s Chicago Business to my article there last week criticizing the prevailing wage law in Illinois. My article basically said “prevailing wages,” which Illinois towns and cities must pay workers on public projects, are anything but: The average total full-time-equivalent compensation that we calculated from the published rates, including benefits, for all job categories over all counties is $119,000.

Sweeney’s rebuttal is bunk. Here’s what he said, and here are my answers:

Sweeney: “The average salaries that Glennon suggests are preposterous.”

Answer: Look for yourself. They’re all published by the Illinois Department of Labor, linked here. Those are the numbers I used. Average them all out if you want, as I did, and you get the averages I reported.

Sweeney: Workers covered by the law don’t earn “full-time equivalent wages” and I was wrong to look at it that way because most are in construction, which is seasonal, and many covered workers don’t work the normal 2,080.

Answer: You could put it on a monthly, weekly or hourly basis. It doesn’t matter. Annualizing it is just a way to illustrate what people are making on a basis readers recognize.

And, yes, I understand construction work is seasonal. But that doesn’t mean covered workers should be singled out for a government-mandated boost in their compensation. Their situation is no different than many in today’s gig economy. It’s full of workers who, because their work is piecemeal or seasonal, aren’t full-time on their main main line of work. Landscapers, web designers, tax professionals, travel agents, sports facility workers, farmers, accountants, consultants of all sorts…the list goes on and on.

Sweeney: “Legions of economists have reached the consensus that prevailing wages have no impact on total project costs.”

Answer: No, the studies he cites are not about Illinois, currently, which is all I addressed. Our particular problem here arises from the stunning, recent increases in mandated wages. Some examples from my original piece: Every county but two must provide brick masons $100,000 or more in total full-time-equivalent compensation, which has grown 20 to 33 percent since 2008 in various counties. Every county in Illinois has to pay the equivalent of $100,000 or more for carpenters, which has grown 29 to 43 percent since 2008. Similar story for plumbers. Similar for most everything else as you can again see for yourself in the public numbers.

The only two recent studies on Illinois’ law I’m aware of say the opposite of what Sweeney claims. One is from 2014 by Anderson Consulting Group that looked just at school construction, and concluded that “in the absence of the prevailing wage law we estimate that Illinois could have saved $158 million on average each of the past ten years.” The other study contradicting Sweeney is from the conservative Illinois Policy Institute just last month.

Sweeny: “Unions do not set prevailing wage rates. These rates are based on surveys of what union and non-union employees are actually paid in the marketplace.

Answer: Just look at what the Illinois statute says:

The terms “general prevailing rate of hourly wages”, “general prevailing rate of wages” or “prevailing rate of wages” when used in this Act mean the hourly cash wages plus annualized fringe benefits for training and apprenticeship programs approved by the U.S. Department of Labor, Bureau of Apprenticeship and Training, health and welfare, insurance, vacations and pensions paid generally, in the locality in which the work is being performed, to employees engaged in work of a similar character on public works. [Emphasis added.]

That’s no “marketplace.” It’s foolishly circular. Labor rates for public projects, says the statute, are to be set by looking at other public works.

Now, in practice, it appears that rate setting may sometimes be based partially on private sector projects, despite what the statute says, and the whole process is a mess.

That mess is a story for another day. For now, you just need to look at the results and use some common sense. In, say, Vermillion County Illinois where median household income is just $43,600, is the truly “prevailing wage” over $100,000 per year? That’s what state law mandates there for covered workers, on average. And that’s the point I made in my article — that asking taxpayers who make so little to pay so much just isn’t right.

Even more clear, is there any conceivable justification for increases like 20% to 40% since 2008, vastly exceeding other wage growth and inflation? Something is clearly wrong.

Sweeney: Prevailing wage law ensures “things like schools, bridges, and roads are built by local people who are trained to do the job right the first time.” They have no impact on total project costs because they result in higher productivity, fewer safety issues and less spending on materials, fuels and equipment. Consider that Republican Indiana Rep. Ed Soliday said last year that Indiana’s repeal of its prevailing wage law “hasn’t saved a penny.

Answer: The party doing the project is the one closest to all those issues, all of which are important to it. That’s really the fundamental problem with the law: If the rates it sets are truly prevailing in the marketplace, as Sweeney claims, there’s no need for a mandate.

Sweeney: “Most prevailing wage workers complete three to five years of industry-financed, post-secondary apprenticeship training.”

Answer: True! That’s part of the rigged system public unions have created that stymies worker mobility.

Sweeney also brought up the “irony” that I, a “self-described lawyer and venture capitalist,” would call for middle class construction workers to take a pay cut. (Actually, those are my former professions).

Irony, indeed.

Sweeny makes $306,348 per year to serve as president and business manager of his local union chapter, according to their federal filing for 2016. I presume he also will be eligible in his union’s pension, where he serves as a trustee.

Source: Daily Herald

For what? His bio says he “pioneered use of the inflatable rat” in union protests. He used one against the Illinois Tollway Authority even while he was on the board there, according to the Daily Herald. The pension where he is trustee has been placed in “endangered status” according to this notice sent last year to members.

Look, if raising wages and reducing inequality were as simple as passing laws mandating higher wages paid by cities and towns, I’d double Illinois’ prevailing wages. It just doesn’t work when the wage calculation is so clearly flawed, in a state where towns and cities are going broke, where most families earn far less than those wages and where people and businesses are fleeing. The goal has to be to push up all wages — truly prevailing wages — by making Illinois competitive with other states again.

*Mark Glennon is founder of Wirepoints. Opinions expressed are his own.

 

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S and P 500

Readers who are slightly knowledgeable about pensions will look at two numbers on the notice from Sweeney’s pension fund. The funded status (74%) and the discount rate that the fund uses (7.5%). A more realistic discount rate is 4% which would make the pension fund about one-third funded. If one-third funding status doesn’t scare future pensioners to death, it should, for obvious reasons.

nixit

The pension contribution rate is anywhere from 25-40% of the hourly rate. How can it only be funded 74% with such a high employer contribution rate? Unless I misunderstood the chart.

S and P 500

Pension funds like CalPERS have to collect enormous amounts of money from taxpayers to pay a retired city employee a generous pension for 25+ years. Watch this video that features a pretty lady interviewing the city managers of Costa Mesa who aren’t sure how they will pay all of the pensions that have been promised.

https://www.youtube.com/watch?v=AP9ki8u33Mc&t=433s

nixit

Question: According to the prevailing wage rate table, it looks like pension rates average 35% of the base wage rate (I assume this is the employer contribution, the amount the government would have to deposit into the workers pension fund for every hour worked). If so, why is the percentage that high? The normal cost for public sector pension contributions is around 9-12%. Why would we pay 3x what we pay a teachers, policemen, etc?

Jeff Carter

BTW, I could do this guy’s job for a lot less, and they could pay me a private pension that would cost less too!

nixit

Are you referring to James Sweeney who collects TWO unions paychecks (Local 150 and AFL-CIO HQ) totaling $395,000? Considering that much income puts him in the 1% crowd, you’ll have 99% of the working population to compete against.

Jeff Carter

I wrote a post a number of years ago on how much a teacher really makes. I used published averages from the Illinois data. You can’t believe the blowback I got. I normalized the data for salaries and pensions for a 12 month cycle (teachers work considerably less than that) and then I did a net present value of the future payments using a transparent discounting factor. http://pointsandfigures.com/2010/10/05/how-much-does-a-teacher-really-make/ 2010 data. The unions don’t want people to read or see or understand the real numbers. It’s maddening.

nixit

A boilermaker in Clinton County is paid $36.50/hr and his pension contribution (assuming this is employER) is $22.82. That same boilermaker in Cook County is paid $48.49 and his pension contribution is $19.61. How can you pay someone 33% more and contribute LESS to their retirement fund?

And why does seasonal work matter? The state should not required to pay non-employees on the bench. That’s an issue for the tradesmen.