OCS Fair Wage Study - Final #1 - O'Grady

1 1 Contents Executive Summary 31. Introduction 102. History and Objectives of fair wage Policies 123. fair wage Policies and Construction Costs 354. Training, Occupational Safety, Productivity, and Underground Economy Practices 505. Why Construction is Different 626. The Case for fair wage Policy 687. A Modern fair wage Policy 70 Bibliography 81 Appendix A: List of Individuals Consulted 89 Appendix B: Terry Opinion Letter re Treatment of Independent Operators under the Davis Bacon Act 91 Appendix C: Literature Review Dr.

2 Richard P. Chaykowski 113 2 3 History fair wage Policies originated in the late 19th and early 20th centuries. Canadian policy reflects both British and influence. In the , fair wage Policy (known as prevailing wage Policy) is founded in the Davis-Bacon Act of 1931 and subsequent amendments to the Act in 1934. There are also prevailing wage laws in 32 states. In Canada, the federal government introduced a fair wage Policy in 1900. The federal fair Wages and Hours of Work Act of 1930 and 1935 provided a statutory basis for the policy.

3 In 1984, the Conservative government ceased updating the federal schedules. This policy was reversed by the Liberal government. In 1999, the federal fair wage Schedules were revised based on Statistics Canada surveys of prevailing wages and provincial fair wage Schedules where those were current. The current federal fair wage Schedule for Ontario was issued on January 17, 2005. When released, the schedule provided for regional rates equal to approximately of the straight union wage rate. This was the equivalent of around 68% of the union wage package.

4 In Ontario, provincial fair wage Policy is based on order-in-council. The schedule was last updated in 1995, based on 1994 rates. In urban regions, the Ontario policy tied the fair wage Schedule to the union rate for straight wages. Practice varies in other provincial jurisdictions, although the majority either do not have fair wage Policies or do not have current schedules. Several municipalities in Canada also have fair wage Policies. The longest standing such policy is City of Toronto s fair wage Policy.

5 fair Wages and Construction Costs The impact of a fair wage Policy on construction costs depends on the degree to which productivity effects offset the impact of higher wage rates. In construction, productivity effects arise from four sources: 1. the substitution of skilled labour for semi-skilled or unskilled labour, 2. the substitution of machinery and equipment for labour, 3. the substitution of pre-fabricated components for on-site construction, and 4. more efficient project management. Executive Summary 4 There are a substantial number of studies that examine the impact of prevailing wage laws, but only a few Canadian studies.

6 All cost comparison studies are limited by the inherent difficulty in comparing costs across construction projects that are not identical in location, design and materials and are affected by the construction cycle. studies have generally found cost impacts from 0 to 5% on new building construction. Recent studies that adjust for various factors than can affect cost, such as the size of buildings and materials used, have gravitated to the lower end of this range. Several studies find marginally positive impacts on cost but note that these findings do not meet statistical reliability tests.

7 There are fewer studies of renovations and alterations. These types of construction are also more difficult to compare. The limited evidence, however, suggests a greater cost impact on renovation and alteration work. Such work is often undertaken by smaller contractors who are more affected by prevailing wage laws than the larger contractors who more often do new building construction. There are no recent studies of the impact of prevailing wage laws on road and highway construction. The only Canadian studies focus on the impact of s Skills Development and fair wage Act which was enacted in 1994 (but initially introduced by order-in-council in 1992) and repealed in 2001.

8 A 1993 Study by the Quantity Surveyors Association of estimated that s fair wage Policy added approximately to construction costs. However, this conclusion was based on an analysis of bids submitted by open shop contractors on only 7 projects. A later commentary by the Fraser Institute cites an increase of 4% on construction costs. Other studies find a smaller impact on costs when factors such as building size, materials, the construction cycle, etc. are taken into account. For example, the estimated cost impact on school construction in one Study is only 2%.

9 Some studies conclude that productivity gains may entirely eliminate the cost impact of higher wage rates. Most studies, however, still find a residual cost impact, although it usually does not pass the test for statistical reliability. A fair wage Policy similar to Ontario s 1995 policy would likely have a 2-4% impact on the cost new construction. The impact on repair and renovation work would likely be in the 11-17% range, based on Statistics Canada s survey of prevailing wage rates in Ontario Training studies show a strong relationship between the repeal of prevailing wage laws and a decline in apprenticeships in the construction trades.

10 Studies also show that non-union contractors commonly employ fewer apprentices and fewer certified journeypersons on their crews using, instead, semi-skilled workers and helpers. In Canada, construction unions operate approximately 215 union training centres and deliver training to over 11,000 apprentices and almost 40,000 journeypersons. Negotiated contributions to Training Trust Funds average approximately 1% of straight wages. In light of the scale of this involvement in skills training, it is clear that there is a strong link between construction unions and skills training.