New Yorkers Pick Up the Tab for Construction Pensions

New York’s prevailing wage law is causing considerable damage to its workers and taxpayers. (Stux)

Over the past 10 years, prevailing wages earned by New York public construction workers have almost doubled the rate of inflation. 

There is just one problem. 

More than half of the wage increase between 2007 and 2017 went not to the workers' pockets, but to union-mandated pensions and other fringe benefits, according to an Empire Center study.

For instance, the prevailing wage for an NYC public construction worker went from  $57.60 per hour in 2007 to $82.10 in 2017. However, when you break down the $24.5 "raise," only $6.61 is actual pay and a stunning $17.89 amounts to benefit costs.

The following chart shows how the prevailing wages changed from 2007-08 to 2017-18.

The chart shows how benefit costs ate up wage increases in the state of New York.

In all but one state region, Long Island, benefit costs ate up more than half of the increase. On the other hand, nationally, three-quarters went directly to wages.

The problem lies in New York’s labor laws, which include fringe benefits in their definition of the prevailing wage, effectively guaranteeing a taxpayer-funded bailout of pension funds and health-care plans. Furthermore, they require contractors of any public construction work to comply with union-mandated regulations.

As a result, benefit costs of public construction workers, excluding federal charges, represent an average of 41 percent of prevailing wages. By contrast, private workers devote 20 percent of their compensations to fringe benefits. 

Worse still, the take-home incomes of workers in 60 job titles — out of the 228 surveyed by the Empire Center — actually decreased when taking into account the 17 percent inflation rate during that period. Some of them are painters, masons, sheet-metal and iron workers, electricians, plumbers, and teamsters.

The study did not address the total financial impact that the rise in benefit costs had on state and local budgets, but since New York has spent tens of billions of dollars in public construction works, research director E.J. McMahon argues it's in the “hundreds of millions of dollars in added taxpayer costs.” 

These long-term benefit programs lack funding to back up their sustainability, says McMahon. Therefore, the added taxpayer dollars are neither paying future benefits for workers nor additional public projects.

New York’s prevailing wage law is causing considerable damage to its workers and taxpayers. As with many protectionist regulations, special interests are the main beneficiaries, while the workers' right to receive a full paycheck is trampled upon.

Instead of ensuring prosperity through equality, this law actually undermines choice and work incentives. It makes sure that the privileges that end up spurring government and union cronyism are kept firmly in place.

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Paz Gómez

Paz Gómez has been a contributor to the AIER blog since September 2017, and she is a policy analyst with Antigua Report. She is also the cofounder and academic coordinator of Libre Razón, a think tank in Quito, Ecuador. Follow @PazenLibertad.