Episode Transcript
Kirk: For those of you just joining this week, this is part two of a two-part podcast special as we're talking to Dr. Peter Philips and Dr. Kevin Duncan. If you missed last week's, please go back and listen to our amazing conversation about economic research of prevailing wage. This week, we'll be talking a little bit more about the nuts and bolts of PLAs.
Our guests again are Dr. Philips, a labor economist and professor at the University of Utah, and Dr. Kevin Duncan, an economist and professor out of Colorado State. These men are incredible. For their full bios and intros, please go back and listen to last week's. But for now, let's continue the conversation.
I want to shift a little bit not too terribly far to PLAs. Professor Philips, I know you've done a lot of research on PLAs and how they affect crew composition. Based on your work, what do you think the effect of a PLA is on the crew compositions and apprentices versus journeyman, et cetera?
Peter: Let's start by explaining what the acronym PLA stands for. PLA is the acronym for project labor agreements. Project labor agreements are a contract. They can be found both in the public sector and in the private sector.
In the case of prevailing wage laws, those are only laws that apply to public works. In the case of project labor agreements, they are a form of contract that can be found both in the public sector and the private sector.
The earliest project labor agreements that we know of come from the 1930s and 1940s. The Shasta Dam in Northeastern California was built around 1940, and it was built under a project labor agreement. The purpose of that contract was to set up the working conditions, wages, and hours, for workers who are going to have to travel from the urban areas such as the Bay Area, up into this lightly populated corner of California to build this big project.
The idea was to make sure that when workers packed their bags and traveled to that project, they knew what they were going to get paid. The way that was settled is the procurement agency, which is a public project. The construction unions in California, as a group, negotiated that contract. It sets the payment for travel. It sets the payment for days away from home, per diem is what it's called. It set wages and hours of work.
That was partly responding to a practice in the 1930s, where particularly in agriculture, growers would advertise that they had a lot of work in Stockton, around Sacramento, or in Bakersfield, and they were going to pay such and such wage. It's the famous period where folks who were moving from Oklahoma to California to find work. People would show up, and the advertised wage rates were gone. They got enough people, they could cut the wages.
There was an issue of bait and switch. The initial reason for the development of project labor agreements is to avoid bait and switch in the case of large, isolated projects. But the use of these contracts expanded over time.
A second use of these contracts, something that was very common in the construction of large industrial facilities, power plants, was to promulgate an assured set of remuneration and working conditions that would attract qualified labor to make sure that these big projects got done.
An example from my area comes from the rehabbing of the I-15 corridor that runs north-south through Salt Lake County back in 2000, in anticipation of the traffic demands of the 2002 Olympics. In this particular case, it was a $3 billion rehab. Three very large heavy highway companies bid on the project. The winning bidder with the lowest bid had privately made an agreement with the local construction unions as a group to sign a project labor agreement.
The reason that the general contractor wanted to do it that way is that he knew that there was going to be a lot of other demands for labor to prepare for the 2002 Olympics. The Utah Department of Transportation had set up the bidding process for this rehab such that all of the profit in that project was built into completing up to specs on time for this rehab.
The contractor realized, if he was going to meet those benchmarks for completion, both in terms of quality and in terms of delivery, he needed to make sure that he could harvest the best workers in the local area. The project labor agreement set up the conditions so that workers looking at that project knew that they were going to get paid.
This turned out to be a political football in Utah. As you may know, Utah is a very conservative state. The way the project labor agreement was set up to get a job on that project, you had to at least temporarily become a union member to get the union wages that were built into that PLA. That upset the state legislature.
Eventually, a compromise was made so that you could apply to the contractor, as well as apply to the union. But the union would track to make sure that if you're working for that contractor, you are getting paid the wages and benefits that were in that PLA. A second purpose of PLA, while the first purpose was to get qualified labor—
Kirk: Lots of great background to PLAs and how they've been used. I remember the 2002 Olympics. My family is from Utah, so there was lots of craziness. I remember a lot of those things, but how do PLAs really affect that job composition and those opportunities?
Kevin: The research on this is fairly undeveloped. We don't have a lot of research on PLAs. We have a few that examine costs, one that examines the effect of PLAs on competition. We don't have formal studies that examine how PLAs affect the composition of the labor force.
What PLAs will do is they might have local hire requirements for contractors. To participate in it, this might go down to the subcontractors. To participate in it, there has to be 30% or some predetermined percent of the workforce is going to be from the local area. Some also require that a certain percent have to be enrolled in apprenticeship programs.
There might be some requirements also on gender, or hiring individuals from different ethnic and racial groups. That information is available, but there hasn't been any research that's really compiled this to look and see it across PLAs if there's a uniform impact on the racial demographic characteristics of the labor force on those types of projects.
Kirk: Fair. It's just the research is too new or it hasn't been…?
Kevin: It's difficult to accumulate all that information and process. What a lot of municipalities do now in Seattle and in Los Angeles, is they have publicly available data on contractors. Those municipalities will have goals with respect to local hire, apprenticeship training, minority employment. That information is compiled and made public, but it's very difficult to collect all that information to the point where we can say, yes, PLAs in Los Angeles are meeting all of their goals.
I'm just giving you some background. I don't know if this is going to go into the presentation. There's a lot of data available, but no one has done anything to compile that information, so we don't know too much about how PLAs affect if they uniformly increase minority involvement in construction. There's some anecdotal evidence, but there's not any broad-based study yet.
Kirk: It seems like that'd be a good dissertation for someone, any listeners out there looking for something to study. Not shifting gears too terribly, but a slight turn. We have the Davis-Bacon, the prevailing wage laws, we have PLAs.
Our own CEO Daniel Hogan responded to an op-ed months ago now that was talking about how both of these things, actually, are anti-competitive, how they keep the little guy down, and they are non-competitive, but just my cursory non-academic research shows that to be absolutely untrue. But I'd love to hear about something far more academic. Are PLAs anti-competitive?
Kevin: Let's talk about Davis-Bacon and prevailing wage laws first because we have more research on that. There have been six studies of how prevailing wage laws affect the level of bid competition. One of the studies was in British Columbia, where they have a skills development and fair wage policy. Other studies have been in Colorado, Nevada, Ohio. A total of six studies, and none of them show that prevailing wage laws are associated with reduced bid competition.
When we talk about project labor agreements, there's only been one study that examines that, and that's Peter's examination of community college construction in California, where he found that those projects built with PLAs were no less competitive than projects that weren't.
The claim that a wage standard prevailing wage or PLAs associated with reduced bid competition, we're just not seeing it in the data. We haven't got a tremendous amount of studies that examine this, but we haven't found any that suggest that they have. This would be for research that's been peer reviewed.
Intuitively, a contractor may think, oh, it's a PLA project, I won't compete on that. They assume if I'm not doing it, that must mean there's less bid competition. But we don’t know if other contractors will fill the gap. Perhaps a contractor that pays union wage rates that's a signatory of collective bargaining agreement, maybe that kind of project is attractive to them.
We’re just not finding any evidence. When I’m talking about evidence, I'm talking about analysis of data that has appeared in peer reviewed journal articles. We're not seeing any evidence to support that prevailing wage or PLAs reduce bid competition.
Kirk: Awesome. That's cool. Professor Duncan is just saying that of the studies on this subject, yours is the one. We were mentioning that people like to say that PLAs are anti-competitive. I know that that is what you had researched. I'd love to hear your take on the competitive nature of PLAs.
Peter: One of the things that Kevin didn't mention about that community college study is we looked at about 210 different projects, half of which were PLA projects and half which weren't. About 100 of those 210 projects, we had the engineers estimate of what the project would cost before the bid was left.
In those cases, there was no difference in the accepted bid price on PLA projects compared to the accepted bid price on non-PLA projects in reference to what the engineers estimated the project cost would be. The actual accepted bid prices didn't always exactly match the engineer's estimate, but the differences between the bid price and the estimate were not larger for PLAs than for non-PLAs. That's suggestive that the PLA projects were as competitively bid as the non-PLA projects.
This is all in the context of states with prevailing wage laws. If it's a public project labor agreement and a state with a prevailing wage law, then the wages on the project labor agreement are going to be very similar to the wages that are required in any case under the prevailing wage law.
Project labor agreements do not bring into play different wages compared to non-project labor agreements and states with prevailing wage laws. What the critics say is that project labor agreements reduce the number of bidders, and they do that because they discourage those contractors that don't want to work on a project labor agreement. However, there's no evidence to support that.
Kirk: It is just a generally interesting conversation in general. The people that I hear talk criticize PLA is for raising costs. PLAs are so much more expensive. Someone commented on one of our socials recently, if you want to double your costs, use a PLA.
Can you talk a little bit about the economics of PLAs versus non-PLAs, both in the construct of the job itself, as well as maybe, you mentioned that with Davis-Bacon laws, if it doesn't pay better on the job, there are other social programs. Just talk about the general costs and effectiveness of PLAs from just an economic standpoint.
Peter: Remember, a project labor agreement is an agreement. It's a contract. Both sides of the table have to see a reason to sign that contract. If one side doesn't see the reason, then they don't sign and there's no project labor agreement. Both sides have to see something in there that's attractive to them.
Sometimes it has to do with changing the contract relative to collectively bargained contracts in heavily unionized areas. A classic case was the building of a bridge in the New York City area over a river. The public agency wanted the work to be done at night when traffic on the bridge is lighter. The local union contract said, if you're going to be working the night shift, you get a night shift differential.
If there hadn't been a project labor agreement, and if union workers were on that job, the contractors would be paying a 50% night differential. What the project labor agreement said is that this project will be done, it'll be done at night, and there won't be a night shift premium. Why did the unions sign an agreement that gave away the night shift premium? The answer was, there was a lot of work there. It was a time period where there was unemployment on the bench, which is the union hall where the union workers get dispatched. The unions are willing to make that concession in order to get that work.
Not all the unions needed to make that concession to get their work. You couldn't go in their union by union changing their collectively bargained agreement. But the project labor agreement is not an agreement between the owner and one union. It's an agreement between the owner and all the unions.
When all unions got together and negotiated with the owner, they as a group said, this is a lot of work, let's all get on the same page, not have a night differential, and go ahead with this project. Project labor agreements sometimes are a way for unions as a group to make concessions in order to get work. That's not raising costs, that's lowering costs.
Kirk: That makes a lot of sense. How does that compare for them hiring a non-union crew entirely? That's a PLA versus individual CBAs, which absolutely lowers costs. But what about a PLA or even just going union in general over a non-union workforce? Is there research to speak to the economics of union labor versus non-union or, like you said, that prevailing wage versus non?
Peter: This is all very case specific. In the private sector, in building an auto plant in Texas, the owner signed a project labor agreement because he thought that a PLA would help ensure that the plant got built in time and got built in a way that it would operate properly. For him, the profit was getting to market.
The money wasn't in, well, how cheaply can we get this thing built? It doesn't matter when it gets built. It was more, how quickly can we get this built and built right so that we can start producing or assembling cars?
When you start talking about how much some project is going to cost, you have to look at where the profit is. Is it a time-sensitive profit, or is it a cost-sensitive profit? The calculations can be different depending on those situations.
In the public sector, the real key issue is, is it a public job that is also covered by prevailing wage laws? All federal work is covered by the Davis-Bacon Act, which is the federal prevailing wage law. Some states, approximately a little bit more than half of all states, have state prevailing wage laws. These tend to be the bigger states, the more industrialized states, the more populated states. A lot of rural states such as Iowa, North Dakota, and South Dakota, do not have state prevailing wage laws.
In New York or California, you're likely to have projects that come online that are both time-sensitive and complex. Those are ideal projects for project labor agreements. They customize the agreement with the unions specific to that project. In states such as Alabama or South Dakota, maybe you don't have the same projects, you certainly don't have prevailing wage laws, and sometimes their project labor agreements are uncommon, or in fact, in some places such as Utah, in the public sector, the state legislature prohibited project labor agreements.
Kirk: Interesting. I definitely recognize there's going to be always a difference, and in every case, it's going to be case by case. We're saying they're not less competitive, at least, as far as your research has shown, and then the costs are more case by case.
Peter: Because they're contracts and they're specific to a project, they have to be case by case. They're recognizing the requirements of that project. When the electricians union negotiates with the Association of Electrical Contractors, their negotiating work in general. What should be the wages and working conditions going forward in general without any specific project in mind?
In contrast, a project labor agreement has a specific future project in mind, and it's not a negotiation between the owner and electricians. It's a negotiation between the owner and all the trades that might work on that project. You have a very different environment because you have different people at the table. They're negotiating in a different way because they're looking at a specific project. That then opens up the possibility for new areas of negotiation and new discoveries of win-win between the owner and the unions specific to that project.
Kirk: That makes a lot of sense. I get that. Taking a small turn, especially when we work here. We have a project labor agreement that we work with a lot, as well as we work with 14 different building trades. Every year, we're actually just finishing it up, and our report comes out next week.
We do what we call our labor survey, chart the labor shortage as everyone talks about because finding that labor, finding the prevailing wage, the project labor agreements, and the competitive nature is a very big concern for all of our members. We talk a lot about the labor shortage. Talk to me a little bit, each of you, about the labor shortage. Is there a labor shortage and the economics of all that?
Peter: First of all, the construction industry is one of the most volatile and turbulent industries in the country. When the economy goes into a boom, construction goes manic. When the economy goes into a downturn, construction gets depressed. The fluctuations in employment levels and construction very much more widely than the overall economy or other industries such as mine.
I'm in higher education. I got my job at the University of Utah in 1978, and I'm still there. I dare you to find a construction worker that started working for a contractor in 1978 and is still there.
There's a lot of volatility. That volatility means that in most instances, you are either in a labor shortage, or you're in a labor surplus. It happens, but it is ephemeral. It's short lived. The construction industry is in the sweet spot where the demand for labor and the supply of labor are equal.
In addition to that, there really isn't one construction labor market. There is a multiplicity of construction labor markets that differ both by trade and by location. I have a really good friend that lives in Rhode Island, and he has a handyman that helps him with his house. I live in Salt Lake City, and God save me if I could try to find a handyman to help me move my house.
The difference is, at the moment, construction is in a manic boom in Salt Lake City in Utah, and it's not in a manic boom in Rhode Island. There's a labor shortage here where you can't find a handyman, and there isn't a labor shortage in essentially rural Rhode Island at the moment.
If you say, is there a labor shortage? Well, there either is or there isn't, depending on where you are and what you're doing. Then there's an aggregate effect that at the moment, the whole economy is in a construction boom, not like 2005–2006, but still, nonetheless, a pretty strong construction boom.
Kirk: A question I think I know the answer to for either. Is there a way to level that out? Is it prevailing wage? Is there a way to make it more consistent? Or is that just going to always be tied to the economy?
Peter: I once wrote a book with 10 other scholars who are experts on the construction industry in their country. We held meetings. It was like reading science fiction to hear the way construction works in other places.
At one point, the British economist said, between 1945 and 1985, there never was a housing shortage in England, and there never was a residential construction labor shortage in England. The reason for that is the demand for housing came from the government. The government built public housing. That was the major source of new residential construction, and it just came in steady Eddy every year, pretty much the same, and you could plan for it.
You could get rid of labor shortages and construction, but then it would have to be a construction system that wasn't driven by the market. The case of the market, it inherently is a boom bust animal in the construction industry. The reason for that is the building of homes is the biggest single investment that families make, the building of office buildings, infrastructure, industrial facilities, some of the biggest investments that companies make.
Boy, if we get that thing built now, we're going to make a lot of money because the economy is going really well. Or boy, if we buy that house now, we're going to make some money because its value is going to go up. If we wait, we're going to have to pay more. That kind of market thinking leads people to rush in. At some point, that becomes a tipping point. Now the whole attitude is different.
Now it is, boy, we better start cutting our expenses, the economy slowing down. I know what we can do. We don't have to take on that big building project that we were thinking about. Or the family starts thinking, boy, I'm not sure I'm going to be employed next year. Maybe we should continue renting for a little while longer. That ends up creating this boom mentality.
After something happens, the government defaults on his death or something, then there is a bust mentality. I don't think the government is going to default on its debt in June. But if it does, I can tell you right now, in July, there's not going to be a labor shortage in construction.
Kirk: I bet. Wrapping up this conversation, I wanted to talk to you almost exactly about what you just said. Each of you, briefly, what do the next three years in construction look like. Given everything you guys know and all your research, what comes next?
Kevin: There will be an increase if the Biden administration doesn't need to compromise with respect to its planned spending and what was already improved with infrastructure. Public construction should increase quite a bit. That growth will be significant over the next few years. That will create quite a few jobs. Peter, you want to talk about the private sector?
Kirk: That's a solid answer. How about you Professor Philips? What's coming down the pipe as far as construction goes?
Peter: I just pulled out my crystal ball. It’s one that you have to shake so that snow inside it blurs the picture a little bit. Given that, I'm in a minority. I'm betting that we're going to get a soft landing. I'm betting that the banking system isn't going to implode. I'm betting that the political system isn't going to paint us into a corner where the government defaults on its debt. If those bets are right, then we're going to see a gradual slowdown in construction and not flip into a bust mentality. I'm fairly optimistic.
However, I will say as a caveat, when I walk around downtown Salt Lake, and I see all of these office buildings under construction, and I see lots of multifamily apartment buildings and condos being built, that's all based on an expectation that Utah's population will continue to boom. We're the fastest growing state in the country, both in terms of procreation and also immigration. If I'm wrong, and my daughter says that happens more often than not, then it'll flip, and we'll go into a downturn like we've gotten into downturns a half dozen times since 2000.
Kirk: I really appreciate you both coming on with me today, both professors Philips and Duncan. You guys have awesome insights, just a wealth of information. This is such an interestingly niche topic. Like you said, there are not tons of people who research and write about it, so there are always more questions and more interest in this topic. I'm glad that we had you both come on and be able to talk about it.
