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'Right-to-Work' Backfires: Could Actually Lower Construction CEO Pay

A study compiled by Frank Manzo of the Illinois Economic Policy Institute (ILEPI) and Bob Bruno of the University of Illinois, “Which Labor Market Institutions Reduce Income Inequality? Labor Unions, Prevailing Wage Laws, and Right-to-Work Laws in the Construction Industry," has been rightly applauded by labor groups for one major reason: it shows prevailing wage laws do a good job of matching common construction rates with the actual market price of labor.  

The study concludes that worker income increases by just 1.4 percent in prevailing wage scenarios and that the laws have no effect on the wages earned by the CEO’s of contracting firms. Perhaps more importantly, prevailing wage laws help reduce income inequality between the lowest and highest paid in the industry by 45.1 percent.

Another interesting, overlooked finding from the study, however, focuses on the effect “Right-to-Work” has on the wages of contractor CEOs. While non-union contractor CEOs frequently support “Right-to-Work” laws, it turns out these laws can also lower their pay. The Building and Construction Trades Derpartment (BCTD) of the AFL-CIO highlighted this drawback in a blog post:

Right-to-work reduces construction occupation worker incomes by 13.5 percent. Because it lowers wages in the state economy and reduces consumer demand, CEOs of construction firms also see income reductions due to the policy. Overall, in addition to drops in total incomes, right-to-work increases inequality by between 2.5 and 8.2 percent in construction.

The benefits to workers, the BCTD adds, are undeniable:

Finally, labor unions raise construction occupation workers’ incomes by 21.7 percent on average and are the most effective institution at reducing income inequality: a construction industry union membership rate that is 10 percentage-points higher in a state would reduce income inequality by between 4.7 and 14.5 percent in the industry.

Accordingly, construction workers in collective bargaining states and prevailing wage law states earn higher, more equitable total incomes than their counterparts in right-to-work states and states without prevailing wage laws.

  • The median construction worker in a collective bargaining state earned 26.7 percent more than the median construction worker in a right-to-work state.
  • The median construction worker in a prevailing wage law state made 16.7 percent more than the median worker in states without the law.

Manzo and Bruno conclude that two of the best ways to fight income inequality are supporting and expanding prevailing wage laws while reversing “Right-to-Work”:

As the industry booms in the next decade, two steps should be taken so that construction drives high-road economic growth and reduces inequality. First, state should avoid repealing prevailing wage laws or common construction wage laws; instead, they should be strengthened to cover more workers. Second, construction unionization should be encouraged to ensure that workers share in the benefits of growth in the new economy.

Additionally, two lessons from the construction industry should inspire policy action in the larger economy. The first is that wage floors should be elevated to reduce 90-10 income inequality Wage floors will not solve all inequality– especially for middle-class workers– but they should be incorporated into any plan to reduce the rich-poor income gap. Second, right-to-work laws should be repealed to increase worker productivity and safety, to raise worker incomes, and to grow the economy.

While there has been much public debate about how to reduce income inequality, this report finds that the labor market institutions most effective at achieving this aim are labor unions and government-enforced wage floors in the construction industry.  While unionization and prevailing wage laws strongly reduce income inequality, right-to-work laws tend to intensify the problem.  Ultimately, pro-worker policies are the best approach for raising worker incomes, increasing consumer demand, and reducing inequality.

Read the complete study here.

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