Unions predict dire results from wage law shift.

If California lowers minimum wages paid on public works projects, it will have a "reverse trickle-down" effect on the local economy, with more people relying on public health care and services and spending less disposable income.

That was the message of labor leaders and people who own "union shop" businesses, who testified last week at a hearing in downtown Los Angeles on the California Department of Industrial Relations' proposed changes in prevailing wage regulations.

"California's economy simply can't afford any more working poor," said Milton Johnson, president and chief executive officer of Southern California Pipe Trades Administrative Corp., which administrates union benefits, pensions and trust funds. "California can not afford more low-paying jobs. ... This proposal will shift the costs for health care (from employee benefit plans) to the taxpayers."

The DIR is proposing the new regulations, designed to save the state $200 million per year on public works projects, at the request of Gov. Pete Wilson.

The state Labor Code requires that contractors on public works projects pay workers the "prevailing wage" for their particular jobs.

The first new regulation would change the method for computing the prevailing wage in California from the current "modal method," which uses the most frequently occurring wage rate (often the wage rate negotiated in collective bargaining agreements), to the method used by the federal government under the Davis-Bacon Act. The modal method is used only by California, Minnesota and Wisconsin.

The federal method uses as the prevailing wage the single rate paid to a majority of workers or a weighted average of the rates paid if there is no majority. Using this method would lower the prevailing wage in California.

No more automatic hikes

The second new regulation would eliminate a requirement that the prevailing wage rate automatically increase when a collective bargaining agreement rate, used as the basis for the prevailing wage determination, increases.

Prior to the Feb. 26 hearing on the proposed regulations, thousands of workers protested on the streets of downtown L.A., prompting the closure of several streets to all but pedestrian traffic for hours. Many protesters wore hard hats and T-shirts, proclaiming: "We Shut Down L.A."

But inside the hearing room, men dressed in suits represented the workers' interests, telling hearing officers that organized labor pays $10,000 per apprentice on training that non-union tradesmen don't have. Unions also make sure that employees have trust funds and benefit plans, which lessens the drain on other public funds, they said. The overall message was: You get what you pay for.

Owners of "union shops" said they would be unable to compete for government contracts against lower-paying non-union contractors. They urged the DIR to take a closer look at the long-term impacts of the regulation changes.

And some in the insurance actuary/workers compensation field predicted more claims.

Daniel Curtin, director of the California State Council of Carpenters, noted that according to a 1993 study from the California Department of Insurance, "actuaries' estimated losses for employers of low-wage carpenters, for example, are two and a half times greater than employers of high-wage carpenters." The Workers Compensation Insurance Rating Bureau set the premium for high-wage construction workers almost three times lower than low-wage workers, Curtin noted in a letter to the DIR's Division of Labor Statistics and Research, which held the hearing.

Report sees no economic hit

But a DIR report predicted "no significant adverse economic impact on business" from the reform of prevailing wage regulations.

The report noted, first of all, that state construction contracts account for only $4.8 billion of the total $31 billion in public and private construction business in California.

Secondly, if public agencies are able to "get more infrastructure for the same expenditure," that would positively affect "business competitiveness in California," the report continued.

If the contractors wind up having to hire more people (at lower wages) to do the same amount of work, net jobs would increase slightly, the DIR report further concludes.

Opponents of the regulation changes quoted their own studies from university economists on the effects of prevailing wage rules.

Two studies reportedly concluded that as the government goes, so goes private industry. They predicted that if government contractors don't pay benefits and cut wages, then so will companies working on private construction projects.

The labor groups also cited a Labor Department study and a study by an associate professor at the State University of New York that conclude that higher wages can pay for themselves in the form of better training and better workers.