Prevailing wage legislation and public school construction efficiency: a stochastic frontier approach1

Abstract

Stochastic frontier regression is used to examine the effect of introducing prevailing wage legislation on public school construction efficiency in British Columbia. Prior to the legislation, public school projects were from 16% to 19% smaller, in terms of square feet, than comparable private structures. However, likelihood ratio tests consistently indicate that the coefficients measuring the effect of the policy on the size differential between covered and uncovered projects are not statistically different from zero. These results suggest that construction wage requirements did not alter input utilisation in a way that significantly affected construction output. Average inefficiency for school construction in British Columbia over the period of the study is 12.1%.

Prevailing Wages, Side-By-Side Bids, and School Construction Costs

“…This size differential did not change with the introduction of the wage policy. These results indicate that the utilization of labor and other construction inputs were not altered by prevailing wage requirements in a way that significantly affected construction output (Duncan, Philips, and Prus 2006). The authors also find an average efficiency of 94.6 percent for all school construction, regardless of prevailing wage requirements.…”

Unintended Consequences of Nevada’s Ninety-Percent Prevailing Wage Rule

“…An analogous trend is observed from the perspective of the cost efficiency of public schools built before and after the introduction of the SDFWP (Duncan, Philips, and Prus 2012). These authors also find that the wage policy did not affect the efficiency of construction in a way that reduced construction output (Duncan, Philips, and Prus 2006).…”

“…These studies first determine if there is a prevailing wage cost effect (through statistical significance) and then determine how large the cost effect is (by the estimated regression coefficient). 5 Also, the wage differential method ignores and cannot address the changes in labor productivity and utilization that change with construction wage rates (see Balistreri, McDaniel and Wong 2003; Blankenau and Cassou 2011; Duncan, Philips, and Prus 2006, 2009, 2012). The research by Vincent and Monkkonen (2010) is the other study to report a positive prevailing wage cost effect.…”

Prevailing Wage Regulations and School Construction Costs: Cumulative Evidence from British Columbia

“…Elsewhere we use stochastic frontier regression to examine the effect of the SDFW on the technical and cost efficiency of school construction. For example, Duncan, Philips, and Prus () find that the introduction of the SDFW did not affect the relative square foot size of public and private schools. This suggests that the wage requirements did not alter input utilization in a way that significantly changed construction output.…”