In the private sector, determining compensation is, at its core, a simple matter. The employer and employee reach agreement on the value of labor.
The parties have different considerations. The employer has to know, for example, how much he can pay labor while still making a profit. The employee is more concerned about how much he needs to support his wants, needs and desires.
Even in the most crass examples where the employer has no personal interest in the employee and the employee could care less whether the employer makes money, these two sides manage to come to terms because there is a mutual self-interest.
This market-driven arrangement works tens of thousands of times every day without government intrusion, with each party free to go their separate ways if they disagree on the value of service provided.
Complications arise, however, when the government intercedes, as it does with prevailing wage laws, and West Virginia is a good example now of how things get messy in a hurry.
The state Legislature voted earlier this year to change the way prevailing wage is calculated so it more accurately represents fair market wages. Republicans backed off of plans to simply eliminate the government’s determination of pay scales for state-funded projects and opted instead for reform.
However, Republican leaders charge that Governor Tomblin’s Workforce West Virginia agency has ignored the intent of the statute and charted its own course on how to determine the rates. The Governor says he stands by the work done so far and is still hopeful the disagreements can be sorted out.
But how can state government accurately determine what a dry wall hanger in Marion County or a soft floor layer in Lincoln County should be paid?
The new law says the calculation must include figures from the U.S. Labor Department’s Bureau of Labor Statistics. But Workforce West Virginia says that’s a problem because the information provided by BLS does not correlate with the data needed to make the calculation.
Workforce wants to use a survey, but Republican leaders say that’s problematic because of the difficulty obtaining a large enough sample size. In addition, some of the contractors surveyed will report hourly rates paid under the current prevailing wage law, which critics say has produced inflated numbers.
Like I said, it gets messy.
I’ve heard a number of supporters of the prevailing wage concept argue that only by using the force of law to protect their earnings can they maintain a “living wage,” but that’s a false notion. As the late Nobel Prize winning economist Milton Friedman said:
“When workers get higher wages and better working conditions through the free market, when they get raises by firms competing with one another for the best workers, by workers competing with one another for the best jobs, those higher wages are at nobody’s expense. They can only come from higher productivity, greater capital investment, more widely diffused skills. The whole pie is bigger – there’s more for the worker, but there’s also more for the employer, the investor, the consumer, and even the tax collector.”
West Virginia leaders may eventually sort out the prevailing wage mayhem and come up with wage scales that bear some resemblance to the market, but central planning of the value of services and goods has never worked, at least not efficiently.
All across the country today willing employees and employers will make their own decisions about the value of labor. West Virginia’s officials who are trying to outthink what already works should keep that mind.