Cornell University Report:
Hiring Non-Union is More Costly Than Hiring Union
Another deeply researched report reveals the lie that non-unions are cheaper.
Jasmine Kenchen, a union carpenter with local 157 in New York, gets benefits from her union membership, which lowers her company's workers' compensation insurance liability. She says, "I can count on a stable future tomorrow, with quality pay and benefits to support me and my family for decades to come."
In January of 2022 New York State instituted a law that required any construction company working on a $5+ million project that is paid for with at least 30% public funds — that is money that you and I have contributed to that project via our city and state taxes — those contractors must pay their employees the prevailing wage.
What is the prevailing wage? According to the state of New York, it’s the wage plus benefits that a worker is entitled to receive for work performed based on occupation, location, skills and experience. The rate is determined by the state comptroller, who deems the wage to be competitive and fair.
When the new law went into effect many pundits and industry gadflies said it would force a slew of non-union contractors out of business. You see, unions already pay their members the prevailing wage, most non-union contractors do not. In fact, most comptrollers see union pay as a solid guidepost when they set the prevailing wage for their region. And now non-union contractors will have to step up and pay their workers likewise. [But don’t you worry about those non-union contractors, they have a lot of tricks up their sleeves to avoid the rules.]
So, does requiring the prevailing wage drive up construction costs?
We now have a report from the ILR Worker Institute at Cornell University that clearly illustrates paying the prevailing wage does not drive construction costs up. What drives construction costs up, they have revealed, are several key and potentially large expenses that are not stated in non-union contractor bids but which non-the-less come home to roost and do financial damage to developers’ bottom line. Because of these hidden expenses, at the end of the analysis ILR finds that hiring union instead of non-union can save developers up to 13% in overall costs.
The report, researched and written at Cornell's ILR Workers Institute, concludes that a number of factors end up making union contractors up to 14% cheaper on prevailing wage projects than non-union contractors.
This will be the first in a short series of stories in which we will break out what the ILR has found in their research that sets union contractors apart from non-union contractors in terms of price, efficiency, and quality. The focus today: Insurance.
The Insurance Blindspot
Prevailing wage includes both the wage paid to a worker plus the “fringe” benefits they receive above income. Example: an A-book level carpenter in NYC gets $51.48 an hour. They also get the equivalent of $44.74 an hour on average for additional “fringes,” or benefits, like health insurance and workers comp insurance. The prevailing wage law mandates that all A-book carpenters working on a PW project receive that pay rate and the same fringe value as well.
But if the contractor is not providing benefits, and many non-union contractors don’t, then that worker will receive the hourly wage plus the fringe dollar amount in their paycheck. In the case of an A-book non-union carpenter who does not get benefits from his company, they’ll get $96.22 an hour for both income and fringes. The PW law does not require that the worker spend that fringe money on benefits. Indeed, according to a report by the Center on Policy Initiatives, most of the non-union workers taking the prevailing wage see the fringe dollars as simple income and pocket it that way. Very few seek out and pay for benefits with the funds.
Which means on their tax returns all that money is counted as income. And this is what does the harm to the builder’s bottom line because it affects the way contractor insurance is tabulated.
In New York, construction firms are required to carry workers’ compensation plans, making it a critical component of labor costs. Insurance companies determine the insurance rate for a contractor based on three core inputs: (1) the type of job being performed; (2) the firm’s safety history as measured by its individual Experience Modification Rate (EMR); and (3) the firm’s total payroll divided by $100.
Union workers get benefits, while many non-union workers don't. Most of those non-union workers take their "fringe" pay, which should go toward benefits, and pocket it. This drives up the average wage that is factored for insurance liability, making non-union workers' compensation much higher than it is for unions.
High EMR + High Payroll = High Insurance Cost
Two last two of these three factors are what drive non-union contractor insurance rates higher than union insurance: EMR and payroll. EMR is a measure of safety efficiency. The lower the EMR the safer your work habits. In one ILR analysis unionized concrete workers are safer than their non-union counterparts. The union EMR is 0.75 compared to the non-union EMR of 1.08. That’s a 31% difference and it often results in non-union contractors having to pay hundreds of thousands of dollars more toward insurance.
Second, when non-union workers pocket their fringe dollars as income rather than use them toward benefits, it results in a much higher payroll which adds to the insurance equation described above. The result can be hundreds of thousands of dollars more - on top of the EMR penalty - that also goes to insurance companies.
These figures, if left out of project bids, will misrepresent what a project will cost, potentially hiding hundreds of thousands of dollars from the cost analysis.
Cornell University’s ILR Worker Institute now joins the growing chorus of research organizations that are making clear — with verifiable data — that non-union contractors are not a cheaper solution than union contractors.
Get Our Monthly Newsletter
Stay up to date on what's happening in New York construction. Our news comes from major media publishers, real estate and construction trade insiders, and the people involved in the industry every day. And it's free.