Prevailing Wage Repeal, Highway Construction Costs, and Bid Competition in Kentucky: A Difference-in-Differences and Fixed Effects Analysis

Abstract

Data for over 2,000 highway pavement projects, constructed between 2014 and 2020, are used to examine the effect of Kentucky’s prevailing wage repeal in 2017 on relative bid costs and bid competition for state and federally funded work. Other than Davis-Bacon and Disadvantaged Business Enterprise policies for federal projects, and prevailing wage requirements on state-funded work prior to 2017, all highway construction in Kentucky is built to the same standard. A difference-in-differences and fixed effects analysis fails to find statistically significant differences in bid costs and competition between federal and state projects before and after repeal. Competition on pavement projects in Kentucky is very low compared to other states. Consequently, the impact of increased competition on bid costs is very high. Policies increasing competition in Kentucky would be more effective in reducing costs than prevailing wage repeal.