Fair Wage Policy and Construction Costs in British Columbia

Abstract

The effect of the 1992 Fair Wage and Skill Development Policy on construction costs in British Columbia is estimated by an econometric model in which costs are a function of the project's physical characteristics, location, as well as the applicability of the fair wage policy standards. Construction projects funded by private companies and by the Province of British Columbia before and after the introduction of the policy provide the data which were collected from 1989 to 1995. Depending on the measure of construction cost and the model specification employed, the results indicate that while public construction projects are from 26 to 47 percent more expensive than privately funded projects, the fair wage policy did not significantly impact this cost differential. given the status of construction labor supply in British Columbia at the time, it is unlikely that input substitution can explain all of this result. Rather, it is more likely that the profit margin enjoyed by non-union construction companies absorbed much of the cost of this policy.