Do Project Labor Agreements Raise Construction Costs?

Abstract

A Project Labor Agreement (PLA) is a form of “pre-hire” collective bargaining agreement between building trades unionsand the construction clients that typically requires any firm that bids on a project hire workers through union hallsand follow union rules on pensions, work conditions and dispute resolution. In return, unions agree not to strike for theduration of the project. Opponents argue that PLAs raise construction costs; proponents dispute this and say that laborpeace ensures that PLA projects are finished on time. We measure the cost effect of PLAs using data on constructioncosts for 126 schools in Massachusetts between 1995 and 2003; our regression results show that PLAs raise the cost ofschool building by between $12 and $20 per square foot, or by between 9 and 15% of total costs. This is in line withanecdotal evidence on the PLA effect. However, a study by Belman et al. (2005), using fewer (70) observations but afuller econometric specification, found no statistically significant PLA effect; we argue this imprecision is due to the smallsample. We suspect that in this case the larger sample with fewer variables is more revealing than a smaller sample withmore variables.