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Do Prevailing Wages Really Prevail?
Prevailing Wage Laws
Most Americans have probably never heard of “prevailing wage” laws, or if they have, have a vague sense that they are harmless and don’t have anything to do with them.
Nothing could be further from the truth. Prevailing wage laws ought to be of immediate concern to all Americans because they have a direct impact on their quality of life and the taxes they pay.
Most prevailing wage laws apply to government contracts for construction. The best known is the federal Davis-Bacon Act. About half the states have similar “little Davis-Bacon” laws. There is also a federal prevailing wage law for service contracts.
These depression era laws require that workers on government contracts be paid wages supposedly “prevailing” in the community where the work is being done. The stated reason for prevailing wage laws was to prevent government contractors from undermining local wage rates by importing workers from low wage areas.
If that was all there was to it and if the wages specified were actually those that prevailed in a community, these laws would be almost harmless and probably unnecessary.
But that’s not the way they work. There are powerful special interests that have a strong stake in the outcome of the prevailing wage determinations. Those powerful special interests are the building trades unions and a few mostly union contractor associations. They know that if a wage that truly prevailed in a community was used it would make it very difficult for firms with union contracts to bid competitively.
The fact is that most so-called “prevailing” wage rates are substantially higher than the wages that actually prevail in the area. This has many negative consequences for everyone.
Do “prevailing wages” prevail?
There is good information indicating that wage rates issued by government as “prevailing” don’t really prevail.
Recently, the Oregon legislature ordered the Oregon Labor Commissioner to conduct a thorough study of construction wage rates in that state and to compare the results with the rates being published as prevailing. An exhaustive study determined that the rates being specified by the state were, on average, 25 percent higher than those that actually prevailed in the community. Under Oregon law the state was supposed to do its own wage surveys but the practice was to just accept the federally determined Davis-Bacon wage rates as prevailing.
The fact that Davis-Bacon wage rates are not accurate assessments of the real situation shouldn’t be surprising. A report from the General Accounting Office (GAO), Congress’ auditing agency, recommended that the Davis-Bacon Act be repealed. It said that in 57 percent of the wage determinations reviewed as part of their audit the U.S. Department of Labor had adopted union wage rates without conducting a wage survey.
Even when surveys are done the results can be distorted. Recently, in Oklahoma, a union official was convicted of filing false reports with the federal government for submitting information on a Davis-Bacon wage survey for fictitious workers on fictitious jobs at fictitious rates of pay to drive upward the wage rates determined by the survey.
The actual extent of waste caused by prevailing wage laws is difficult to determine because the amount of total project costs due to labor costs differs from project to project. On new construction it is about 30 percent. On repairs and renovations it can be higher than 60 percent. The official federal government estimate of waste caused by the Davis-Bacon Act is 3.7 percent, which is ridiculously low. The actual amount is probably at least 15 percent.
Costly and Wasteful
The most obvious negative impact of a prevailing wage law is that public works construction costs more than it ought to. This results in the waste of billions of tax dollars every year.
As a consequence of the increased cost, less construction is done than is needed. America has what is being referred to as an “infrastructure deficit.” In many areas of the country, the public works infrastructure is crumbling because sufficient funds haven’t been available to maintain it.
This infrastructure deficit has been estimated to be in the neighborhood of $1 trillion. This is having a direct, negative impact on many aspects of our way of life.
Recently, the GAO reported that about one-third of all public schools were in need of extensive repair or replacement and that 60 percent, which where otherwise adequate, needed some repairs to make them safe for our children to attend school. The GAO estimated that just to make these needed repairs would cost in the neighborhood of $112 billion, and that doesn’t account for the billions of dollars in needed construction for new schools. To put this in perspective, about $13 billion is spent every year on school construction. Just doing needed repairs on schools to make them safe would require almost ten times more than is presently being spent every year.
But that’s just one small example of the waste caused by these laws. It is becoming painfully obvious that many of the nation’s highways, particularly the bridges are in desperate need of repair. In some areas of the country highway engineers are just waiting for a major bridge to collapse. It’s not a question of whether, but of when.
Prevailing wage laws also impact on the quality of life for all Americans by driving up the cost of projects needed for a clean environment. City and county governments all across America need to modernize their water and sewer systems at sometimes prohibitive costs.
Prevailing wage laws also impact our national security. Military construction is covered by the Davis-Bacon Act. If military base facilities are in bad repair, some part of the blame belongs to union special interests in Washington who put their own interests ahead of the national interest.
Prevailing wage laws are discriminatory
From the very beginning one of the underlying purposes of prevailing wage laws was discrimination. Ethnic groups that dominated construction unions excluded other ethnic groups from union membership. By giving unionized contractors the upper hand in bidding on public works projects, prevailing wage laws excluded other ethnic groups from employment on these projects. Discrimination against black construction workers was a major motivation for passage of the Davis-Bacon Act in 1931 but the practice has historic precedents in discrimination against other minorities. An Empire Foundation commentary on New York state’s prevailing wage law notes that it was first enacted in 1897 to prevent Irish and Italian immigrants from getting jobs in the construction industry.
Prevailing wage laws inhibit competition
Because prevailing wage laws require payment of wages higher than those that actually prevail, many contractors who are paying market wages to their employees are reluctant to bid on public works construction projects. It is difficult to explain to an employee why he or she is making more money one day working on a public works project than the next day doing exactly the same work on a private job.
In addition, the record keeping and reporting requirements for compliance with prevailing wage laws can be a difficult, time consuming and therefore costly proposition. The federal Davis-Bacon Act, for example, requires contractors to file weekly reports with the government of the wages paid to each worker. Many small firms don’t have the lawyers and accountants needed to stay out of trouble on compliance issues and so choose not to bid at all. The reduced competition on public works construction projects, particularly from small business is another contributing factor to the increased cost of public works construction caused by prevailing wage laws.
Prevailing wage laws are inflationary
Inflation is a hidden cost of prevailing wage laws. Increasing the cost of public works construction puts inflationary pressure on the entire economy. An Interagency Task Force of the Carter Administration found that the Davis-Bacon Act and other prevailing wage laws resulted in an increase of inflation of .25 percent a year.
This may not sound significant to many Americans, but it is the silent killer of savings. If you had $10,000 in a savings account ten years ago, the inflation caused by prevailing wage laws silently stole $250 of your savings. Looking at it another way, in America’s greater than $7.5 trillion economy, the inflation caused by prevailing wage laws is a hidden cost of almost $19 billion a year and everyone is paying it in the form of higher prices for everything they buy.
Should prevailing wage laws be repealed?
In many respects prevailing wage laws are relics of a bygone era. They represent the vested interests of powerful forces that, despite the fact that they have failed in the market place, retain the political power needed to preserve their legislative privilege.
Despite this, in the last two decades, nine states have acted to repeal their prevailing wage laws and each year further repeals are considered. In 1997, the state of Ohio exempted public school construction from coverage by the state prevailing wage law in response to the need to repair deteriorating public schools.
Several unsuccessful attempts have been made to repeal the Davis-Bacon Act. Each time opponents have cast the issue as a conflict between labor and management in the construction industry. If it could just be seen as a conflict between the public interest and powerful, union special interests which it really is, the outcome might be different.
It is high time that political and public opinion leaders take a fresh look at this issue. Considering the tremendous harm prevailing wage laws are doing on so many fronts, whether they be education, the environment, transportation or national security, it may be time consign prevailing wage laws to the dust bin of history where they belong.