One of the many problems of government is that our body of laws, programs and agencies are constantly being added to. Unlike the private sector, where companies are routinely reorganized, restructured, bankrupted, or closed, government becomes sclerotic, unable to properly adapt to a changed world. Laws passed for one reason morph into something else entirely. A prime example of this is the Davis-Bacon Act of 1931 (DBA) which still controls public works projects today, and which has had the effect of increasing costs on public works projects by about 20% for decades.
The Davis-Bacon Act was named after James Davis, a Senator from Pennsylvania and a former Secretary of Labor under three presidents, and Representative Robert L. Bacon of Long Island, New York. The legislation was introduced after a contractor in New York employed African-American workers from Alabama instead of local union workers to build a Veteran’s Bureau hospital in Bacon’s district. DBA was legislation designed to prevent such lower paid black laborers from replacing white construction workers on government works projects. It mandated the use of union contractors at “prevailing (union) wages” on all jobs. The union workers were all white, because blacks couldn’t join the unions at the time.
DBA’s stated goal was to outlaw wage exploitation. Public contracts typically are awarded to the lowest bidder. This legislation directed government agencies to employ contractors paying “fair” wages rather than those who competed by hiring cheaper labor. In 1964 the Act was modified to include fringe benefits in the calculation of prevailing wages.
The threshold for application of the DBA when it was passed in 1931 was set at $5,000 of federal spending. It was lowered to $2,000 in 1935 and has not been changed since! As a result, the administrative burden of the DBA is imposed on extremely small projects. This problem is compounded by the fact that many federal funding programs pay a small percent of the cost of state and local construction projects and application of the DBA to these projects results in increasing their cost as well.
According to the U.S. Chamber of Commerce, DBA wages cost taxpayers over $1 billion annually, in addition to the $100 million in government administrative costs per year. Davis-Bacon also creates unnecessary regulatory paperwork costing construction companies $190 million annually. DBA also forces state and local governments to pick up the cost of artificially high union-scale wages for construction projects in which any federal money is involved.
Repeal of the Davis-Bacon Act would spur local economic growth by making it easier for state and local governments to fund federally subsidized projects such as school construction and improvements to the transportation infrastructure. Davis-Bacon repeal also would create an estimated 31,000 new construction jobs and remove a barrier that keeps many smaller and minority owned construction firms from bidding on federally funded construction projects.
The DBA was enacted before the Fair Labor Standards Act and the National Labor Relations Act rendered it unnecessary and superfluous. Further, a 2011 study by the GAO found serious methodological flaws in Department of Labor wage calculations under DBA. This law clearly violates the equal protections clause in the Constitution by favoring one class of workers over another. But the political power of organized labor in the construction trades has made repeal of one of their legislative crown jewels a dangerous policy for elected officials to pursue.
Imagine for an instant if we applied DBA rules to other areas of our economic life, such as our consumer purchases at Wal-Mart, which is by far the nation’s largest retailer. From its founding and into the late 1980s, Sam Walton trumpeted products “made in America.” But he found that consumers did not care, and simply preferred lower cost items. Today over 80% of non-perishable items sold in Wal-Mart are sourced from abroad where lower labor costs make them cheaper than high wage American products. It’s time to apply the same standards to public works projects as the public applies to its own purchases.