WebMemo22

Published by The Heritage FoundationNo. 3451January 12, 2012

Why the Davis–Bacon Act Should Be RepealedJames Sherk

This paper, in its entirety, can be found at: http://report.heritage.org/wm3451

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Published by The Heritage Foundation 214 Massachusetts Avenue, NE Washington, DC 20002–4999 (202) 546-4400 • heritage.org

Nothing written here is to be construed as necessarily reflecting the views of The Heritage Foundation or as an attempt to

aid or hinder the passage of any bill before Congress.

What Is the Davis–Bacon Act (DBA)?• TheDBA requires federal construction contrac-

torstopayatleastthewageratesprevailingonnon-federal construction projects in the samelocality.

• The act was intended to prevent the purchas-ingpowerofthefederalgovernmentfromdriv-ingdownconstructionwagesduring theGreatDepression.

• The act applies to contractors and subcontrac-torsperformingonfederallyfundedorassistedcontracts in excess of $2,000 for the construc-tion,alteration,orrepair(includingpaintinganddecorating)ofpublicbuildingsorpublicworks.

• To calculate the wages that contractors mustpay, theWage and Hour Division (WHD) sur-veys construction wages and publishes prevail-ingwagedeterminationsforeachcountyintheUnitedStates.Federalcontractorsmustthenpaytheiremployeesat leasttheprevailingwageforeachclassofworker.

Policy Concerns• Inmostcities,DBAwagesbearnoresemblance

toprevailingmarketwages.Insomecities,DBArates are more than double market wages. Inothercities,DBAratesaretheminimumwage.

• DBAwagesdifferfromactualconstructionwagesbecausefundamentalflawsmartheprocessusedtodetermineprevailingwages.1

Ì WHD uses unscientific self-selected surveysamples.

Ì MostDBAestimates arebasedon responsesfrom fewer than 30 workers—too few toaccuratelyestimatewageseven if thesurveywerescientificallyrepresentative.

Ì Inspectorgeneralauditsfounderrorsin100percentofwagereportsexamined.

Ì Most prevailing wage surveys are years outof date. Some rates in effect have not beenupdatedsincethe1970s.

• DBA rates average 22 percent above marketwages.2Thisneedlessly inflates the cost of fed-eralconstructionandwastestaxpayerdollars.

• WhereDBA rates arebelowmarketwages andthe federalgovernment isamajorconstructionemployer, the government’s purchasing powercandepresswages—preciselytheeffectthelawwasintendedtoprevent.3

• DespitetheprovenflawsintheDBA,proponentsof the act continue to call for its expansion toprivate-sectorconstructionprojects.Private-sec-

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No. 3451 January 12, 2012WebMemotoremployersdonothavethesamepurchasingpowerasthefederalgovernment,andthereisnoeconomicjustificationforextendingDBAcover-agetoprivateconstruction.

Economic Effects • TheDBA increases thecostof federally funded

constructionprojectsby9.9percent.

• RepealingtheDBArestrictionswouldallowthegovernment to build more infrastructure andcreate155,000moreconstruction-relatedjobsatthesamecosttotaxpayers.

Ì Taxdollars couldbeused tobuildmore forlessmoney. Instead, theDBAbuilds less formoremoney.

• Alternatively,repealingtheactwouldhavesavedthe federal government $10.9 billion on con-structioncostsin2011.4

• The DBA’s requirements make it extremely dif-ficult for minority, open-shop contractors to

employ and train unskilled minority workers.Given thatunskilledworkersmustbepaid thesamewageasskilledworkers,thereisnoincen-tivetohiretheunskilledworker.

Ì Ralph C. Thomas, executive director of theNational Association of Minority Contrac-tors, stated that a minority contractor whoacquires aDBAcontracthas “no choicebutto hire skilled tradesmen, the majority ofwhichareofthemajority.Thisdefeatsamajorpurpose in the encouragement of minor-ity enterprise development—the creating ofjobs forminorities.… [TheDBA] closes thedoor in such activity in an industry mostcapableofemployingthelargestnumbersofminorities.”5

Ì Eliminating prevailing wage requirementsraisesminoritywages.6

––James Sherk is Senior Policy Analyst in Labor Economics in the Center for Data Analysis at The Heritage Foundation.

1. JamesSherk,“ExaminingtheDepartmentofLabor’sImplementationoftheDavis–BaconAct,”testimonybeforetheCommitteeonEducationandtheWorkforce,U.S.HouseofRepresentatives,April14,2011athttp://www.heritage.org/research/testimony/2011/04/examining-the-department-of-labors-implementation-of-the-davis-bacon-act.

2. SarahGlassmanet al.,“TheFederalDavis–BaconAct:ThePrevailingMismeasureofWages,”BeaconHillInstitute,February2008,athttp://www.beaconhill.org/BHIStudies/PrevWage08/DavisBaconPrevWage080207Final.pdf(January4,2012).

3. JamesSherkandPatrickTyrrell,“Davis–BaconFlawsHurtVirginia’sWorkers,”HeritageFoundationBackgrounderNo.2159,July7,2008,athttp://www.heritage.org/research/reports/2008/07/davisbacon-flaws-hurt-virginias-workers.

4. JamesSherk,“RepealingtheDavis–BaconActWouldSaveTaxpayers$10.9Billion,”HeritageFoundationWebMemoNo.3145,February14,2011,athttp://www.heritage.org/Research/Reports/2011/02/Repealing-the-Davis-Bacon-Act-Would-Save-Taxpayers-$10-9-Billion.

5. ScottBullockandJohnFrantz,“RemovingBarrierstoOpportunity:AConstitutionalChallengetotheDavis–BaconAct,”InstituteforJustice,athttp://www.ij.org/about/861(January4,2012).

6. DanielP.KesslerandLawrenceF.Katz,“PrevailingWageLawsandConstructionLaborMarkets,”Industrial and Labor Relations Review,Vol.54,No.2(January2000),pp.259–274.