Davis-Bacon Act
Protecting the American Standard of Living

Q: What is the Davis-Bacon Act?
A: The Davis-Bacon Act-also known as the prevailing wage law - preserves local area wages and labor standards in the process of letting contracts for federal construction work. Enacted in 1931, the law states that contractors for federal projects must pay their workers no less than the wage rates prevailing in the local area for each craft, as determined by the US Department of Labor.

Q. Why is such a law needed today?
A: For several reasons. First, the past two decades have seen stagnating or declining incomes for the middle class. Davis-Bacon is one of the few federal laws that prevent further erosion of living standards for millions of workers. Its repeal would set the appalling precedent of government using tax dollars to drive down the wages of taxpayers.

Second, when government enters the construction industry through federally - funded contracts, its monopoly power risks skewing this unique market unfairly. That is because construction wages vary greatly across the country, reflecting differences in communities' cost of living and business environments. The nature of construction work is uncertain and temporary, with crews moving from place to place - and so the potential for cutthroat competition and unfair bidding is always present. The question is whether government will exacerbate this phenomenon or seek a neutral effect on the market

Davis-Bacon achieves the latter goal. It does not set specific wage levels; all it does is provide that contractors must base their bids upon a level of wages and fringe benefits that is typical to the local area, set through private - sector market forces. In this way, all contractors bid for federally funded projects based upon a common labor cost, and competition is focused where it belongs - matters of management, quality, timeliness and productivity.

Abuses were rampant for years before the Act was passed. One of its authors, Rep. Robert L Bacon (R-N.Y.), explained the need for a prevailing wage law when he observed how an Alabama firm brought thousands of unskilled workers to a job in New York:

They were herded onto this job, they were housed in shacks, they were paid a very low wage, and . . .(i)t seemed to me that the federal government should not engage in construction work in any state and undermine the labor conditions and the labor wages paid in that State . . . [T]he least the Federal Government can do is comply with the local standards of wages and labor prevailing in the locality where the building construction is to take place.

The Davis-Bacon Act was authored by Republican legislators and signed by a Republican president. For more than six decades, it has remained an essential element in the fabric of federal construction law, and has consistently received bipartisan support.

Why keep the Davis-Bacon Act today? Former Secretary of Labor Ray Marshall gives this answer:

Because it makes sense and is eminently fair. It is fair to the worker; it is fair to the contractors; and it is fair to the federal government. Above all, it is fair to every community throughout the nation, wherever construction that is paid for in whole or in part by the federal government is undertaken.

Q: Is the Davis-Bacon wage a "union" wage?
A: No. The prevailing wage that must be paid on federal projects is based upon typical wages and benefits paid for construction work in each community, regardless of whether those workers are union members. According to the Department of Labor, a whopping 71 percent of wage determinations issued in 1994 were based upon non-union scales of labor. A union wage only prevails if most construction workers in a community are union members - and the only broad area where this exists anymore is in heavy and highway construction, where the majority of workers are covered by collective bargaining agreements.

Q: Is the Davis-Bacon Act expensive for the federal government?
A: No. As John T. Dunlop, Ph.D., Secretary of Labor under President Ford and Harvard University professor, concludes, Davis-Bacon is at least neutral with respect to costs The nation's preeminent economist on construction, Dunlop observes that productivity is so much greater among high-wage, high-skill workers that often projects using such workers cost less than those using low-wage, low-skill workers. Inferior construction requiring repairs, revisions and lengthy delays actually means the federal government could lose money if Davis-Bacon is repealed. Other independent studies reach the same conclusion.

Opponents of the law who claim that the government would save billions per year utilize vastly oversimplified and fundamentally flawed methods of economic analysis which fail to take into account productivity, safety, community development and other economic forces contributing to the real cost-effectiveness that Davis-Bacon offers.

Q: But doesn't a cut in wages automatically decrease costs of construction to the federal government?
A: Absolutely not. Wage cuts don't automatically translate to procurement savings. If you pay someone half the wage you were paying someone else, but this person takes twice as long to do the job, you haven't saved a penny. And if the job is done so poorly that it requires hiring someone else to bring it up to standard, you're paying more, not less.

Repeated studies have proven that there is a direct correlation between wage levels and productivity - that well-trained workers produce more value per hour than poorly trained, low-wage workers. For example, a recent study of 10 states where nearly half of all highway and bridge work in the U.S. is done showed that when high wage workers were paid double that of low-wage workers, they built 74.4 more miles of roadbed and $38 more miles of bridges for $557 million less.

Furthermore, most analyses fail to take into account the spin-off economic impact of maintaining prevailing wages. When workers' income goes down, they have less money to spend purchasing goods and making investments. When businesses close or cut back as a result, tax revenues to the federal government decline and social expenditures rise. It is simply penny-wise and pound-foolish to assume that driving wages down will be of any benefit in reducing the federal deficit.

Q: Could a repeal of Davis-Bacon result in cost shifting to other government programs?
A: Yes. Prevailing wage laws help keep private health insurance, disability and pension plans properly funded, which keep employees from needing benefits from government programs. In addition, if construction wages decline significantly, there will be a corresponding rise in the demand for government programs, ranging from financial aid for college students to Food Stamps - not just among the families of construction workers but among owners and employees of businesses patronized by these workers.

Furthermore, a current practice in some segments of the industry on private sector projects is for employers to misclassify workers, enabling irresponsible contractors to avoid paying employment taxes, such as social security, unemployment insurance and workers' compensation. This does not mean that costs are lowered - it means that others pay for these costs. Without Davis-Bacon, such practices would be extended to government contracts, with some employers effectively using tax dollars to stiff other taxpayers.

Q: Does the Davis-Bacon Act impede or improve the functioning of labor markets?
A: Davis-Bacon promotes sound investment in human capital and in our physical infrastructure. As The Wall Street Journal noted, there are severe shortages of skilled work in construction in many areas of the country. When wages are cut, the industry's ability to attract and train qualified individuals to work on construction projects is hindered even more. An adequate wage is essential to forming human capital within the industry. Because of its cyclical; and extremely competitive nature - and our reliance on infrastructure for economic development and national security -construction labor markets must be protected.

Construction workers are trained for their skills. It often takes years of schooling and apprenticeship to gain proper experience - and the importance of training is greater than ever at a time when rapid technological advancements are changing the nature of work in the industry. To retain skill, workers must be paid fairly - by employers who contribute to training programs.

Davis-Bacon ensures the proper functioning of labor markets by grounding the industry's competition in fair wages: making contractors and the government compete on more efficient management techniques.

Q: Does Davis-Bacon cause unemployment?
A: No. Unemployment is not caused by paying workers the prevailing wage in the industry - it is caused by other factors in the economy such as need for training, rapidly changing technology, under-investment and under-consumption, and too-high interest rates. Besides, government policy aimed at reducing unemployment by reducing wages simply guarantees even more hardship and economic anxiety for the hard-pressed middle class and working families.

Q: Why do construction workers need the Davis-Bacon Act?
A: First, the Davis-Bacon Act prevents big government and big business from undercutting local wages. Making government and business pay prevailing wages in each community protects local, private industry and apprentice programs. Second, while many people believe that construction workers make above-average income, the typical annual income for construction workers is $28,000, which is below the median family income in the United States.

One important economic outcome of the Davis-Bacon Act is that it provides some stability to uncertain employment, which helps working families. This, in turn, protects one of the last remaining industries in the United States to employ blue-collar workers. Without it, the industry will follow the low-wage, low-growth and low-productivity path of other industries.

Q: Wouldn't non-union workers benefit from repeal of Davis-Bacon?
A: Just the opposite. They would find their wages and benefits driven down to even lower levels. As noted previously, in more than 7 of every 10 communities, non-union wage scales are the prevailing wage. So they do not find their employment opportunities hindered by Davis-Bacon, In fact, Davis-Bacon extends to non-union workers many of the protections enjoyed by union members.

Without Davis-Bacon, the downward pressure on wages and benefits would weaken or render non-existent the already feeble attempts by non-union contractors to establish apprenticeship and health and safety programs, making non-union construction work even more dangerous than it already is.

Q: Does the Davis-Bacon Act discriminate against minority workers?
A: Absolutely not' Opponents of the Act - not otherwise known for their advocacy of civil rights and affirmative action - have repeatedly charged that Davis-Bacon discriminates against minorities. This is a not only a lie that egregiously misstates both history and contemporary reality - it is also premised on the pernicious notion that the only way to hire minorities on construction projects is to pay them less.

As a matter of historical record, Sen. James J. Davis (R-Penn., and former secretary of labor under President Harding) Rep. Bacon, Rep. Fiorello LaGuardia (R-N.Y.), and countless others supported the enactment of the Davis-Bacon Act because it would give protection to all workers, regardless of race or ethnicity. The overwhelming legislative intent of the Act is clear: all construction workers, including minority employees, were rescued from abusive industry practices. Mandating that a fair and livable wage be paid to every worker not only stabilized local wage rates and labor standards for local wage earners and local contractors but also prevented migratory contracting practices which treated African-American workers as exploitable indentured servants.

Today, thanks to the Davis-Bacon Act, African Americans, Latinos, Asian Americans, Native Americans and women are able to secure fair wages for their work on federal projects. In fact, minorities are heavily employed in the construction industry - especially in the unionized sector, where union apprenticeship programs graduate a greater number of minorities than non-union apprenticeship programs.

Norman Hill, the President of the A. Phillip Randolph Institute, stated that minority workers are "particularly vulnerable to exploitation such as the wage-cutting practices which the Davis-Bacon Act of 1931 is designed to prevent." Repeal of the Act would leave minority workers with the twin specters of unemployment and wage reduction.

Q: Are most minority groups for or against Davis-Bacon?
A: The Davis-Bacon Act has long enjoyed the support of minority and women's groups. The NAACP passed a resolution supporting Davis-Bacon enforcement and its role in strengthening of opportunities for minorities through training and apprenticeship programs. Latino, Native American and women's groups have spoken in favor of the law. They recognize Davis-Bacon's role in helping to bring many minority families into the middle class.

Q: Is there a connection between safety and health for workers and communities and the Davis-Bacon Act?
A: Yes. The skilled, trained and dedicated workers who are hired at prevailing wages are trained to work safely. Better project safety and quality mean fewer risks of environmental or health disasters to communities. By preventing shoddy, unsafe work which can occur from employing poorly trained workers, our society actually saves money on environmental and economic clean-up costs.

Q: How can you argue that Davis-Bacon adheres to market principles?
A: Because government plays by the rules set by the private sector in the free market. Large-scale government spending on highways, bridges, office buildings, harbors, sewage treatment plans, military construction and other projects has the potential to skew the market and throw it out of balance, with serious consequences for private industry. Davis-Bacon makes government play a neutral role by paying the same average wages paid by the private sector. It imposes no artificial standards, and instead respects market forces.

Q: Have we seen any evidence of what would happen without Davis-Bacon?
A: Yes, and it's not a pretty sight There are 12 states that have repealed their own prevailing wage laws over the past two decades, and the consequences have included:

· Competitive pressures in the industry leading to lower wages and fewer benefits

· Reductions in and wholesale elimination of apprenticeship training programs

· Declines in the quality of the workforce as the best candidates find careers in other industries more appealing, and

· Increases in injuries and deaths on the job as more untrained workers are employed.

Repeal of Utah's prevailing wage law caused a decline in average construction wages in the state and decreased union apprenticeship training for construction. No other public or private source offset this decline in training. This led to high turnover of non-union apprentices, despite contractors' efforts to retain workers. Overall, the construction industry lost a significant portion of its human capital.

Another study in Iowa showed that contractors did not pass on savings to the taxpayer from paying lower wages - instead they lined their own pockets.

Q: How does the Davis-Bacon Act improve local economies?
A: The government has always been a major purchaser of construction services, and this helps local economies. Prevailing wage laws are also profitable community investments. A study done by Lionel Richman, L.L.B., N.A A. and Julius Reich, J.D. showed that in San Bernardino, California, the prevailing wage law generates benefits to the community 24 times the amount spent on the actual construction project. That's because workers spend part of their income in local shops and restaurants and pay local taxes, which recirculates throughout the economy.

Furthermore, for the Hispanic community in San Bernardino, Davis-Bacon gave some permanency to their economic gains by supporting apprenticing, as 48 percent of apprentices were Hispanic.

Additional economic benefits of prevailing wage laws include:
· Maintaining funding for building trust funds and private pension plans

· Immunizing the employee from the need to seek benefits from social programs

· Contributing to the ability of the community to assist the needy, and

· Establishing an upwardly mobile track for minority members of the community to advance into higher-paying occupations.

Q: If the Davis Bacon Act is good for me economy, why would Congress want to repeal it?
A: Sponsors of legislation to repeal the act are acting on one or several of the following motives:

· Obeisance to radical right-wing ideology that is inconsistent with the long history of Republican support for Davis-Bacon and the Act's grounding in market principles

· A repayment of a political debt to a group of special interests that have contributed heavily to GOP campaigns in the hopes of making higher profits from taxpayer dollars by paying lower wages

· Belief in the myths about Davis-Bacon propagated by these special interests, and/or

· The mistaken notion that repeal of Davis-Bacon could reduce the deficit, which neither takes into account the cost of the productivity, timeliness and quality problems that result from using lower-wage workers, nor the multiplier effect on communities and tax revenues from paying prevailing wages.

The sponsor of legislation to repeal Davis-Bacon, Sen. Nancy L Kassebaum (R-Kan.), misinterprets the political mandate behind the Republican victory in 1994. Middle-income voters were angry at incumbent members of Congress for failing to address the cause of stagnating or declining incomes over the past two decades. They were not voting for their tax dollars to be used to drive down wages even further and erode the American standard of living.

The American people want their tax dollars to be used efficiently and wisely. This means we must cooperate to minimize waste and maximize efficiency. Davis-Bacon supports these aims by establishing incentives for contractors to increase profits through effective management and enhanced productivity.

It would be short-sighted for members of Congress to repeal a law which prevents big government and big business from undercutting local prevailing wages The Davis-Bacon Act is one of the floorboards upon which America's standard of living is based. The Act still performs its purpose of preventing the government from interfering with the private industry's ability to set fair wages. Paying workers the prevailing wage prevents ruin of the industry, improves the quality and strength of our infrastructure, bolsters local economies and protects workers and communities from health hazards.

REFERENCES:
Allen, Steve "Unionized Construction Workers are More Productive" The Quarterly Journal of Economics (May 1984).

Allen, Steven, "State Prevailing Wage Laws and Construction Costs: A Reply to Professor Thieblot."

Azari-Rad, Hamid, Anne Yeagle and Peter Philips "The Effects of the Repeal of Utah's Prevailing Wage Law on the Construction Labor Markets." Labor Law Reform (Forthcoming Cornell University Press Spring 1993).

Bourdon, Clinton G and Raymond E Levitt, "A Comparison of Wages and Construction," (MIT Research Report No. R-78-3).

Bureau of National Affairs, "Repeal First Choice of Davis-Bacon Foes," Construction Labor Report, 12-21-94, (Vol 40, p. 995).

Dunlop, John T. (December 17,1990) Affidavit at par. 9 Building and Construction Trades Department v. Martin, 961 F.2d 269 (D.G Cir.1992) (No. 90-5345).

Mandelstamm, Allan B. "The Effect of Unions on Efficiency in the Residential Construction Industry: A Case Study." Industrial and Labor Relations Review 18 ( l965).

Richman, Lionel and Reich, J.D. "The Prevailing Wage: Law A Profitable Community Investment"

Ruttenberg, Ruth, "The Davis Bacon Act A Response to the CATO Institutes' Attack." U.S. Dept of Labor, Employment and Earnings, Vol. 41 No.7 July 1994.

Sheehan, Michael, "State of Oregon Repeal Provides No Direct Cost Savings" Ballot Measure 12 Information Packet.

Sheehan, Michael, "The Economic Impact of A Prevailing Wage Law for Iowa State Construction Projects," Fisher, Sheehan and Colton, Scapposse Oregon.

Tomsho, Robert, "Labor Squeeze: With Housing Strong, Builders Often Find Skilled Help Lacking," Wall Street Journal, Feb 27,1994 p A-1

U.S. Dept of Labor, Bureau of Labor Statistics, "Average hourly and weekly earnings of production or nonsupervisory workers" on private nonfarm payrolls by major industry seasonally adjusted, "Employment and Earnings," July 1994, p 67.

U.S. General Accounting Office Human Resources Division, Feb 7,1994 letter to Senator Craig and Representatives Stenholm, Goodling, Valentine, and Petri from Div. Director Morra (GAO/HEHS-94- 95R Da visBacon Act).

US House of Representatives 69th Congress, 2nd session HR 17069, "Hours of Labor and Wages on Public Works." Hearings Before the Committee on Labor, Feb 18,1927.