Forcing federally funded public works projects to pay the so-called prevailing wage is a classic case of robbing Peter to pay Paul. The intention behind the Davis-Bacon Wage Act, which requires any federal project to use prevailing wages, is to boost worker pay. The practical effect is to substantially drive up the cost of those projects.
Those costs are ultimately paid for with taxpayer dollars, so it is ordinary citizens shouldering the higher costs. Instead, the government should institute a genuinely competitive bidding process, which would save taxpayers money.
The Davis-Bacon Act was passed in 1931 and was initially meant to counter a Depression-era practice of literally busing in workers from a lower-paying region so employers didn’t have to hire local workers who would not work for the wages being offered.
Busing in unskilled labor is rarely a factor with the law, as most federal projects involve skilled labor. The present-day purpose behind the Davis-Bacon Act is to boost unions. The Labor Department’s Wage and Hour Division is the entity that surveys businesses and determines the prevailing wage for these types of projects. This wage mirrors what companies with collective bargaining contracts — union wages — pay their workers.
Unions that drive up their members’ wages are thus protected from the economic consequences of doing that if their business involves federal contracts because non-unionized businesses will have to pay the same wages and therefore lose any wage-price advantage. The AFL-CIO is one of the main boosters of the law, unsurprisingly.
The Congressional Budget Office estimated in 2022 that getting rid of the Davis-Bacon Wage Act would save taxpayers $16.7 billion over the next decade. That’s enough to buy a state-of-the-art aircraft carrier and still have a few billion left over.
The act makes everything more expensive than it would otherwise be, though estimates of how much vary. The Beacon Hill Institute found that the act raises construction costs by more than 7%. The Government Accountability Office study of the Washington metro area’s Metro transit system found Davis-Bacon likely raised costs for the project by $149 million in 1980 dollars (about $588 million in 2023 dollars), the Washington Examiner noted in a 2021 report.
It’s not like workers need help getting their wages to rise. That’s happening on its own, thanks to a historically tight labor market. According to the Labor Department, overall wages have risen by 4.3% nationally in the last year.
Bear in mind that these workers are already subject to their state’s minimum wage laws, which in 15 cases now exceed $13 an hour. That’s assuming the pay for the jobs would even be affected by minimum wage laws. Federal projects usually involve skilled work that already pays well above any minimum.
Davis-Bacon prevents the bidding from being genuinely competitive, it raises the costs for taxpayers, and it delays projects when needed. We would be better off without it.