Davis-Bacon Scam

A Disgraceful Labor Law Ripe for Repeal, The ‘prevailing wage’ rule for federal projects is rooted in bigotry and still hurts minorities today. by Andy Koenig, 9/24/15

 

Scott Walker has dropped out of the Republican presidential race, but many of his ideas still deserve time in the spotlight. One such proposal from the Wisconsin governor is an idea too wonkish for the press corps but too good to pass up for the U.S. economy.

He vowed, if elected, to repeal the Davis-Bacon Act, an 84-year-old law that makes federal construction projects more expensive for taxpayers. This proposal is so worthwhile that Congress should consider it when the Highway Trust Fund comes up for debate.

Davis-Bacon has one of the most despicable back stories of any law on the federal books. When it passed in 1931, organized labor was upset that contractors were ignoring its members in favor of more affordable employees, especially minorities.

William Green, then president of the American Federation of Labor—half of the modern AFL-CIO—testified before Congress that “colored labor is being brought in to demoralize wage rates.” New York Rep. Robert Bacon, one of the act’s sponsors, was incensed at an Alabama contractor employing African-Americans to build a hospital in his district.

Despite this disturbing history, Davis-Bacon is still beloved by unions and their allies in Congress. No wonder: It mandates that private contractors pay “prevailing wages”—typically the union wage in any given area—on all federal construction projects that cost more than $2,000.

According to a 2008 study by the Beacon Hill Institute, the prevailing wage set by the Labor Department is on average 22% higher than the going market rate. This gives unionized contractors an inherent advantage over low-cost competitors, especially in urban areas where unionization rates are typically higher. It also results in roughly 10% higher costs per construction project, which quickly adds up for the taxpayer. In 2013 the Congressional Budget Office estimated that repealing the law would save $13 billion between 2015 and 2023—more than $1.6 billion in average annual savings.

Businesses are also heavily burdened by the law’s compliance requirements. The Institute for Justice estimated in 1993 that Davis-Bacon costs construction companies roughly $190 million a year, which could have sustained 31,000 new jobs. Both of these numbers have almost certainly grown in the intervening two decades.

Minority communities would also see dramatic benefits. In a legacy of the law’s racist history, Davis-Bacon continues to harm minorities, especially African-Americans. Decades of research, including a noteworthy 1999 study by Stanford University’s Daniel Kessler and Harvard’s Lawrence Katz, shows that the law has harmful effects on minorities in the construction industry, whether through depressing their wages or limiting their job opportunities. The reason is simple: Minority-owned contractors are generally smaller and nonunionized and often struggle to compete for contracts covered by Davis-Bacon.

The overwhelming evidence helps explain why multiple presidents have temporarily suspended Davis-Bacon in times of “national emergency,” starting with Franklin Roosevelt in 1934 to help kick off the New Deal. Richard Nixon took similar actions in 1971 to combat widespread inflation. In explaining his actions, Nixon noted that Davis-Bacon prevents “taxpayers from getting their money’s worth” and harms “the construction worker himself” by hindering job creation.

In 1992 George H.W. Bush suspended the law for similar reasons in hurricane-stricken Florida, Louisiana and Hawaii, only to see Bill Clinton reinstate it five months later in one of his first acts in the Oval Office.

Mr. Walker should be applauded for seeking to eliminate Davis-Bacon. He has firsthand knowledge of how similar laws work at the state level. Earlier this summer, he signed a state budget repealing Wisconsin’s prevailing-wage law for local government construction projects. Indiana Gov. Mike Pence went further in May by repealing his state’s law—known locally as the “common construction wage”—for state and local projects. Both states join 18 others that have no prevailing-wage laws on their books. They now stand to boost their economies and save significant sums for their taxpayers.

Congress would do well to follow these states’ examples and repeal Davis-Bacon, and lawmakers don’t have to wait until after the 2016 election. Sen. Mike Lee (R., Utah) introduced the “Davis-Bacon Repeal Act” in July, and Congress could vote to add this legislation to any bill that would address the Highway Trust Fund’s constant fiscal woes. Congress will start debating this issue next month and continue through next June when the fund runs out of money.

Repealing Davis-Bacon wouldn’t make the fund solvent, but it would be a major step in that direction. More important, it would also restore fairness to the bidding process for federal construction projects, end a discriminatory policy that continues to hurt minority communities, and save billions of dollars for the American taxpayer. That’s something every politician—not just presidential candidates—should support.

Mr. Koenig is senior policy adviser at Freedom Partners Chamber of Commerce.

http://www.wsj.com/articles/a-disgraceful-labor-law-ripe-for-repeal-1443136899