Prevailing Wages Controversy Continues

Published November 1, 2007

As unionization in the construction industry continues to decline, prevailing wage laws are becoming even more controversial.

Only 13.1 percent of U.S. construction workers were union members in 2006, representing a decline of 14.5 percent since 1983, the earliest year for which comparable figures are available. Yet in most places the wages paid on government projects are the union wage.

Prevailing wage laws require government bodies to set the wages to be paid on public works construction. Thirty-three states currently have such laws. Nine states have repealed them since 1979.

The best known prevailing wage law is the federal Davis-Bacon Act, passed in 1931. The reach of the Davis-Bacon Act has since been expanded to include at least 60 other programs, many of which do not involve the use of federal funds.

That expansion and the unnecessarily high costs it creates are beginning to wear thin with the public.

Costs Climb

In Andover, Massachusetts, for example, the Andover Youth Foundation is building a youth activities center, but because it is being built on public land the state’s Executive Office of Labor and Workforce Development insists the prevailing wage law applies to the construction.

That would increase construction costs by an estimated $1.4 million, or 25 percent. The decision has generated considerable public awareness of the impact the law is having on local public works construction costs.

The increase in labor costs attributable to prevailing wage laws nationally is in the neighborhood of 25 percent, according to studies over the years, including one by the Government Accounting Office and another by the Grace Commission in the 1980s.

That premium can make a significant difference in total costs depending on whether the project is new construction or remodeling. On average, the labor cost component of new construction is about 30 percent. On repair and renovation it is often as high as 70 percent.

Bureaucrats Have Discretion

There are several elements to the prevailing wage issue. The central one is how the prevailing wage is to be determined. Critics of prevailing wage laws contend the process for determining prevailing wages is skewed toward union wages.

Almost all prevailing wage laws leave the method of determining the prevailing wage up to an administrative agency. The Davis-Bacon Act, for example, says the number is to be set by the Secretary of Labor but does not specify how it is to be determined.

Union Wages Dominate

The typical process is to use voluntary wage surveys, but the results are often skewed. Because prevailing wage laws protect union contractors from competition, unions have a strong reason to participate in the survey. At the same time, because many nonunion contractors won’t bid on prevailing wage jobs and don’t see any point in the paperwork, they have little or no motivation to participate.

As a result, even though the vast majority of construction workers are not unionized, the majority of survey responses are often from union contractors, and the survey determines that union rates prevail.

In July the U.S. Department of Labor asked for comments on whether the present system is necessary for the proper performance of wage determinations. Reforms in the process for determining prevailing wages under Davis-Bacon could have a domino effect because many states just adopt Davis-Bacon rates as prevailing and others model their wage determination process on the federal model.

Grassroots Concerned

Another issue is the threshold at which the prevailing wage is applied. When the Davis-Bacon Act was first enacted in 1931 the threshold was set at $5,000 in federal spending. In 1935 it was lowered to $2,000 and has remained at that level ever since. Some states have different thresholds for new construction and for renovation and repair.

This sparked controversy earlier this year in Connecticut, when the rapidly growing Connecticut Municipal Consortium for Fiscal Responsibility pressed for legislation to raise the threshold for application of the state’s prevailing wage law to municipal construction from $400,000 to $1 million.

The legislation failed, but many observers were surprised by the amount of support it received. The issue will undoubtedly return to the legislature.

There is a grassroots rebellion brewing in Illinois. That state has an unusual provision in its prevailing wage law requiring all local government agencies to resolve to adopt the state prevailing wage or determine their own.

It has become customary for local government agencies to sign on to the state rates. This year, however, several local government officials in Adams County, Illinois questioned the appropriateness of the state wage determinations and began the process of determining their own rates.

Controversy Will Persist

Similarly, in June of this year the voters of Vista, California overwhelmingly approved a ballot measure to make Vista a “charter city” with the apparent prime motivation being to escape coverage of the Golden State’s prevailing wage law.

The increase in activity at the national, state, and local level is a strong indication that as long as union density in the construction industry continues to decline and the government-mandated demands on tax resources continue to increase, the prevailing wage controversy won’t go away.

David Denholm ([email protected]) is president of the Public Service Research Foundation, which studies the impact of unionism in government on government.