TO: Ms. Hazel M. Bell, U.S. Department of Labor
FROM: Paul Kersey, Director of Labor Policy
DATE: Sept. 18, 2007
SUBJECT: Determination of Prevailing Wages under the Davis-Bacon Act
____________________________
On July 30, 2007, the U.S.
Department of Labor requested public comments on the collection of data used to
determine prevailing wage rates in the construction industry. We are pleased to
submit the following comments for your consideration.
The Mackinac Center for
Public Policy is an independent, nonprofit, nonpartisan research and educational
institute devoted to analyzing Michigan public policy issues. Among other areas,
the Center focuses on protecting and reporting upon worker labor rights and
improving the quality and cost-effectiveness of government services.
We have recently released a
major study on the effects of Michigan’s prevailing wage law,
www.mackinac.org/8907, in which we found that the law increased the cost of
government-financed construction by 10 to 15 percent, adding $250 million to the
cost of government without any measurable improvement in quality and mixed
evidence of improvement in productivity. We found that the law
disproportionately benefited high-wage workers; workers in Michigan’s
construction industry typically earned wages 28.1 percent higher than those of
Michigan’s workforce as a whole, but the prevailing wage law increased those
wages from 40 to 60 percent on state-financed construction. And finally we found
that strict prevailing wage laws like Michigan’s were associated with a lower
percentage of a state’s workforce engaged in construction, indicating that
prevailing wage laws restricted opportunities for job-seekers in the
construction field.
Michigan’s prevailing wage
law is unusually severe in that it explicitly calls for the exclusive use of
collectively bargained wages in setting the wage scales for public construction.
While wages on government contracts should generally be set by the market, as
they are on nearly all private projects, the federal law has the advantage of
calling upon the Department of Labor to look at the entire market, not just
unionized firms, in making prevailing wage determinations. As long as this
review of the whole construction labor market is done thoroughly and accurately,
many of the unnecessary costs and other harmful effects of the prevailing wage
law will be minimized. While we question the wisdom of prevailing wage laws, DOL
must enforce the law as it is written. Our report will discuss measures that the
Department of Labor’s Wage and Hour division can take to minimize the costs of
Davis-Bacon enforcement while respecting both the letter and spirit of the law.
We would begin by observing
that as a general rule it is the government and taxpayers, not construction
workers, which bears the greater risk if prevailing wage determinations are
inaccurate. If the prevailing wage determination understates the wage that a
particular construction worker would receive in the free market, that worker is
not obligated to accept that lower wage; he or she is free to insist on his or
her customary wages. If the contractor refuses to pay that higher wage, the
worker should be able to find work at the true prevailing wage elsewhere. But if
the prevailing wage estimate overstates the actual prevailing wage, contractors
will be obligated to pay that higher wage until the error is corrected, and the
additional cost will most likely be passed on to the government, and ultimately
taxpayers, in the form of higher bids on public construction.
It is critical that the
government receive a representative sample of wages paid when it updates its
prevailing wage determinations, and that it use that information carefully to
arrive at the correct rate.
The current practice of the
Wage and Hour Division of the Department of Labor is to solicit information from
"contractors, contractors’ associations, labor organizations, public officials,
and other interested parties." This practice invites multiple reports, and in
particular increases the risk that union rates will be over-represented in the
sample because both unions and unionized employers have the possibility of
submitting wage data. Surveys should be sent out to and accepted from employers
only. Such a rule will provide for a more balanced sample of both union and
non-union workers, returned from those who have direct access to records of
wages and hours worked.
With representative data in
hand, the Wage and Hour Division must have a simple set of rules, scrupulously
observed, to calculate a prevailing wage. The current regulations state then
when a majority of workers in a given area and classification receive a given
wage, that wage will be treated as prevailing. Otherwise, a weighted average is
used. This is a reasonable rule under the circumstances, but Prof. Armand
Thieblot has found considerable evidence that survey results have been
manipulated in order to generate union "majority" wages where in fact there is
no single wage covering a majority of workers. Wage and Hour Division should
make every effort to ensure that the rules are applied consistently so that
prevailing wage determinations reflect the data.
But while the survey
process itself is important, there are other questions that DOL should pay
closer attention to before the surveys go out: the questions of geographic
coverage and of worker classifications. In other words, how should a state be
broken down geographically for the purposes of prevailing wages, and how should
the construction workforce be broken down occupationally?
The Davis-Bacon Act states
that:
The minimum wages shall be based on the wages the Secretary of Labor determines
to be prevailing for the corresponding classes of laborers and mechanics
employed on projects of a character similar to the contract work in the civil
subdivision of the State in which the work is to be performed, or in the
District of Columbia if the work is to be performed there.
In our report on Michigan’s
prevailing wage law we suggested that the use of counties as the geographic
units for prevailing wage determinations was obsolete, and that the state would
be better served with a smaller number of geographical districts, or even a
single statewide prevailing wage schedule. The statutory language listed here,
especially the reference to "civil subdivision," indicates that DOL’s task might
be complicated if it were to seek to simplify the Davis-Bacon wage setting
process by dividing states up into fewer districts, however we would urge DOL to
explore this option. Communications and transportation have improved greatly
since the passage of the Davis-Bacon Act, leading to much greater economic
integration. As we observed in our Michigan prevailing wage report:
In an age when markets for goods and services are increasingly global, it would
seem more than reasonable to think of the Detroit area, for example, as a single
construction marketplace with fairly consistent wages, as opposed to the current
practice of issuing separate wage determinations for Oakland, Macomb, Washtenaw,
Livingston, Monroe and Wayne Counties.
Detroit is certainly not
the only city where this sort of thing could be said. Using larger geographic
areas for the setting of prevailing wages would also lead to larger sample
sizes, increasing the likelihood that a given prevailing wage determination will
be accurate.
Another issue that deserves
more consideration is the way in which the construction workforce itself is
broken up into work classifications. The current DOL process can result in
wildly different sets of classifications being used. The most recent wage
determination for Wayne County, Michigan (which includes the city of Detroit)
has more than 120 different classifications, while the most recent wage
determinations for Fulton County, Georgia has only 32.
The shifting categories
make compliance needlessly difficult for contractors and complicates enforcement
for DOL as well. Finally, the looseness of work categories creates opportunity
for the manipulation of survey responses in favor of union rates. In order to
rectify these problems, DOL should follow the example of the State of Tennessee
and develop one single, nationwide set of work classifications.
Prevailing Wage laws like
the Davis-Bacon Act can be difficult to comply with, complicated to administer,
and if administered poorly can be expensive for taxpayers as well. However, much
of the unnecessary cost of Prevailing Wage laws can be avoided by developing a
consistent, fair methodology for determining prevailing wage rates and following
that process scrupulously.
#####
Paul Kersey is director of
labor policy for the Mackinac Center for Public Policy, a research and
educational institute headquartered in Midland, Mich. Permission to reprint in
whole or in part is hereby granted, provided that the author and the Center are
properly cited.
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