The Social Justice Rationale

The first rationale would appear, at first glance, to defy basic economic sense: When a government — or any customer, for that matter — solicits bids on construction of a building, the demand for construction labor is increased, meaning that more construction workers may be needed. Employers may then be forced to increase wages to attract qualified workers, especially if they need workers with specialized skills in order to meet their customers’ designs or if there are few unemployed construction workers in the area. But even if the new building requires few specialized skills or there is a large pool of idle construction workers, the process of bidding on a new building should at least tend to stabilize wages, rather than drive them further downward.

The social justice rationale makes more sense (although, as discussed below, it is still flawed) when seen in the light of the conditions that led to the passage of the Davis-Bacon Act. In the early years of the Great Depression, Sen. James Davis of Pennsylvania saw that workers on a federal building in New York had been brought up from the Southern states and were being paid wages well below those customarily paid to local construction workers.[21] Against the backdrop of economic crisis, the supporters of the federal Davis-Bacon law were distressed to see construction workers’ wages being sharply reduced by what they considered an underhanded tactic: bringing in out-of-state workers who were willing to work for a much lower wage.*

The concern here is not the effect that government construction has on the overall labor market, but the effect that competition might have on workers native to the area of a government-funded project. The prevailing wage law is meant to protect construction workers by shielding them from competitive pressure; in effect, contractors may compete to produce the lowest bid on every other price term, but competition on wages is out of bounds.

There is a problem with this rationale, however. By passing the Davis-Bacon Act, the federal government protected the wages of highly paid construction workers in Northern cities, but in the process significantly limited opportunities for lower-paid workers in the South, who were less likely to be able to go north and find work because they were prevented from offering to work for lower wages. High-wage workers were protected; low-wage workers were blocked out. As we will see, something similar has come to pass with Michigan’s prevailing wage law.

* It has been argued that racism played a significant role in the passage of the Davis-Bacon Act, and that much of the hostility to the practice of bringing in a work force from out of state was due to the fact that much of that work force was African-American. There is some evidence for this thesis, but I take no position on it. I am unaware of any accusation that racism was a factor in the passage of Michigan’s prevailing wage law.