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
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.
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.