The Biden administration is proposing to make government contracting even more expensive by revamping the Davis-Bacon Act. This law requires that related workers on federal contract projects be paid the prevailing local wage paid to most workers for that type of job. Contractors must document that they are doing this, a time-consuming and burdensome process that makes federal projects more expensive and take longer to complete.
The Biden administration could alleviate this problem by getting rid of the Act altogether, but it has chosen a different route: The Department of Labor (DOL) has proposed adjusting Davis-Bacon’s rules so that the prevailing wage can be determined by using a survey of just 30 percent of workers, rather than the majority currently required. The administration notes this was allowed prior to a 1983 revamp of the law and says it should be restored.
The problem is that this 30 percent standard made Davis-Bacon Act compliance more expensive, because it tended to focus on the highest-paid workers to determine the prevailing wage. The unspoken reason why the administration wants to do this is that its allies in the union movement are pushing for it. The Davis-Bacon Act ensures that companies working on federal contracts get no advantage from using non-union labor, which would otherwise be cheaper. Ratcheting up the prevailing wage determination even higher allows unions to push for more in contract negotiations.
In a comment letter for CEI submitted to DOL on Tuesday, I state reasons for opposing changes to the Davis-Bacon rule. In addition to making compliance more expensive, the current economic climate mades this a particularly bad time to change things:
The proposal is also unnecessary because workers’ wages are rising on their own. The Department of Labor’s Bureau of Labor Statistics reported that compensation for private sector construction workers increased by 4 percent for the 12-month period ending in March, 2022.
If anything, wages are rising too quickly, which makes the timing of this proposal especially ill-advised. Economists fear that the economy in 2022 could be on the verge of a wage-price spiral: the cyclical phenomenon whereby rising wages cause a concurrent rise in consumer prices. That results in wages continually rising in an effort to keep pace with escalating prices, which in turn sparks yet more inflation. Since the economic history shows that the 30 percent standard would artificially inflate worker wages, returning to it would likely contribute to the pressures that could create a wage-price spiral. The resulting inflation would erode gains from higher pay, and could leave workers in an economically worse situation. This would not be confined to workers in fields related to federal contracting either, as the effects of a wage-price spiral would be felt across the entire economy.