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Priorities for Department of Labor's New Secretary

On September 30th, Eugene Scalia was sworn in as the 28th Secretary of Labor. Last week, the Senate confirmed Scalia on a 53-44 vote.

With about 15 months left in President Trump’s term, here are few actions the Department of Labor (DOL) can take to increase union financial transparency, cut down on federal construction costs, and study the impact of wage and hour laws.

Union Financial Transparency

Prior to Secretary Scalia’s arrival, the DOL proposed a rule to require openness for certain labor union funds. Under such a rule, labor unions would file financial disclosure reports (known as T-1 reports) for trust funds in which unions have an interest. Currently, unions are not required to disclose how they spend funds in trusts that are created for the benefit of members, such as training funds, strike funds, and apprenticeship program budgets.

The recent United Auto Workers (UAW) union corruption scandal highlights the problems caused by this lack of oversight and transparency. UAW officials conspired with Fiat Chrysler executives to steal millions in funds allocated for the UAW-Chrysler National Training Center. If unions had to file these reports, it could have deterred or caught the theft early.  

More can be done to increase union financial transparency. The DOL should consider reviving a George W. Bush-era rule to require labor union intermediate bodies—state and regional unions—to file LM-2 forms. This rule interpreted the Labor Management Report and Disclosure Act (LMRDA), or the Landrum-Griffin Act, to mean that intermediate bodies, which are wholly composed of public-sector members, are covered by the statute.

Such an agency action would advance the intent of Congress is enacting the LMRDA. The law was meant to be applied broadly in order to promote union democracy and financial integrity. And with the intermediate bodies rule in place, it would ensure a greater number of workers can easily assess whether union leadership spends dues payments prudently and in a way that represents worker interests. Greater transparency on how union leadership spends dues helps hold them accountable to membership and deter corruption (see the Competitive Enterprise Institute’s letter on the need for the intermediate bodies rule). 

Reform Davis-Bacon Methodology

In most sessions of Congress, a Republican member introduces a bill to repeal the Davis-Bacon Act of 1931. Unfortunately, the efforts never go anywhere.

What the law does is increase the costs of federal construction projects by imposing government mandated wage floors for hundreds of classes of employees in localities around the country. These government mandated wages are known as “prevailing wages.” The purpose of the Davis-Bacon Act is to limit competition and ensure employers do not hire cheaper labor from out of town. While it may achieve this goal, it is bad news for taxpayers whose payments fund federal construction projects. Research from the Beacon Hill Institute finds that prevailing wages set by the Wage and Hour Division at the Department of Labor inflates wages by an average of 22 percent, which adds around 10 percent to overall federal construction costs.

In addition, estimates from the Congressional Budget Office found the federal government would save $12 billion in construction costs from 2019-2028. Inflated prevailing wage also decrease employment for construction workers.

Though legislation to repeal the Davis-Bacon is unlikely, the DOL can help reduce the expansive regulatory regime that has been created. It is expensive to administer and the methodology used by the agency has yet to come up with a way to issue prevailing wage determinations that are close to the market rate. Here is an in-depth report produced by the Government Accountability Office, that calls for the repeal of the Davis-Bacon Act and explains how the DOL has failed to develop accurate wage determinations and how it may be impractical for the agency to ever do so.

While the DOL will never be able to set prevailing wages in a way that mirrors what the market rate is, it can improve its methodology. Fortunately, the Davis-Bacon Act does not prescribe a specific method to set prevailing wages. Rather, the Labor Secretary is granted authority to determine what wages are “prevailing for the corresponding classes of laborers and employed on projects.” This provides the Labor Secretary significant power to alter the methodology used to determine prevailing wages.

Currently, Davis-Bacon prevailing wages bear little relation to what the actual wages are in any specific area. To calculate prevailing wages, the Wage and Hour Division (WHD) at the DOL conducts voluntary surveys to collect data of wages paid to workers in specific job classifications in a particular geographic area. Importantly, the contractors who the WHD sends the surveys to are not required to fill them out—it is a voluntary process and the survey can be difficult to fill out for small firms or contractors new to federal projects.

This leads to a low response rate, which is dominated by larger contractors and labor unions. Furthermore, labor unions and union contractors have incentive to respond to the WHD surveys. Unions typically negotiate wages above market rates. And once a union has negotiated a contract, both the union and contractor have an incentive to ensure prevailing wages are the same or higher than the wage they negotiated. Otherwise, a non-union contractor could underbid them.

In short, currently, the WHD uses unscientific and unrepresentative data to estimate prevailing wages. An easy way to improve wage determinations and make them more accurate would be to use Bureau of Labor Statistics (BLS) data rather than the wage and hour survey data. Already, the BLS collects payroll data from employers all over the country, which is far more accurate. And by using BLS data, the WHD would no longer need to conduct or analyze survey data that would result in cost savings.

In a sample of nine occupational categories, which account for 59% of all construction workers, the Beacon Hill Institute found that on average prevailing wages are almost $4.43 per hour above the BLS average wage for those occupations.

Changing the methodology for prevailing wages is within the DOL’s authority and could result in significant savings to the taxpayer.

Conduct Survey of Wage and Hour Laws

Despite the negative impact on employment and the economy, there is no sign that calls to increase the minimum wage or overtime requirements will cease. To combat these efforts it is important to have reliable and timely research on the subject. The DOL is well positioned to engage in this debate. Further, the Fair Labor Standards Act (FLSA), which the DOL administers, demands it.

Section 204(d) of the FLSA requires the Labor Secretary to submit a biennial report to Congress that studies wage and hour provisions established by the FLSA and present recommendations to prevent curtailment of employment opportunities.

In that report, the Labor Secretary is required to evaluate and appraise the effects of minimum wage and overtime requirements by taking into account the ability of employers to absorb increased costs and other factors like changes in productivity and cost of living. The Secretary must also examine how to increase employment opportunities for groups with historically high levels of unemployment—including minorities, youth, and the elderly, as well as other groups.

The production of this report to Congress would provide new research and assist in evidence-based policymaking. In-depth study of, and original data on, these issues is necessary to ensure that future laws and DOL regulations do not curtail employment, and provide a better understanding of which current policies put jobs at risk. FLSA Section 204(d) requires the department to do this. But it appears the DOL has failed to ever produce this statutorily required report.

It is past time for the DOL to begin producing this report.