Trump’s ability to woo labor unions is crucial toward implementing elements of his agenda. It is likely that the President’s trillion-dollar infrastructure plan will only pass Congress if it receives union support and the Democratic votes that come with it.
But recent reporting from McClatchy reveals a potential stumbling block for the Trump administration’s goal of keeping a segment of organized labor as an ally. The issue at hand is the Davis-Bacon Act, which is a government wage mandate that raises the cost of federally financed construction projects and protects unions from competition.
As reported, President Trump signaled he would make a statement on the law, but has yet to do so. This has alarmed Trump’s potential allies, the construction unions, who want to “ensure its wage protections are enshrined in Trump’s promised trillion-dollar infrastructure plan.”
President Trump has a decision to make. Side with unions, a small and shrinking amount of the private-sector workforce, or taxpayers and workers that have chosen not to join a union.
The Davis-Bacon Act is a Depression-era law that bars contractors from paying their workers anything under the local prevailing wage, which is normally equal to the union rate in the area, when working on federally funded or assisted construction contracts of over $2,000. The law also requires the Department of Labor to conduct regional wage determination surveys in order to set wage rates for over 100 job classifications.
By forcing federally funded construction projects to pay above market wages needlessly protects union firms from competition on taxpayer funded construction projects. As such, it raises the cost of construction.
And the costs are huge. Without having to pay inflated Davis-Bacon wages, the federal government could undertake more construction projects—build more bridges and buildings, employ more workers—or save taxpayer money. Research shows that Davis-Bacon wage requirements inflate federal construction costs by almost 10 percent.
In December 2016, the Congressional Budget Office (CBO) estimated that repealing Davis-Bacon prevailing wage requirements could save taxpayers $13 billion on federal construction projects between 2018 and 2026.
In large part, construction costs rise under Davis-Bacon projects because the Wage and Hour Division (WHD), which is responsible for conducting the wage determination surveys, greatly inflates wage rates. Research conducted by the Beacon Hill Institute finds that:
[The] WHD methods inflate wages, on average, by 22%. It comes as no surprise that the WHD methods produce estimates biased in favor of high-cost, union labor. We compared the estimates reported by the WHD to the estimates reported by BLS [Bureau of Labor Statistics] for a sample of nine occupational categories accounting for 59% of all construction workers across 80 metropolitan areas. We found that on average the DBA prevailing wage is almost $4.43 per hour, or more than 22%, above the BLS average wage when wages are weighted according to the number of workers in each trade and each metropolitan area.
There are more downsides to the wage mandate than inflated wage requirements that raise costs. Requirements of the Davis-Bacon Act make non-union firms less efficient because the Act imposes rigid job classifications that are non-existent at non-union firms.
The Institute for Justice explains how:
[The Davis-Bacon Act] creates rigid job classifications and procedures which, though standard operating procedure for unions, are anathema to small non-unionized firms. Such firms literally have to become less efficient in order to compete for Davis-Bacon contracts. Workers who perform a variety of tasks must be paid at the highest applicable skilled journeyman rate (e.g., a general laborer who hammers a nail must be paid as a ‘carpenter,’ at perhaps three times the company’s regular wage rate). Unskilled workers can be employed only if the company can afford to pay high wages, and training can be provided only through limited and heavily regulated apprenticeship programs.
Above market wages, rigid job classifications and mountains of paperwork associated with the Davis-Bacon Act discourage non-union and small construction companies from bidding on federal projects. This greatly diminishes competition for federal construction contracts because the vast majority, 86 percent, of the private construction industry is non-union.
But discriminating against certain kinds of labor is what the law was intended to do. As my former colleague Vincent Vernuccio and Harry Alford, President and CEO of the National Black Chamber of Commerce noted:
In 1931, Rep. Miles Clayton Allgood of Alabama spoke in support of the then Davis-Bacon bill on the House Floor, stating bluntly, ‘Reference has been made to a contractor from Alabama who went to New York with bootleg labor. That is a fact. That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.’
It is President Trump’s prerogative to form an alliance with construction unions. However, if keeping construction unions as an ally comes at the expense of efficient use of tax dollars and competition, the White House must side with the public and not the special interests of labor unions.