Three sections of the Lieberman-Warner Climate Security Act of
2008 (S. 3036) would extend the reach of the Davis-Bacon Act into
private-sector construction. Under Davis-Bacon, Congress requires
federal construction contractors to pay "prevailing" wages to
prevent the government's buying power from forcing down wages of
construction workers. These sections of the Lieberman-Warner bill,
however, do not concern federal construction projects.
Additionally, Davis-Bacon wages bear little relation to the wage
rates that prevail in the marketplace. Specifically, Davis-Bacon
wage determinations are not calculated on the basis of
scientifically valid random samples, and investigators have
uncovered errors in 100 percent of the wage reports they reviewed.
Further, the Department of Labor takes several years to process and
publish wage determinations, making them out of date by the time
they are released. Rather than expand its coverage, Congress should
amend the Davis-Bacon Act to require prompt wage determinations
using proper statistical techniques.
A Significant Expansion of Davis-Bacon
The Davis-Bacon Act requires contractors on federal construction
projects to pay the "prevailing" wage, the typical wage that
workers in that area would earn on private construction projects.
Three sections of the Lieberman-Warner Climate Security Act would
extend the coverage of the Davis-Bacon Act:
- § 832: Bonus Allowances for Renewable Energy. The
Act provides bonus carbon dioxide emissions allowances for the
construction or repair of renewable energy sources. All workers on
those construction projects would be required to receive
Davis-Bacon wages.
- § 909: Low and Zero Carbon Electricity Technology
Fund. The Act distributes funds from a Low and Zero Carbon
Electricity Technology fund to construct, repair, or convert power
generation facilities that produce little carbon dioxide. All
workers on those construction projects would be required to receive
Davis-Bacon wages.
- § 1005: Kick Start for Carbon Capture and
Sequestration. The Act creates a Carbon Capture and
Sequestration Technology Fund that provides money for the
construction, repair, and conversion of carbon capture and
sequestration facilities. Davis-Bacon restrictions would apply to
all workers involved in those projects.
None of these programs involve federal construction. The
Davis-Bacon provisions of the Lieberman-Warner bill would extend
Davis-Bacon coverage from federal construction projects to private
projects that Congress has chosen to subsidize.
Government Buying Power Not a Concern for Non-Government
Construction
Congress passed the Davis-Bacon Act during the Great Depression,
when the federal government was the largest construction contractor
in many areas of the country. It had what economists term
"monopsony power"-the power, as the biggest buyer of construction
services, to force construction workers to work for lower wages.
Congress required federal construction projects to pay prevailing
wages to prevent the government's purchasing power from driving
down wages.
Monopsony power, however, is not a concern in private
construction projects that receive some federal funding, such as
those contained in Lieberman-Warner. No individual private buyer
has the purchasing power of the federal government, so Congress has
no economic justification to extend Davis-Bacon coverage to private
construction.
Unscientific Surveys
Davis-Bacon wage rates are also extremely inaccurate and bear
little relation to actual market wages. Repeated investigations by
the Department of Labor's inspector general have found severe flaws
in prevailing wage calculations. Before Congress extends
Davis-Bacon coverage it should fix the problems that the
inspector general has already identified with its
implementation.
The Department of Labor's Wage and Hour (WH) Division conducts
surveys of prevailing construction wages. Unlike Bureau of Labor
Statistics (BLS) surveys that estimate the unemployment rate or
average wages, the Davis-Bacon survey is not a statistically random
sample. The survey is self-reported, which means that only those
construction firms that take the time to complete it and send it
back influence the survey.[1] This introduces considerable bias into the
estimates. Many smaller construction contractors without the staff
resources to devote to government paperwork and contractors who do
not do business with the federal government do not return the
survey.
Surveys must be random in order to provide accurate estimates.
Internet polls often show candidates winning 80 percent of the
vote-even when those candidates ultimately lose the
election-because the respondents to those polls are self-selected.
Any survey conducted without random sampling reports severely
biased results.
Widespread Data Errors
In addition to sampling bias, government investigations have
found widespread errors in the wage reports submitted to the
Department of Labor. The General Accounting Office (GAO, now the
Government Accountability Office) found repeated errors in the mid-
and late 1990s that led the Wage and Hour Division to overhaul its
methodology. In a follow-up report, investigators from the Office
of the Inspector General found "one or more errors existed in 100
percent of the wage reports they reviewed. Error rates were high
even after WH's prolonged efforts to edit and clarify and complete
the data."[2] Wage rate misreporting, employee miscounts,
and incorrect job classifications were common.[3] The government does
not use accurate data to calculate prevailing wages.
Long Survey Processing Delays
Delays also plague prevailing wage determinations. The
Department of Labor takes an average of 2.3 years to issue a
prevailing wage determination after the survey period ends. WH
spends four-fifths of this time on data correction and analysis,
not data collection.[4] After the surveys are issued, it takes
years-or even decades-for WH to re-survey a county. Inflation and
changing market conditions mean that even perfectly accurate wage
determinations do not reflect market wages. Construction
contractors must pay "prevailing" wages that are several years out
of date.
Highly Inaccurate Results
Self-reported surveys that are two years out of date with 100
percent error rates do not reflect prevailing wages. Table 1
compares Davis-Bacon wages with scientific surveys of median market
wages conducted by the Bureau of Labor Statistics for several U.S.
cities and construction occupations.
In almost every case, the prevailing wages do not resemble the
actual market wages. Davis-Bacon wages vary from 34 percent below
market wages for electricians in Grand Rapids to 95 percent above
market wages for brickmasons in the Nassau-Suffolk area of Long
Island. The Davis-Bacon Act, as currently enforced, causes the
government to drive down construction wages in some cities and
requires taxpayers to overpay for construction projects in
others.
Use Scientifically Valid Surveys
Congress should not expand the Davis-Bacon Act while such severe
flaws plague the program. Instead, Congress should require the
Department of Labor to base prevailing wage determinations on
timely, accurate, and scientifically valid surveys.
BLS conducts many such surveys to calculate unemployment, the
inflation rate, and other important economic statistics. Two BLS
surveys-the National Compensation Survey (NCS) and the Occupational
Employment Statistics (OES) survey-calculate detailed wage
information by occupation throughout the United States and could be
used to calculate Davis-Bacon prevailing wages. The government
already uses OES data to calculate prevailing wages for service
occupations under the Service Contract Act. Expanding the scope of
the construction portion of the NCS would enable the Department of
Labor to calculate prevailing wages scientifically and
accurately.
Recommendations for Congress
Congress should not extend the Davis-Bacon restrictions to
private construction projects that would receive federal subsidies
under the Lieberman-Warner bill. Private construction has nothing
to do with the purpose of prevailing wage laws, which is to prevent
the federal government's purchasing power from driving down wages.
In addition, serious flaws in prevailing wage determinations mean
that Davis-Bacon does not serve this purpose. In some cities,
Davis-Bacon wages drive down market wages, while in others they
cause taxpayers to overpay for construction projects.
Instead of expanding the reach of flawed Davis-Bacon wage
determinations in the Lieberman-Warner bill, Congress should fix
them by requiring the Department of Labor to calculate prevailing
wages using proper statistical techniques. The Bureau of Labor
Statistics conducts timely, accurate, and scientifically valid
surveys. Using these surveys would significantly improve the
accuracy of Davis-Bacon prevailing wages so that they would reflect
actual market wages.
James Sherk is
Bradley Fellow in Labor Policy in the Center for Data Analysis at
The Heritage Foundation.
[1]
U.S. Department of Labor, Office of Inspector General, "Concerns
Persist with the Integrity of Davis-Bacon Act Prevailing Wage
Determinations," March 30, 2004, pp. 12-13, at .