Infrastructure Spending and Bacon-Davis

The Bacon-Davis Act was passed in 1931 and is another relic of the New Deal that has to go.  It requires private contractors to pay the “prevailing wage” in a geographical region to all employees on any project that receives federal funding of $2,000 or more.  The Department of Labor surveys the areas in over 100 job classifications and then establishes the wage floors.  Today, the law covers about 20% of all construction jobs in the United States and affects 25% of construction workers at any one time.  Because the “prevailing wage” tends to be the union wage- especially in urban areas where the construction workforce tends to be unionized- the law advantages union labor over non-unionized labor.  In effect, it is a government handout to organized labor.

Unfortunately, it also unnecessarily drives up the cost of construction projects while simultaneously working to the disadvantage of minority workers.  The following is a simplified example of a construction project involving one laborer, one pile driver and one structural steel worker.  Each works 8 hours per day for 5 days.  The only difference is that one set of workers is building a road in Mississippi and one is building a road in New Jersey.  The government has determined that both construction jobs met the criteria put forth by the Department of Transportation.

To build a stretch of road in Mississippi would cost the contractor $2,150.80 in labor costs.  To build an identical stretch of road in New Jersey would cost the contractor $4,155.20 in labor costs, or 93% more.  The reason is that New Jersey’s construction labor force is more unionized than that of Mississippi.  In the highly urban areas, like New Jersey and the Northeast corridor, with its heavy traffic and wear and tear on roads and bridges in need of repair, the costs are going to be higher than in other areas because of labor costs.  The rebar, the steel, the asphalt, etc. all cost the same whether in Mississippi or New Jersey.  The stretch of road is no better or worse in either state.

Besides the fact that (often denied by unions) Bacon-Davis was passed with racist intent, the law works to the disadvantage of unemployed, unskilled laborers.  They possess one advantage over their unionized counterparts: they are more willing to work for less money than the union worker.  It makes no sense why a highway maintenance worker in California is paid over $25/hour for doing the exact same job the same worker does in neighboring Arizona for $18/hour.

It is estimated that a repeal of Bacon-Davis would save the government over $11 billion annually in costs.  It is further estimated that it would create about 160,000 construction jobs at no extra cost to the US taxpayers.  And, we have proof of that.  Throw in $100 million in government administrative costs and $190 million in administrative costs to businesses and one can see that Bacon-Davis is a serious economic drag on government-funded construction jobs.

The law can be suspended in times of national emergencies as declared by the President.  The Act has been suspended four times in its history.  The suspensions by FDR seemed politically motivated to get concessions on other New Deal legislation.  Nixon suspended it in response to inflationary pressures, but the suspension was short-lived as he moved onto other solutions.  In the wake of Katrina, the primary effect was an influx of Latino migrant workers, the same phenomena seen in Florida after Hurricane Andrew.

Obviously, the contracts for government-funded construction contracts should be awarded competitively regardless of wages or labor costs.  Provided the company meets the specifications to complete the job on time, they should be awarded the contract.  If the government wants a piece of interstate highway built in Mississippi or New Jersey, then the company that comes in with the lowest bid should win that contract.

The unions will argue that they employ the best-trained, most highly-skilled workers in the country.  They may be “better-trained” and “more skilled” only because they have had an unfair advantage in procuring job contracts in the past.  The unemployed construction worker- whether black, white or Hispanic- wants to work.  As the wage discrepancies in geography indicate, it means little if they make $13.42/hour, or $21/hour.  Of course, they would prefer the $21 rate, but $13.42 is better than zero.

With the possibility that the Trump administration may propose some infrastructure spending bill in the future, at the very least Bacon-Davis should be reworked, if not repealed.  Competitive bidding for any project is a must with the lowest cost awarded the contract.  Perhaps a nationally-based wage floor commensurate with the expertise in each job can be established as a happy medium.  We obviously do not want a race to the bottom in wages for construction workers, just some sanity that does not necessarily line the pockets of organized labor.  Of course, the free market, when it comes to labor wages, is the best solution.