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This is an Information Awareness Report I did for one of my classes. What I found out changed my attitude a little bit about prevailing wage.
Here it goes:
Information Awareness Report #2 – What is Prevailing Wage about?
I thought I had a general idea about what prevailing wage is. To me it meant that the government paid more money for the same work as a private company in order to make their constituents happy. With the current economic forecasts of dire budget cuts and over lack of money by government entities, I did not understand why prevailing wage was being used or why it was not being repealed or set aside. I had no idea where the concept of prevailing wage came from or if there was some sensible reason for it. I did understand that there was a logic that to pay a prevailing wage rate would almost ensure that local workers would not face competition from outsiders due to the fact that the pay rate would be the same. That said, I had several questions about prevailing wage.
What is the origin of prevailing wage? Going to Wikipedia, I find that prevailing wage is actually the result of a US federal law called the Davis-Bacon Act of 1931 (http://en.wikipedia.org/wiki/Davis-Bacon_Act). It was signed into law by President Herbert Hoover in March of 1931. The idea was to make government contract work available to local individuals so that outsiders could not simply come in and underbid contracts with cheap labor. It is assumed that if a company has to pay a certain amount of money for a worker, then it will get the highest skill level possible for that pay rate.
When does prevailing wage come into effect? In a nutshell, any construction or renovation work paid for, funded, or to be used by government entities must comply with its guidelines if the project will use more than $2000 of federal funds. Ohio actually raises the threshold for its version and sets the amounts at almost $78,000 for new construction and over $22,000 for renovations or repairs if using state funds. The laws state that even if the project is broken down into smaller parts, it is the sum total to complete the overall project that is factored in.
How are the rates determined? The prevailing wage rate is determined by what local union workers are being paid for that type of work. For example, if a union worker is being paid $36.39 (including benefits) to repair a roof on a building, then that is what any worker, skilled or unskilled, must be paid to do that same work on any government-funded work site. It is not based on the cumulative average of all workers (including non-union) that do roofing work.
Do private construction project have to pay prevailing wage? The laws, both federal and state, were amended over the years to force private projects to pay the prevailing wage rates if they receive any amount of state or federal funding even if it was a loan. Some have argued that this would also include tax-abatements, but this is not currently the case since no monies are actually exchanging hands from public to private.
Are there any exceptions to the laws? At certain times during economic emergencies, various presidents have temporarily suspended the act (a total of 4 times) in order to alleviate funding problems in specific areas of the nation. On average, the suspensions only lasted less than two months with the exception of after Hurricane Andrew during which the suspension lasted 7 months.
What are some of the cons of the Davis-Bacon act? There are many opponents to the continued existence of the various prevailing wage acts around the country. Most of the arguments are because of the increased labor cost involved. Some groups have even stated that it could save between 80 to 236 million dollars annually (1995 Ohio Legislative Budget Office figures – http://www.buckeyeinstitute.org/article/420) not counting the paperwork involved (an additional $9.8 million). Some groups even argue that the laws are of a ‘Jim Crow’ nature and were originally designed to discriminate blacks in the early years by forcing companies to pay ‘white’ wages to all who worked for them on government projects. At the turn of the 20th century, many southerners, mostly blacks, were being used as cheap labor in northern states. At the time, there was very little penetration by blacks into the predominately white unions and would effectively squash any hopes of work. Why pay a ‘unskilled’ (non-union) worker $25 or more an hour when he only has $10 an hour skills when one could have the ‘skilled’ (union) worker for the same price? It was even publicly stated by congressmen who voted for the Davis-Bacon Act of 1931 that they were doing so to prevent low-paid colored labor from competing with white labor. Other congressmen were more polite and stated that they were doing so to protect against ‘transient labor’, ‘cheap labor’, and ‘cheap imported labor’. Even the then AFL union president William Green stated his union was for these laws because ‘(C)olored labor is being sought to demoralize wage rates.’ (http://capmag.com/article.asp?ID=3357)
What are some of the pros of the Davis-Bacon act? Unions state that by ‘ensuring’ a prevailing wage enforces the practice of hiring ‘skilled’ labor. Doing so protects the public from poorly built highways, buildings, and other public projects. Unions maintain a minimum standard through apprenticeship programs and other such work-related educational programs. Congressmen use it as a method to increase the influx of money into economically depressed areas. UA Local 32 publicly states that the Davis-Bacon Act of 1931 and its derivatives force contractors to compete on the basis of skill and productivity and actually reduces cost-overruns by 18% and serious injuries by 15%. (http://www.ualocal32.com/ua32pp2PrevailingWage.htm) It is interesting to see that both the pros & the cons use the same argument (costs) to validate their point. I agree that unskilled labor will result in more man-hours. There is no denying that.
Prior to doing this research via Wiki then via Google, I held the position that prevailing wage laws were a detriment to true competition between contractors. The labor costs were going to be the same regardless of how a particular contractor did the job or not. To a certain degree, some form of quality control has to be enforced. Until contractors are required to guarantee their work, then prevailing wage laws should remain in full effect because ‘skilled’ labor does bring a better quality of work. However, if contractors were required to guarantee their work in the form of a monetary bond or some form of insurance against poor workmanship or overall quality of the materials, then I personally feel that the Davis-Bacon Act and its derivative laws could be repealed. Currently, quality is maintained by a forced labor cost. What I also find troubling is that the prevailing wage is set by unions, not by local labor costs. Some European countries require that contractors building their highways put up a bond ensuring the maintenance of the roads at no cost to the government if the repair is due to poor workmanship within a set time-period (anywhere from 5 to 10 years). I’d love to see that concept applied here.
Think about it (kinda).