Doing the right thing on Davis-Bacon
By jjayson Posted in User Blogs — Comments (23) / Email this page » / Leave a comment »
Promoted from Diaries...
On September 8th President Bush, by Executive Order, exercized his power during a national emergency to suspended the Davis-Bacon Act to aid in the rebuilding of Katrina ravaged areas. The 1931 Act sets a minimum wage for various jobs that must be be paid in federally funded construction projects. That wage is defined as the prevailing wage for the area, but prevailing in most cases simply means the union wages:
Read on.
Local Davis-Bacon rates generally have been higher, the greater the percent of area building trades workers who are union members (Allen, 1983, pp. 717-25). Although union wage rates are not specifically required, former Secretary of Labor F. Ray Marshall and his coauthors stated: "In practice, these minima have been union rates and therefore have been useful to the building trades unions in preventing nonunion wage competition below these minima" (Marshall et al., 1976, p. 240). Indeed, 302 (57 percent) of 530 area wage determinations in effect in October 1976 were taken directly from collective bargaining agreements rather than based on wage surveys (General Accounting Office, 1979, p. 43). Thus, the usual effect of the Davis-Bacon Act has been to favor higher-paid labor and union members on federal construction projects by rendering illegal the employment of lower-wage — virtually always nonunion — labor. (Farrell Bloch, Public Service Research Foundation, "Employment Effects of the Davis-Bacon Act", 2001)
Even when prevailing wages are based on wage survey forms, those forms are inflated or even made up. In 1997, the Wall Street Journal reported that in an audit of 800 wage forms, two-thirds contained "significant" errors, and "deliberate misreporting" was a possiblity. In Oaklahoma, a union official was found reporting a project that never existed.
Organized labor and its supporters are having a fit over the suspension. In a press release, The AFL-CIO called it "short-sighted action." Rep. George Miller of California described the order as a "colossal mistake." And Sen. Ted Kennedy voiced his concerns: "One of the things the American people are very concerned about is shabby work and that certainly is true about the families whose houses are going to be rebuilt and buildings that are going to be restored."
I think the noble senator just said that a construction team that employs blacks for helpers cannot do as good of a job as one composed of almost entirely highly-paid unioned whites. He may mean well, but the Davis-Bacon Act is racist in both intention and effect.
Current Republican Response
This was a Republican law, passed by Sen. James Davis and Rep. Robert Bacon, so it is your mess to clean up.
While many Republicans have the right idea in suspending Davis-Bacon, they essentially have the wrong reason to do it. "We must ensure that a catastrophe of nature does not become a catastrophe of debt for our children and grandchildren," said Rep. Mike Pence, chairman of the Republican Study Committee. Bush himself, stuck in the conservative Keynesian model all of his advisors favor, cites the deficit as the biggest reason for suspending the Act. A couple billion extra for rebuilding a city and our creditors are not going to panick.
Given the spending addiction in Congress and the recent transportation bill, any reason having to do with the budget just doesn't pass the laugh test. It sends a terrible message that Republicans are willing to overpay for building a useless bridge in Alaska, but when it comes to rebuilding some black family's house, then the belts have to really be tightened in order to save pocket change. The New York Times has already teed off on this too, noting that "the proclamation doesn't require contractors to pass on the savings they will get by cutting wages." If companies brought in for the rebuilding are not going to significantly lower their bids, then the deficit argument goes away, and if no-bid contracts are used instead, then there are real problems with the reasoning. Any direct monetary savings are going to be swamped by a rounding error.
The President is missing out on a tremendous opportunity to explain how wage floor laws harm minorities. He has a perfect entry for showing he can do something for minorities and how government intrusion in the market hurts those at that margins the most.
Racist History
In 1994, the National Black Chamber of Commerce, who describes itself as the largest Black trade association in the world, started advocating the repeal of the Davis-Bacon Act. Five years later Harry Alford, the CEO of the NBCC, in congressional testimony to the House Committee on Education and the Workforce, described the racist origins of the Act:
The Davis-Bacon Act has racist roots. It was enacted to prevent black-owned firms from the South to migrate to New York City and compete on construction contracts. These firms, employing descendants of skilled slave craftsmen, were soon blocked from the huge New York market, and were forced to return to the "Jim Crow" environment of the old South. The exclusivity effect of Davis-Bacon requirements encourages the construction trades to continue its activity of discrimination against African-American labor.
Locally, regionally, and nationally, construction trades under-represent the African-American population. Go to any city or look at any major project, and you will find a great disparity against African-American labor. (Hearing on the effects of Davis-Bacon helper rules on job opportunities in construction, 21 July 1999)
Walter Williams in Capitalism Magazine adds more detail about the racial orientation of the discussions in the 1930s when trying to get the law passed:
Rep. John Cochran of Missouri said he had "received numerous complaints in recent months about Southern contractors employing low-paid colored mechanics getting work and bringing the employees from the South."
Alabama Rep. Clayton Allgood complained: "Reference has been made to a contractor from Alabama who went to New York with bootleg labor. This 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."
Rep. William Upshaw complained of the "superabundance or large aggregation of negro labor," which is a real problem "you are confronted with in any community."
New York's Sen. Robert Bacon replied, "I just mentioned the fact because that was the fact in this particular case, but the same would be true if you should bring in a lot of Mexican laborers or if you brought in any non-union laborers from any other state." (Williams, "Repeal the Davis Bacon Act of 1931", 7 December 2003)
Alford continues in his testimony describing the minority employment situation in Davis-Bacon projects:
The City of Detroit has embarked on a major construction expansion, including a new football stadium and a new major league baseball park, across the street from each other. Even though the City of Detroit has a population that is 77 percent black, these two projects, which have been declared union only, will, at best, average no more than 15 percent African-American participation in the workforce. This is a disaster. ...
According to the Department of Labor's Office of Federal Contract Compliance Programs, the City of Gary should have 24 percent of its construction workforce consisting of ethnic minorities. The fact is that Gary, despite being over 85 percent black, can produce no more than 3 percent minority participation on any Davis-Bacon project. Gary is the "Steel City"; a steel city with only two black ironworkers with journeyman status. ...
The bitterness and disgust of capable and potential black workers and business owners is starting to boil. On July 15th of last week in St. Louis, a group of black contractors and workers effectively shut down Interstate I-70 in protest of the Federal Highway Administration's discriminatory practices via Davis-Bacon. Such civil disobedience actions are going to populate this nation. St. Louis is just the beginning, and other urban centers, even Washington, D.C., are going to explode. The time to integrate the construction trades is now.
We have had several generations of so-called apprenticeship programs by the construction trades, and still no adequate representation of blacks in the journeymen roles. What has happened to those apprentices? We can train them all we want, but until the doors of discrimination are forced open, we will continue to have the same disparities in the crafts.
By allowing helpers in federally-funded workplaces, we will improve the participation of minorities. This participation will certainly promote an environment that would look closer to America. It will also assist small businesses and, in fact, black-owned businesses to compete and win a greater share of federal contracts.
Rounding it out, John Stossel wrote about yet another example of the Act's prevailing wage requirements harming urban black men looking for work:
When Chicago decided to repair the Cabrini Green housing project, people who lived in the project assumed such a big job would provide work for the unemployed young men who grew up there. But because of Davis Bacon, every contractor had to pay high salaries -- even for the simplest jobs. So contractors, locked into paying high salaries, were not about to take a chance on beginners. They hired the most experienced union workers they could find. They used workers who would "normally never come near our neighborhood," said aspiring construction worker John King. "I think it's wrong that they do that. We want to provide. We're not just derelicts and drug dealers and thugs." ("The fallacy of the prevailing wage", 10 August 2005)
If truck loads of white union workers arrived in New Orleans and were hired because of Davis-Bacon wage floors, there would almost certainly be an increased racial tension and further claims of racism. Suspending the Act now might have saved a race riot or civil disobedience, but only if minorities can get hired for these jobs and local and state governments and unions do not get in the way.
Keeping the unskilled unskilled
The Great Depression era Act is a powerful force keeping low and unskilled minorities out of construction on federal projects by making it illegal to compete against unions on wages. Imagine a roofing job. A skilled roofer can be hired for $30 an hour and a laborer for $10 an hour. There is a lot of grunt work, so the job can be done with one roofer and three assisting laborers for $60 an hour. Or it can be done at same quality with two journeyman roofers and one laborer at $70. As the owner of this firm, you'd prefer to hire the roofer and three pairs of hands. Now along comes a well meaning person that thinks that the only way wages rise is by government mandate, so he forms this law that anybody working a roofing job much be paid at least $20 an hour. The roofer and his three sidekicks now cost you $90 for each hour, but the two experienced roofers with only a single laborer only run you $80. Out go a brown and black guy trying to work their way up and in comes another white union guy.
But the costs only went up $10 an hour, to $80 from $70! Not quite. The costs really went up twice that since without the wage floor a better mix of men would have been used. And look how average wages went up to $27 on the three person team from only $15 on the four person team! Again, not quite. That is just a statistical artifact since you priced the lower-skilled workers out of the market. One of the laborers may like the policy, but the other two are hurting now. Not only can they not get a job now, but their chance of climbing the economic ladder doesn't look nearly as good. The bottom rung of that ladder has just been chopped off, and that bottom rung is where on-the-job training and experience are built up. Without that acquired knowledge, these two guys may find the only on-the-job experience they can get will be selling drugs or stealing cars. True, another union guy has a job, but he is the least likely to need help getting one. He already has the experience to run a crew on his own, and his skills keep him in demand.
The idea that higher wages mean better quality is suspect too. If higher wages produced better quality or productivity for the money, then companies would be paying those higher wages already, or we would have a noticeable quality difference between federal and private buildings. Being behind schedule and producing inferior goods would not help the bottom line of any construction company. In order to compensate for higher salaries, a company may decide to use a poorer quality of materials or fewer units of labor. Or it may prevent one of those journeymen from getting off the roof and into a supervisory role. Empirically, when Ohio suspended their prevailing wage law for school construction, there was no noticable difference in quality:
In seeking to evaluate the impact that the prevailing wage exemption had on the quality of school construction, LSC assumed a definition of quality meaning "conformance to adequately developed requirements" and that "the ultimate measure of quality" was the "satisfaction of users' needs." Surveys of school districts indicate that the users of the buildings are generally satisfied with the buildings. As perceived by responders, the exemption does not appear to have decreased the quality of school construction by that definition. (Allan Lundell, Ohio Legislative Service Commission, "The Effects of the Exemption of School Construction Projects from Ohio's Prevailing Wage Law", 2002)
Minority-owned businesses also tend to be smaller and less capitalized than their larger competitors. By allowing them to use cheap urban labor, they not only provide employment and training for their communities, but can also compete against firms that may have better machinery and more resources behind them. While the Davis-Bacon Act was originally written to protect local companies against larger ones bringing in low-skilled black labor, now that the low-skilled minority labor is local, it serves to keep local companies out of the marketplace.
A few extra billion added onto the budget as a one-time expense is meaningless. Bush should have come out with the the strongest arguments: Temporarily repealing the Davis-Bacon Act will increase minority employment opportunities and lower the barriers to minority-owned small business participation in the rebuilding efforts. If we want to give jobs to urban men, we have to make it easier for them to get jobs.
I've always considered Davis-Bacon to be a ridiculous piece of legislation. In essence it says: If you are going to use Federal funds to pay for your government construction project, be sure to waste some of it by paying higher than prevailing wages.
It is not optional, it is illegal for the government and any contractor that works on the project to not pay the higher wages.
Ridiculous.
on this subject shorter isn't necessarily better. Good work.
jjayson diary.
Good work. I only disagree with the contention that Davis-Bacon was "a Republican mess". That implies that Democrats all voted against it.
It would be better described as "a labor union mess". One more example of labor unions exacting a pound of flesh from the American people and using racism as a selling point to sway white senators from overwhelmingly white states.
Again, great diary.
With the same effect, too, of pricing lower skilled labor out of the market.
I loved Walter Williams' analogy comparing minimum wage to establishing a minimum price for beef. Supposing that politicians, hoping to help beef producers, passed a law declaring that beef would be sold for a minimum of $3.99/lb. What would be the immediate effects on the beef consumer? First, I would eat less beef. Second, when I do eat beef, it ain't gonna be hamburger.
Lower skilled, entry level labor corresponds to the hamburger in the analogy. Any minimum wage, including one set by Davis-Bacon, is going to suppress jobs at the lower end of the wage scale.
decides to keep deficit busting as his argument for resciding Davis-Bacon he is going to be crucified for it.
I think this is terrible timing. Whether Davis-Bacon is a good law or not is worthy of debate. It should NOT be rescinded in response to a major catastrophe.
is the point of rescinding the act to promote hiring, or to allow corporations more profit?
i live in los angeles...after the quake, pete wilson put out private contract bids for major recontruction (most notably, the 10 freeway)
prevailing wages stayed in place, and the projects came in under budget, and under deadline
i also do not understand why the president included some counties in florida under this...they were barely touched by this hurricane
It should NOT be rescinded in response to a major catastrophe.
This is the perfect time. The theory is that these union wage floors lock out less skilled minority labor on federal projects, and Alford of the NBCC and Stossel both provide the empiracle evidence that this does happen to a frightening degree.
There is going to be a lot of federally funded construction, and NO is definitely a minority area with a huge pool of minority workers that would love a chance to be hired and gain some valuable trade experience. We don't want a repeat of Cabrini-Greens where outside white workers are brought into a black neighborhood to do work that many of them could have helped on.
Of course you could make even more laws to force inclusion of minority workers, but that doesn't solve the problem since low-skilled workers are still shut out and outside minority workers who already have experience will be sought out.
It isn't directly a racial issue, but a skills issue. However that closely ties to race. Trying to legislate racial quootas into hiring is only attacking the symptoms and not the cause.
Also, I think that those who live in the area will be more concerned for how well it is kept when they can walk by a building they helped construct.
The budget argument for suspending D-B is extremely week, but the skills and minority argument are extremely solid.
but not rescinding the amount of profit to be made is the point of rescinding the act to promote hiring, or to allow corporations more profit?
I think yes? If you were to limit profits allowed, then the point of hiring minority workers would essentially go away for the construction company. If they are going to make the same profits hiring either the more experienced white union workers or the less experiences minority non-union workers, then companies would opt for the experience to reduce the risk of the project. There has to be enough profit to make the risk worth it. Few companies are going to hire less-skilled minorities out of the goodness of their own heart.
prevailing wages stayed in place, and the projects came in under budget, and under deadline
This is essentially contradictory of every good piece of statistical evidence I've seen. I've seen a couple case studies that purport to show that prevailing wage laws make things fininsh faster and cheaper, but case studies have that nagging N of one problem. If this were true, then wouldn't even single construction company use prevailing wages? This would be the most monumental market failure even seen, and there is probably a Nobel prize in there for being able to explain it.
I think a lot of people will be distrustful of this President in this regards and they will feel that he is playing a race card in order to do some union busting.
the suspension of Davis-Bacon reduces profits and increases product.
Most government construction projects are based on a cost-plus-fee contract wherein the contractor, if he adheres to the conditions of the contract, is guaranteed his expenses plus a guaranteed profit. So a $1,000,000 project would notionally generate a profit in the neighborhood of $40,000. The contractor is going to make that profit regardless of the prevailing wage.
permanently suspend the act.
Sounds like a union protection bill more than anything else.
I think I was clear in my posting that I also thin perception is going against Bush, especially because of the budget deficit argument.
And I think Bush is using it to do a little bit of union busting
However, regardless of the perception and whatever Bush's true reaons are, the suspension of Davis-Bacon will definitely help more low-skilled urban black men get jobs in the federally funded reconstruction effort. I'm pretty open to other views, but this is one issue that seems fairly clear. The data is overwhelming.
given the fixed nature of the profit the variable is the amount of labor that can be accomplished with the remaining $960,000. Unless you are assuming a highly paid worker can work at a high multiple of efficiency over a lower paid worker, the client, that is, the government, gets more man-hours for the same profit with cheaper labor.
I really need to learn more about how govt contracts are bid, but anything that doesn't allow lower costs to win out and keep their extra profit is essentially circumventing the market mechanism that allows for the employment of lower-skilled workers.
However, I don't see how the suspension can reduce profits.
(1) If the contract is given to the lowest bidder, then the "costs" component will be manipulated to come in lower than competitors and still allow for the extra profit from cheaper laboreres to be captured. Such as supervisor wages wages may rise since it would be pointless to bid too much lower than everybody and just lose that profit.
(2) If contracts are no-bid and cost-plus and paying less than prevailing wages hurt profits (by bringind down the cost component that the plus profit margin is keyed off), then the company would simply pay the prevailing wage.
I just don't see how this can possible reduce profits and keep low-silled workers out. If that turns out to be true because of some lame way contract bidding is done, then the bidding process is really messed up and almost no longer even resembles a free market. (And sadly, that could actually be a strong possiblity since we are dealing with government after all!)
Companies have to be allowed to capture the excess profit from hiring a lower-skilled mix of workers in order for them to hire that mix. Any attempts by the government to prevent that from happening are only going to hurt the minorities the most. Profits are not evil and something to be stamped out.
Streiff might have a point about how the bidding process works to keep too much in profits from flowing to the companies. If lowering the cost structure actually lowers profits (something exactly backwards to a true free market), then I guess I could be wrong.
I can't name a single sector where reducing costs reduces profits. That's just perverse.
That's exactly what it is. Unions love wage floors from Davis-Bacon acts and the state-level "little Davis-Bacon Acts" to the minimum wage precisely because it prices their competition out of the market.
We are all suppliers of our own labor, and wage floors don't just say that a company cannot pay too little for labor, but they equivalently say that we cannot charge too little for our labor. Unions effectively get the government to come in make their competition illegal.
Sorry, but I'm not following you. And I'm trying to. I've been around construction sites for much of my life since my father did construction.
Are you saying that there is no profit motive to reduce costs? Like none?
Second, I already highlighted here that this latest move by Bush appears to be yet another in his long line of moves to encourage as many illegal aliens as possible to come to the U.S.
Based on jjayson's previous comments, I don't think the idea of illegal aliens taking reconstruction jobs from Katrina victims would bother jjayson too much.
However, it will probably bother 99% of Americans, and I'd suggest that's who you consider when trying to decide whether Bush's suspension of Davis-Bacon is a good idea or not.
For those lurking Dems, I'd suggest concentrating on both the illegal aliens part as well as the odd matter of the three south Florida counties being included in the suspension.
From this:
"Miami-Dade County was spared the blow that Katrina dealt the Gulf states."
defies logic and reason all the time. Mainly because their objectives are not profit oriented.
I can't say I have a lot of experience but I do know of one case where a state agency offered a number of jobs clearing underbrush in the forest to the local county residents, and nobody wanted the jobs. So they contracted with a laborer broker who brought in a number of Mexicans, some of whom were probably illegal. The broker took 50% of their pay as his commission. This bothers me more. At least the people should get their full wage.
Hrm... this came out a little too long. I should have really tightened it up. I could have cut 1/3 or a 1/2 of it, if I had the time to edit it, I guess.
(What is this lovefest with McNabb and Vick? Even on Squak Box this morning they can't help but take a jab at TO asking if his communication problems can cause trouble this year. What will cause trouble this year is that McNabb didn't have any accuracy in the opening game. If TO has to jump ro slide for the ball, he isn't going to get in the endzone, and that it what we saw all game, TO jumping up and coming down with the ball, but no chance to make a move when he is hit in mid air. YAC has a lot to do with the QB being able to hit somebody in stride.)