Davis-Bacon and unions

Heartland Institute:

Construction projects across the country cost more than they should because of a Depression-era minimum wage law meant to apply only to federally financed public works projects. The law is being applied to projects that have almost nothing to do with federal funding.

The Davis-Bacon Act’s wage requirements kick in at a mere $2,000 of spending. The original threshold was $5,000, but that was lowered to $2,000 in 1935 and has been there since. Had it been adjusted for inflation, the threshold would be more than $30,000 today, still an almost insignificant amount given the costs of most government-funded construction projects.

The act has been applied to a multitude of programs that have little to do with federally financed public works construction. For example, if a program involves federal loan guarantees, construction done with the privately borrowed money will probably be covered by Davis-Bacon.

The purpose of prevailing wage laws is to prevent contractors from undercutting local wage standards. This is considered necessary because of provisions in most public contracting laws requiring contracts to be awarded to the lowest bidder. There is a legitimate concern that a contractor from a low-wage area might submit a low bid and do the job with workers imported from lower-wage areas.

[...]Most prevailing wage rates are determined by voluntary participation in wage surveys. Construction companies with union contracts have a strong motivation to participate in such surveys, while non-union companies have little or no motivation to do so.

As a result, even though the federal Bureau of Labor Statistics’ Current Population Survey shows only about 14 percent of construction workers belonged to unions in 2007, union collectively bargained wage rates are frequently determined to be prevailing.

[...][O]ne benefit workers receive is a payment to a union retirement trust, but if the employee doesn’t remain a union member for the required period of time or doesn’t work enough hours in a given period to vest in the fund, the employee receives nothing. For a non-union construction worker covered by a 401(k) plan, by contrast, the funds are deposited immediately in the employee’s account and become the employee’s property.