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Prevailing Wage Laws: Legislating Inequity

Cascade Commentary


Prevailing wage laws discriminate against one group of workers in favor of another, mandating wage rates which should be determined by the market. They limit employment opportunities for lowerskilled workers and inflate the cost of government construction projects at taxpayers’ expense.

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“Prevailing” wage laws constantly reemerge as a point of contention throughout the nation, and Oregon is no exception. These laws mandate that a particular wage rate be paid to laborers working on government construction projects. The rate is determined through government surveys and is usually found to be substantially higher than the market rate.

The central problem with prevailing wage laws is that it is impossible for government officials to know what an appropriate wage should be. Only the market knows what labor is worth in a given circumstance. In choosing to override market signals, regulators are forced to use wage surveys as a second-best method of determining the mandated wages.

“The central problem with prevailing wage laws is that it is impossible for government officials to know what an appropriate wage should be.”

Prevailing wage legislation was originally adopted by Congress in 1931, in what came to be known as the Davis-Bacon Act. Congressman Robert Bacon was the driving force behind the law, eventually passing it with the support of Senator James Davis and the American Federation of Labor. Bacon first began to pursue a prevailing wage law when a southern Alabama contractor imported an African American crew to work on a federal project in Bacon’s New York district.

The circumstances and legislative comments surrounding the adoption of the Davis- Bacon Act demonstrate that its purpose was to limit African American competition with white unions. The impact of mandating a higher wage on competition and minority workers was understood well by those responsible for the bill’s passage. Working for lower wages had permitted African American workers to have a competitive edge over white construction unions from which they were largely excluded. The Davis-Bacon Act eliminated the possibility that African Americans could make themselves competitive by preventing them from working for lower wages than the unionized white workers.

Studies show that the Davis-Bacon Act and its state equivalents still harm low-skilled workers. Mark Price of the University of Utah found that opportunities for (lowskilled) high-school dropouts’ employment increases from 12% to 21% without Davis-Bacon legislation in force. Daniel Kessler of Stanford University and Lawrence Katz of Harvard University discovered that the likelihood of higher wages for African Americans also increased. The discriminatory effects of the original federal law still play out where Davis-Bacon laws continue to exist, even though their racist origins may have been long forgotten.

“The bias against minorities and non-union workers is not the law’s only negative effect. Prevailing wage laws inflate construction costs.”

The bias against minorities and non-union workers is not the law’s only negative effect. Prevailing wage laws inflate construction costs. The Ohio Legislative Research Commission and the Florida State School Board Association survey found that savings on a project’s construction costs were 10.7% and 15%, respectively, when the prevailing wage rate was not implemented. Lowering overall expenditures would permit additional projects such as roads, schools and low-income housing.

Another problem with prevailing wage laws can be observed in Oregon: their increasing application to public/private projects. The Oregon Prevailing Wage Act, Oregon’s “little” Davis-Bacon Act, was adopted in 1959 and has since been expanded to ensure that prevailing wage laws are applied to situations previously exempt from them. The ongoing conflict between the Portland Development Commission (PDC) and the Bureau of Labor and Industries (BOLI) regarding the $117 million renovation of the historic Meier & Frank building in downtown Portland demonstrates BOLI’s desire to extend the prevailing wage rate even further into public/private projects.

As the prevailing wage line continues to advance, where will it end? Would any construction project receiving state financial assistance, no matter how small, require use of the prevailing wage rate? This is a serious problem for private economic development. If construction and attending bureaucratic costs become substantial enough, private developers might find it more economically sound to take their projects elsewhere, along with the many jobs they otherwise would have created.

These problems serve to remind us that individuals should not be coerced into either giving or accepting a wage other than that agreed to by the employer and the employee in a free market. Allowing this process to continue uninhibited through a repeal of both the federal and state Davis-Bacon Acts would protect workers from being underpaid. It also would prevent inflated wages that limit competition and increase costs.

The free market should be allowed to operate where the government so clearly has failed. This can only happen by repealing the federal Davis-Bacon Act and its state equivalents.

Elizabeth Harrison is the recipient of The Woodard Family Fellowship at Cascade Policy Institute, a Portland, Oregon, think tank. A student of economics and mathematics at Hillsdale College, Elizabeth completed this Commentary as part of her 2006 summer research internship, made possible by a grant from The Woodard Family Foundation of Cottage Grove, Oregon.

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