requires contractors on all federal
construction projects to pay their workers the prevailing wage
in the same locality. The law is intended to ensure that the
government's buying power does not drive down construction
The Wage and Hour Division (WHD) of the Department of Labor
(DOL) calculates the prevailing construction wage rates in each
county in the United States, and federal contractors must pay these
rates. However, the WHD uses a survey methodology that is
fundamentally flawed, which means that Davis- Bacon rates often
bear no relation to market wages.
The current Davis-Bacon methodology uses an unscientific,
self-selected sample that has high error rates, and it takes years
to process and publish the results. These flaws cause the WHD to
report Davis- Bacon wages that are just one-third of market wages
in some counties and more than 75 percent above the prevailing
market wage in other counties. Congress has spent tens of millions
of dollars to fix the WHD's Davis-Bacon surveys, but the DOL
Inspector General (IG) has found even higher error rates after the
surveys were "fixed."
The government already has an agency that specializes in
calculating wage rates around the country. The Bureau of Labor
Statistics (BLS) in the Labor Department currently publishes two
accurate and timely scientific surveys that report wage rates
nationwide. Both of these surveys produce more reliable
estimates than the flawed WHD surveys.
To improve the accuracy of prevailing wage estimates,
Congress should therefore:
- Direct the WHD to stop duplicating BLS surveys and
stop using a fundamentally flawed methodology;
- Transfer the resources currently spent on WHD surveys to
the BLS to enable the BLS to expand the scope of the National
Compensation Survey; and
- Require the WHD to base Davis-Bacon wages on accurate
and scientifically valid surveys conducted by the Bureau of
These reforms would prevent flawed prevailing wage estimates
from continuing to harm both workers and taxpayers.
The Purpose of the Davis-Bacon Act
The Davis-Bacon Act requires federal construction
contractors to pay at least the prevailing wage rates for
non-federal construction projects located in the same areas as
their federal construction projects. Supporters consider it an
important measure to prevent the government's buying power
from distorting construction labor markets. In areas where the
government is the largest buyer of construction services, it
could use its negotiating power to lower construction wages.
To calculate the wages that contractors must pay, the Wage and
Hour Division surveys construction wages and publishes prevailing
wage determinations for each county in the United States.
Federal contractors must then pay their employees at least the
prevailing wage for each class of worker.
In spite of its purpose, the Davis-Bacon Act does not prevent
the government from distorting labor markets in the construction
industry, because the WHD's survey methodology reports inaccurate
wage rates. Table 1 shows the WHD's prevailing wage determinations
for several classes of workers in a number of cities across America
and the corresponding market wages as determined by the BLS.
In many cities, Davis-Bacon wages bear no resemblance to
In some cities, WHD wage determinations are more than 75 percent
above market wages. In other cities, they are just one-third of
market wages. In some states, Davis-Bacon rates are actually below
the minimum wage. WHD wage determinations simply do not reflect
prevailing market wages, and this failure has serious implications
for construction workers and taxpayers.
Harm to Workers and Taxpayers
The Davis-Bacon Act drives down the wages that many construction
workers earn. For example,plumbers in Ft. Myers, Florida,earn
$16.98 per hour, but Davis-Bacon wages are only $10.96--35 percent
below the market wage.
Davis-Bacon wages are minimum wages, so this does not mean that
the Davis-Bacon Act imposed a 35 percent pay cut on every plumber
working for federal contractors in Ft. Myers. However, by
setting an artificially low rate (e.g., $10.96 in Ft. Myers),
the government encourages contractors to pay plumbers lower wages,
and the contractors use the lower wage when submitting bids on
federal construction projects. In counties where the federal
government is a large buyer of construction services, its
purchasing power can push down wages.
These effects depress construction wages in any county where the
WHD issues prevailing wage determinations that are below market
rates. In many cities, the Davis-Bacon Act has the very effect that
it was intended to prevent.
In other cities, the Davis-Bacon Act has the opposite
effect, requiring contractors--and thus taxpayers--to pay
grossly inflated wages. In Trenton, New Jersey, the Davis-Bacon Act
requires taxpayers to pay carpenters $35.72 per hour--52 percent
above market wages. In these cities, the Davis-Bacon Act
needlessly inflates taxpayers' costs.
Concerns about the federal government's buying power driving
down wages or about ensuring quality work do not justify
requiring taxpayers to overpay for construction work. In
cities where Davis- Bacon rates substantially exceed market wages,
the law raises costs and increases the burden on taxpayers
without providing any public benefit. The repeated inaccuracies in
WHD prevailing wage determinations ensure that the Davis-Bacon Act
harms the public good rather than serving its intended purpose of
preventing the government from distorting construction workers'
Davis-Bacon wages differ from actual construction wages
because fundamental flaws mar the process used to determine
prevailing wages. Although the Bureau of Labor Statistics is
dedicated to surveying labor markets, the Wage and Hour
Division calculates its own prevailing wages for the Davis-
Bacon Act. Unlike the BLS, the WHD does not have expertise in
The Wage and Hour Division surveys construction wages by
sending a letter to every construction contractor that it can
identify in a survey area requesting its participation. It then
sends a paper or an electronic WD-10 form requesting detailed
payroll information. The WHD conducts limited follow-up
with contractors who do not respond, sending additional letters
requesting participation in the survey. Outside analysts conduct
independent verification of the data to prevent fraud. WHD
wage specialists process and clarify the data and then issue final
prevailing wage determinations.
This appears to be a sound method of calculating prevailing
wages, but audits by the U.S. General Accounting Office (GAO) and
the Inspector General have found multiple flaws in the WHD's
methodology that lead to unreliable wage determinations.
Scientifically Unsound Surveys.Unlike BLS surveys that
estimate the unemployment rate or average wages, the Davis-Bacon
survey is not a statistically random sample. The survey is
self-reported, which means that only construction firms that take
the time to fill out and return the forms influence the result. This
introduces considerable bias into the estimates.
WD-10 forms are very detailed, request data in a format that few
contractors keep, and can take several hours to fill out. Many
contractors receive the WD-10 form in the mail and promptly discard
it. Smaller construction contractors without the staff resources to
devote to government paperwork and contractors who do not do
business with the federal government frequently ignore the survey
and follow-up letters. They see no reason to fill out a
survey that does not affect them.
Consequently, the WHD does not base Davis- Bacon rates on a
random sample of contractors. Although the survey goes out to every
contractor that the WHD can identify, wage determinations are based
on the self-selected minority of contractors who spend the
time and resources to complete the survey.
This self-selection biases Davis-Bacon rates because
self-reported surveys are scientifically unsound. Unlike a random
sample, self-selected survey responses do not reflect the
wages paid by all contractors. This is a fundamental and
uncontroversial statistical principle. As Nobel Prize-winning
economist James Heckman has noted, "wage or earnings functions
estimated on selected samples do not in general, estimate
population wage functions."
Many common examples demonstrate the unreliability of
self-selected surveys. Internet polls often show candidates winning
80 percent of the vote-- even when those candidates go on to lose
the election. Participants in self-selected Internet polls
represent only those politically motivated people who visit
that Web site, not all of the voters in an election. Often,
the two bear no relation to each other.
Surveys based on self-selected samples in which contractors
choose whether or not to participate are unscientific and
unreliable. The IG has criticized the WHD for using this
methodology and has recommended that the WHD use scientific
random samples to estimate Davis-Bacon wages. Until the WHD adopts
a sound survey methodology, Davis- Bacon wages will continue to be
High Error Rates. In addition to the unsound methodology,
the surveys themselves are plagued with errors. Frequent GAO and IG
audits have found continually high error rates in the survey forms
submitted to the WHD. In the most recent audit, the IG found that
"one or more errors existed in 100 percent of the wage reports"
examined. These errors included:
- Misreported wage rates. Some contractors reported one
wage rate for a craft when they paid multiple rates to workers of
different skill levels in that craft. Others inaccurately reported
one rate for all workers.
- Benefits. Contractors often did not report some or all
of the benefits that they provided to workers. Those who
reported benefits had difficulty converting these expenses into
hourly rates by occupation.
- Incorrect job classifications. Contractors reported
apprentice and trainee wages despite instructions not to do so.
Contractors included the wages of workers not on the project site.
Others reported skilled workers as unskilled and vice versa.
- Wrong projects. Contractors reported wages and benefits
for projects not covered in the survey and classified them
under the wrong construction types.
- Unknown reasons. Accountants often could not explain why
they reported erroneous information to the WHD.
These errors occurred both because of contractor confusion about
how to fill out WD-10 forms and because of sheer carelessness. For
example, few contractors normally calculate the hourly costs of
their employees' benefits, and they made mistakes calculating them
for the survey.
Although these errors are not systematically planned, they can
noticeably affect final wage determinations. This is
especially true in counties where only a few contractors return the
surveys. In these counties, errors will not tend to balance out.
The last audit to evaluate the effect of these errors on final wage
determinations found that they led to inaccuracies that varied
from overstating wages by $1.08 per hour to understating them by
$1.29 per hour.
Out-of-Date Wage Rates. In addition tothe unscientific
methodology and error-ridden surveys, the Wage and Hour Division
takes an average of 2.3 years to process and update Davis-Bacon
rates after the survey period ends. The WHD spends four-fifths of
this time processing and correcting the data, not collecting
information. By the time the WHD publishes prevailing
wage rates, they are already several years out of date.
Following publication, the WHD waits many years before updating
the rates. The WHD is nowhere close to meeting its long-term goal
of surveying construction wages in every county in
America every three years. This would require processing 10
times as many WD-10 forms as it currently processes.
Already out-of-date wage determinations remain effective for years
before being updated. Some rates take decades to update. One wage
determination in North Carolina has not been updated since
Changing labor market conditions and inflation mean that the
workers' wages several years ago are not the same wages that they
earn today. Even if the WHD used a scientifically sound and
error-free methodology to estimate wages, the long delays in
processing and updating Davis-Bacon rates ensure that they differ
starkly from prevailing market wages.
Failed Attempts to Reform
After GAO and IG audits in the 1990s found widespread errors in
WHD wage determinations, the government spent tens of millions of
dollars to reengineer the wage determination process. An IG
investigation after these reforms found that they were not
On-site Data Verification. Since 1999, the WHD has
employed an accounting firm to verify the information received. The
WHD selects a sample of contractors based on those submissions
that have the greatest impact on the final wage
determinations, and the firm compares payroll records to
completed WD-10 forms.
Redesigned Survey Forms. The WHD began sending new wage
survey forms to contractors in December 2000. These forms are
easier for contractors to understand, provide more room to
report benefit information accurately, and can easily be scanned
into computer databases.
Online Survey Forms. Since September 2002, contractors
have been given the option of submitting surveys online instead of
filling out paper copies. The electronic form is simpler for
contractors to complete, eliminates difficulties with
unintelligible handwriting, and cannot be submitted until the
contractor has completed all of the necessary forms.
Automated Survey Database System. The WHD has created the
Automated Survey Database System (ASDS), a new computer database to
process surveys and issue wage determinations. It is designed
to use the latest survey technologies and end the practice of wage
specialists manually entering wage data into the computer. The
system simplifies analysis of wage data, highlights surveys
that need clarification, and calculates prevailing wage rates.
The WHD began using the first phase of the system in 2002, but
glitches and contractor errors have marred the installation, and
the ASDS is still not fully installed.
After the WHD made these reforms, a follow-up audit by the IG
found that error rates had become even higher than before
and that wage determinations still take years to process. The
$22 million spent to improve wage determinations has done
little to improve the accuracy of Davis-Bacon rates.
BLS Surveys Are a Better
The Wage and Hour Division estimates of construction wages
across the United States are unreliable and inaccurate, and
attempts to improve their reliability have proven fruitless. WHD
prevailing wage estimates are still error-ridden and differ starkly
from prevailing market wages, despite tens of millions of dollars
spent to reengineer the WHD's methodology.
This is not surprising. The WHD enforces federal laws
regulating wages and many working conditions, such as minimum
wages, prevailing wages, child labor, overtime, and the Family and
Medical Leave Act, but has no institutional expertise in
surveying wage rates. The Bureau of Labor Statistics in the
Department of Labor has that primary responsibility and
already conducts highly accurate wage surveys.
Congress spends over $500 million annually on the BLS. Among
other surveys, the bureau conducts two nationwide wage surveys that
estimate occupational wages across America: the National
Compensation Survey (NCS) and the Occupational Employment
Statistics (OES). Both surveys are conducted in a timely
manner and updated annually.
The WHD's prevailing wage surveys duplicate, albeit very
inaccurately, these existing surveys. Either the OES or the NCS,
with only slight modifications, could be used to estimate
local prevailing construction wages. This would allow the WHD to
focus on enforcing the Davis-Bacon Act instead of on estimating
This is how the Department of Labor enforces other prevailing
wage statutes. Prevailing wages for the Foreign Labor Certification
program and the Service Contract Act are calculated using OES
estimates. It makes little sense for the WHD to spend millions
of dollars annually to produce inaccurate estimates of prevailing
wage rates when the BLS already produces highly accurate
The WHD has previously considered using BLS data to estimate
prevailing wages. In 2001, it concluded that BLS surveys would
be both more accurate and more timely than the current process
but that difficulties in calculating employee fringe benefits
and the geographic scope of the BLS surveys made reengineering the
WHD's methodology the more attractive solution. However, the IG
has since found that the reengineering effort did not improve the
accuracy of Davis-Bacon rates and that these difficulties could be
Fringe Benefits Already Calculated. The chief obstacle to
using BLS data is calculating hourly fringe benefit rates as
required by the Davis-Bacon Act. The OES calculates highly accurate
hourly wage rates but does not cover employee benefits. The NCS
covers employer spending on benefits and could be used to estimate
hourly wages and benefits for construction employees by occupation
and type of construction. The WHD determined that the NCS does
provide the information necessary to enforce the Davis-Bacon Act in
the areas that it surveys, but the NCS provides local
wage information for only 154 metropolitan and
non-metropolitan statistical areas. It does not cover the entire
United States. Consequently, neither survey directly provides all
of the prevailing wage rates necessary to enforce the Davis-Bacon
This does not mean that the Department of Labor could not use
scientifically reliable data to calculate prevailing wage rates.
The Inspector General determined that transferring funds from
the WHD to the BLS would enable the BLS to expand the scope of the
National Compensation Survey to cover local wages throughout the
Estimating Local Rates. The second main problem with
using the BLS surveys is that the BLS does not conduct these
surveys on a county-by-county basis. The Davis-Bacon Act requires
that contractors pay the prevailing wage "in the civil subdivision
of the State in which the work is to be performed."
The WHD has interpreted this to mean that they cannot use BLS data.
Both the OES and the NCS are statistical samples of workers in
metropolitan (and non-metropolitan) statistical areas (MSAs). MSAs
are calculated on the basis of commuting patterns, and most MSAs
include several counties.
However, this statutory language does not present an
insurmountable difficulty to using scientifically valid
surveys. Since MSAs are calculated on the basis of work commuting
patterns, occupational wages within MSAs tend to be similar.
Scientifically valid surveys of MSAs would estimate prevailing
wages at the county level more accurately than the current unsound
method does. Additionally, the WHD does not conduct all wage
surveys at the county level. Many Davis-Bacon wage rates are
calculated for economically similar counties in the same
state, not individually. The WHD has previously applied wage
rates from one county in a state to other noncontiguous counties in
If the Department of Labor has the authority to conduct
multi-county wage surveys and apply rates from one county to other
counties that do not share a common border, then it has the
authority to use scientifically valid surveys at the MSA level.
What Congress Should Do
- Direct the Wage and Hour Division to stop
duplicating Bureau of Labor Statistics surveys and stop using
a fundamentally flawed methodology.
- Transfer the resources currently spent on WHD surveys to
the BLS. This would enable the BLS to expand the scope of the
National Compensation Survey to produce construction wage estimates
that fully meet the Davis-Bacon statutory requirements.
- Require the WHD to base Davis-Bacon wages on accurate
and scientifically valid BLS surveys.
The Wage and Hour Division's methods for calculating Davis-Bacon
wages are scientifically unsound. Davis-Bacon rates are calculated
using a self-selected sample instead of a statistically random
sample. They take years to process and even more years to update,
meaning that contractors must pay out-of-date wage rates. The
survey forms confuse contractors and investigators, and the most
recent audit of the WHD found errors in every wage report that it
Unsurprisingly, Davis-Bacon rates bear little correlation
to market wages. In many cities, they are below market rates, while
in other cities, they are well above market rates. This hurts both
workers and taxpayers. Furthermore, a decade of efforts to
reengineer and improve the flawed wage determination process
has failed. Rather than allowing the WHD to continue duplicating
the work of the Bureau of Labor Statistics, Congress should require
the WHD to use BLS wage surveys to calculate prevailing
James Sherk is Bradley
Fellow in Labor Policy in the Center for Data Analysis at The
known as the U.S. Government Accountability Office.
James Heckman, "Sample Selection Bias As a
Specification Error," Econometrica, Vol. 47, No. 1 (January
1979), pp. 153-154.
Department of Labor, "Concerns Persist with the Integrity of
Davis-Bacon Act Prevailing Wage Determinations," p. 24. See also
U.S. Department of Labor, Office of Inspector General, "Inaccurate
Data Were Frequently Used in Wage Determinations Made Under the
Davis-Bacon Act," Report No. 04-97-013-04-420, March 10, 1997, at
and U.S. General Accounting Office, Davis-Bacon Act: Labor Now
Verifies Wage Data, but Verification Process Needs Improvement,
HEHS-99-21, January 1999, at www.gao.gov/archive/1999/he99021.pdf.
Victoria Lipnic, Assistant Secretary of Labor
for the Employment Standards Administration, letter to Senator Thad
Cochran, Chairman, Committee on Appropriations, U.S. Senate, May 8,
2006, p. 6.
Lipnic, letter to Senator Thad Cochran, pp.
News release, "Electronic Form Now Available
for Submission of Davis-Bacon Wage Survey Data," U.S. Department of
Labor, Employment Standards Administration, September 18, 2002, at
Lipnic, letter to Senator Thad Cochran, p.
U.S. Department of Labor, "Concerns Persist
with the Integrity of Davis-Bacon Act Prevailing Wage
Determinations," p. 10.
Bernard Anderson, Assistant Secretary of
Labor for the Employment Standards Administration, letter to
Congress, January 17, 2001.
Ibid., attachment, "Evaluation of the
Reinvention vs. Reengineering Alternatives for Improving the
Davis-Bacon Wage Survey/Determination Process," p. 1.
U.S. Department of Labor, "Concerns Persist
with the Integrity of Davis-Bacon Act Prevailing Wage
Determinations," p. 17.
40 U.S. Code § 3142(b).