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Executive Summary #2111 on Jobs and Jobs and Labor Policy

March 3, 2008

Executive Summary: Davis-Bacon Prevailing Wage Determinations Needto Be Calculated Scientifically

By

The Davis-Bacon Act requires contractors on all federal construction projects to pay their workers the prevailing wage in the same locality. However, the prevailing wages estimated by the federal gov­ernment are highly inaccurate.

In some counties, for example, Davis-Bacon wage determinations are just one-third of market wages. In other counties, they are more than 75 percent above prevailing market wages. In some states, Davis-Bacon rates are actually below the minimum wage.

This failure to reflect prevailing market wages accurately hurts both workers and taxpayers. Where Davis-Bacon rates are below market wages, the government's purchasing power depresses con­struction wages--precisely what the Davis-Bacon Act is intended to prevent. Where Davis-Bacon rates are above market wages, taxpayers overpay for federal construction.

Flawed Methodology. This occurs because the Wage and Hour Division (WHD) of the Department of Labor uses a fundamentally flawed methodology to estimate prevailing wages. The WHD estimates suffer from three significant problems:

Davis-Bacon surveys are error-ridden. A recent audit found errors in 100 percent of the Davis- Bacon wage reports that were reviewed.

The WHD takes years to issue prevailing wage determinations after surveying a county and years longer to update completed surveys. Some Davis-Bacon rates in use today are based on sur­veys over 25 years old.

Davis-Bacon wages are estimated using an unscientific, self-selected sample of contractors rather than a statistically random sample. Self-selected samples do not accurately represent construction workers' wages and therefore pro­duce biased estimates.

The Wage and Hour Division has spent tens of millions of dollars to reengineer its surveys, but these efforts have not made Davis-Bacon rates more accurate. Recent audits have found even higher error rates in surveys after the overhaul. The WHD has no institutional expertise in conducting scien­tific wage estimates and should not be expected to conduct accurate national wage surveys.

Congress already spends over $500 million annually on the Bureau of Labor Statistics (BLS), a separate agency within the Department of Labor that specializes in estimating wages. The BLS con­ducts two scientific surveys that produce highly accurate and timely occupational wage estimates around the country. Duplicating these surveys with a third unscientific survey conducted by the WHD makes little sense.

What Congress Should Do. Congress should:

  • 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. 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.

Conclusion. The Wage and Hour Division's methods for calculating Davis-Bacon wages are scientifically unsound. The result, unsurprisingly, is that 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 Wage and Hour Division to continue duplicating the work of the Bureau of Labor Statistics, Congress should require the WHD to use BLS wage surveys to calculate prevailing wages.

James Sherk is Bradley Fellow in Labor Policy in the Center for Data Analysis at The Heritage Foundation.

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