Revised and Updated February 5, 2009
Congress has included a little-known provision in the economic
stimulus legislation that wastes tax dollars and costs jobs. All
$188 billion worth of construction projects funded in the American
Recovery and Reinvestment Act (H.R. 1) must pay Davis-Bacon
prevailing wage rates. This requirement will inflate construction
costs by $17 billion and depress the economy.
If, on the other hand, Congress paid market wages, the same
appropriations would fund more projects and create more jobs.
Alternatively, Congress could give $110 tax rebate to single filers
and a $220 tax rebate to joint filers for the same cost. Including
the Davis-Bacon requirements gives some workers a windfall with no
benefit to the public. Before extending prevailing wage
requirements to the stimulus bill, Congress should require the
Department of Labor to use an accurate and scientific methodology
to calculate prevailing wages.
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 project.
Supporters consider Davis-Bacon an important means of preventing
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
Contrary to its purpose, the Davis-Bacon Act distorts
construction labor markets. Davis-Bacon wages bear little relation
to market wages, because the government's prevailing wage estimates
are wildly inaccurate. In some cities, Davis-Bacon rates are much
higher than market wages. In Long Island, New York, for example,
market rates for plumbers are $29.68 an hour. Davis-Bacon rates,
however, are $44.75 an hour--51 percent more than what the market
demands. In other cities, Davis-Bacon wages are
significantly below market rates. For instance, Davis-Bacon rates
for carpenters and plumbers in Sarasota, Florida, are $6.55 an
hour, a figure below Florida's minimum wage of $7.21.
Nationwide, Davis-Bacon rates average 22 percent above market wages
and inflate the cost of federal construction by 10 percent.
Davis-Bacon in the Stimulus
H.R. 1 applies Davis-Bacon restrictions to all construction
projects directly or indirectly funded in the legislation--over
$188 billion worth of projects. The new schools, highways,
hospitals, and other construction in the act will be built by
contractors paying inflated Davis-Bacon rates. This requirement
will add $17 billion to construction costs.
Depresses the Economy
Davis-Bacon restrictions ensure that the infrastructure
spending--such as that provided for in H.R. 1--will yield as little
economic benefit as possible. The $17 billion is spent paying a
premium for work that employees would do at market wages. Without
Davis-Bacon inflating costs, construction spending would go
farther, funding more projects and creating more jobs. Including
Davis-Bacon restrictions in the stimulus bill lines the pockets of
some workers at the cost of both fewer jobs and fewer schools and
Davis-Bacon restrictions are also an inefficient and ineffective
way to increase Americans' purchasing power. There is no economic
reason to give federal construction workers--but no other
workers--inflated wages. If Congress wants to spend $17 billion to
increase Americans' purchasing power, it could use that money to
give a $110 tax rebate to single filers and a $220 tax rebate to
joint filers. Such a rebate would broadly benefit all
workers instead of just those who happen to work in
Davis-Bacon wages badly distort construction markets and federal
spending because the Wage and Hour Division of the Department of
Labor uses unscientific and inaccurate methods to calculate wage
rates. Indeed, the inspector general has found
three significant flaws that distort Davis-Bacon rates:
- Unscientific Methodology. The Wage and Hour Division
does not use a scientific random sample of construction
- Survey Errors. The inspector general's office found
errors in 100 percent of audited returned survey forms.
- Outdated Surveys. It takes over two years to conduct a
survey and then years to update the survey after its completion. In
some counties, Davis-Bacon rates have not been updated since the
These flaws cause Davis-Bacon wages to bear little resemblance
to market wages. There is no reason for Congress to pay workers on
$188 billion worth of construction projects wages that are based on
unscientific, inaccurate estimates.
Recommendations to Congress
The Davis-Bacon Act inflates the wages of some construction
workers and depresses the wages of others. Including it in the
stimulus bill will drive up construction costs by $17 billion and
cost jobs on projects that could have been funded with that extra
money. Therefore, Congress should strip Davis-Bacon requirements
from the stimulus bill.
If Congress intends to keep prevailing wage requirements in the
stimulus legislation, it should at least ensure that prevailing
wages are scientifically estimated. Congress already spends over
half a billion dollars a year on the Bureau of Labor Statistics, an
agency that accurately estimates wage statistics using scientific
methods. At the very least, Congress should require the Department
of Labor use scientific estimates to calculate Davis-Bacon
James Sherk is Bradley
Fellow in Labor Policy in the Center for Data Analysis at The
Department of Labor, Bureau of labor
Statistics, "Occupational Employment Statistics--May 2007," for
Nassau and Suffolk, New York, Metropolitan Division, at http://www.bls.gov/OES (January 27,
Heritage Foundation calculations based on
summaries of the spending published by the House Appropriations and
Ways and Means Committees.
Based on the 9.91 percent increase in total
construction costs estimated in Glassman et al.
Calculations based on the Center for Data
Analysis Individual Income Tax Model. For the simulation, a
non-refundable credit was applied of $220 for tax payers filing
joint returns, and $110 for all other filers. The revenue of this
policy was compared with current law for tax year 2008. The revenue
difference was $17.195 billion.