Friday, February 15, 2008

Congressman cites BHI Prevailing Wage Study

Statement of Steve King Representative United States
Committee on House Education and Labor
February 13, 2008

Mr Chairman, I come today to discuss the ramifications of being forced to pay Davis-Bacon mandated wages for construction or remodeling of publicly funded schools. Davis-Bacon is the last Jim Crow law. It was enacted in 1931 to protect the white northern workers from the lower paid carpet-bagger workers that had come up from the Southern states to look for work. Union workers were threatened by the sudden influx of cheap labor. The Davis-Bacon Act of 1931 was passed to prevent them from working.

This Act has a checkered past. Davis-Bacon was a Depression-era wage subsidy law, requiring that each public works contract over $2,000 contain a clause that established certain wages to be paid.

This limit has never been adjusted, not even for inflation.

Contractors and subcontractors must pay workers a wage based on the so-called "prevailing wage." But that wage is not the market wage and it artificially inflates wages and raises the cost of public construction projects for taxpayers. Davis Bacon also takes work away from competitive workers. And, having owned and operated a small construction company for over 20 years, I have personal experience being slighted in such a way.

A study was recently done by the Beacon Hill Institute on the effects of paying Davis-Bacon inflated wages in public construction projects. It found that when the Davis-Bacon mandated wages were followed, labor costs rose by 22% above the reported median wage. I would like to enter a copy of this fantastic study into the record.

In total, this study reports that Davis-Bacon costs taxpayers over $8.6 billion annually. That is enough money to hire over 18,000 teachers.

I've used this education related example to illustrate the cost of complying with Davis-Bacon because its mandated wages would apply to some of the bills pending before this committee, namely those that deal with school renovation and new construction. In the General Education Provision Act, [20 USC 1232b] the law specifically states:

"All laborers and mechanics employed by contractors or subcontractors on all construction and minor remodeling projects assisted under any applicable program shall be paid wages at rates not less than those prevailing on similar construction and minor remodeling in the locality as determined by the Secretary of Labor."

Thus the Davis-Bacon mandate would apply to any bill that receives federal dollars for construction or renovation--even state projects only partially funded by federal dollars. Therefore Davis- Bacon is the federal government intruding in the affairs of the States as well.

Davis-Bacon provisions artificially inflate construction labor costs.

The Beacon-Hill study proves that. It states that by paying Davis- Bacon artificially high wages labor costs go up 22% and overall construction costs go up 9.91%. That is why I am here today, to urge this committee to reject legislation that would force the Davis-Bacon mandate on school construction and re-modeling.

The GAO is also on record stating that economic conditions and labor provisions have changed significantly since the 1930's. It reported that the Davis-Bacon Act is, "not susceptible to practical and effective administration" by the Department of Labor. It further stated that Davis-Bacon has resulted in unnecessary construction and administration costs, inflated prices, and inaccurate wages.

Construction costs are rising, according to a recent study by Reed Business information in October 2007. The 30-city construction cost index showed roofing and siding costs are up 20.5%; pre-cast concrete costs are up 14.4%; and structural and metal framing costs are up 10.5%. Take into account price increases for energy and you can see why now we need to be smarter with our money.

Davis-Bacon is anti-competitive. Non-union construction companies, like the one I started, are seriously hurt by Davis- Bacon provisions. Small businesses simply can't compete because it is TOO INEXPENSIVE to get a government contract. We cannot afford to use 70 year old methodology anymore.

The remedy is simple: take out the provision of these bills that artificially inflates or skews construction labor costs. The money saved on labor can be used to build and remodel more and better schools.

I ask you to reflect upon what this extra funding not spent on Davis Bacon would mean to these kids, small business owners, or to the taxpayers? We should spend money so much more wisely.

The Beacon-Hill Institute study points out that the costs of the unfair Davis-Bacon mandate is almost 10% of the total construction cost of a new school. In other words, we could save a million dollars off the cost of a new ten million dollar school.

With that savings we could employ over 20 new teachers to the new school. We need to get our priorities straight. The Beacon- Hill Institute study is a wake-up call for this committee and this Congress. Congress should be working to build as much square footage of good schools.

Copyright 2008 Congressional Quarterly, Inc. All Rights Reserved.
CQ Congressional Testimony
February 13, 2008 Wednesday
LENGTH: 857 words

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David G. Tuerck response to critics of BHI prevailing wage study

Some union leaders have responded to our prevailing wage study with the argument that the Davis-Bacon Act doesn’t raise costs, since the increase in wage rates that it brings about is offset by productivity gains.

This is pure hogwash.

First, Davis-Bacon does not attempt to fix wages according productivity differences. Rather it attempts to fix them according to some average “prevailing” wage. If some workers command higher wages because they are more productive, then that difference will disappear once the average, prevailing wage is calculated. Second, our study does not dispute the requirement that employers must pay the prevailing wage on federally-funded construction projects; rather it argues that the wage that employers are required to pay isn’t the prevailing wage at all, but some artificially constructed wage arrived at by federal bureaucrats who employ biased and therefore unreliable estimation methods. Finally, if in fact, union labor is more productive than nonunion labor, then the unions should not advocate a law that fixes the wage equal to some average, which would necessarily be weighed down by the less productive nonunion labor. Rather, the unions should want the wage to be determined by market considerations, which would then reflect the more productive union labor in the higher wages offered by employers.

In fact, as everyone knows, the reason that the unions are so strongly wedded to Davis-Bacon is that they fear, probably correctly, that union labor is no more productive than nonunion labor. They understand that the only way for them to compete with nonunion labor is to get the federal government to fix the wage at some level that makes nonunion labor uncompetitive. And that is why the federal agency charged with computing the prevailing wage comes up with estimates that are artificially high. In order to produce a calculation that biases the playing field against nonunion workers, the unions have to get the feds to use methods that bias the wage upward.

Another union argument is that, by estimating the fraction of construction costs accounted for by labor to be 50%, our study overestimates the effect of the wage bias on construction costs. We stand by our estimate, for which we provide what we consider to be adequate documentation. But even if labor costs are only half what we estimate, the burden on taxpayers still runs in the billions.

Finally, there is no doubt about the racist motives behind Davis-Bacon, as originally conceived. Its purpose was to deny employment opportunities to poor Southern blacks. The fact that Davis-Bacon is no longer applied overtly to this end doesn’t mean that it doesn’t hurt minorities. In fact, it is arguable that minorities continue to suffer since they would be mostly likely to benefit from the employment opportunities that repeal of Davis-Bacon would make possible as it opened the market for construction labor to competition.

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