Friday, February 15, 2008

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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