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More on the Davis-Bacon Act:

Human Events has published an opinion piece I wrote on President Bush's suspension of the Davis-Bacon Act in the Katrina zone. When I last posted on this, commentors asked for a more detailed explanation of how Davis-Bacon, passed with the intent of keeping blacks from working on federal construction projects, still hurts minorities today. Here's what I wrote for Human Events:

Davis-Bacon forces federal contractors to pay their workers the "prevailing wage," but this wage is not determined by actual average local construction wages. Rather, the "prevailing wage" is generally determined by official local union wage rates, which are often much higher than average local wages. Indeed, the prevailing wage is sometimes higher than even actual union wages, because local unions often negotiate discounts for particular projects.

The intended result of requiring federal contractors to pay inflated union wages was to bar workers whose wages were below union scale. These excluded workers included blacks--who have long suffered discrimination from the building trades unions--and non-union workers more generally.

Moreover, construction craft unions insist that unskilled laborers get paid inflated wages to discourage contractors from hiring them. If a contractor has to pay an entry-level laborer almost as much as a skilled worker, he will often hire the more versatile worker, even if that worker winds up primarily doing unskilled work.

Davis-Bacon's bias in favor of skilled workers especially harms minorities. Blacks, for example, are significantly less likely than whites to be skilled construction workers, but almost one-and-one-half times as likely as whites to be unskilled workers.

Enforcement of union work rules compounds Davis-Bacon's discriminatory effects by limiting the ability of unskilled workers to receive on-the-job training. A laborer who so much as picks up a hammer or a wrench is immediately classified as a carpenter or plumber, and must be paid at a skilled worker's rate. Under union practice, the only category of unskilled workers who may receive training for skilled positions are workers who receive one of the few available slots in a registered apprenticeship program, or to find a rare "helper" job, which are sometimes permitted on Davis-Bacon projects.

Minority contractors, meanwhile, find that Davis-Bacon's pro-union bias, opaque regulations, and expensive compliance costs create a tilted playing field, favoring established, white-owned union construction companies.

Richard Bellamy (mail):
It's good to see that Prof. Bernstein subscribes to the "discriminatory impact" theory of discrimination. We are certain that in subsequent cases in which facially neutral laws disproportionately impact minorities in their quest for job equity, Prof. Bernstein will write with equal vigor in protest.
10.14.2005 10:40am
Daniel Chapman (mail):
He's not saying the law violates the Equal Protection clause, Richard.
10.14.2005 10:44am
Robert M (mail):
Mr. Bernstein
I am not a lawyer. Your article on Bacon-Davis and its result is something I am in agreement with. I have the same problem with Posse Committas and have been discussing it at Grim's Hall and at the intel-dump. Would you care to comment on this law and its impact at any location?
10.14.2005 10:58am
Marcus1:
>Davis-Bacon's bias in favor of skilled workers especially harms minorities. Blacks, for example, are significantly less likely than whites to be skilled construction workers, but almost one-and-one-half times as likely as whites to be unskilled workers.<

I see many things wrong with this argument. Your argument is apparently that to help minorities, we need to create more low-paying jobs that only they are willing to take. You say you can't pay them any more, or else employers will just hire more skilled white workers instead.

But is there really an unlimited supply of white skilled workers to take every mediocre-paying job that comes along? Even if more of these jobs initially go to whites, clearly the more of these jobs created, the more of them will go to minorities. Increasing the availability of decent-paying jobs will give everybody a better chance of getting one.

Moreover, your dichotomy between skilled and unskilled workers is misused. At any level of pay, employers will hire skilled workers over non-skilled workers. The answer to your dichotomy is that we should pay more unskilled jobs compared to skilled jobs to level the playing field. But that is exactly what Davis-Bacon does. To pretend that this helps skilled white workers more than unskilled minority workers seems rather agenda-driven to me. Without Davis-Bacon, unskilled workers can't even compete for higher paid jobs.

Sure, if you pay two dollars an hour, you can ensure that there won't be many skilled laborers taking those jobs, but does that really help minorities?
10.14.2005 11:02am
Marcus1:
The answer is to pay more FOR unskilled jobs, I meant to say. Wouldn't an edit feature be nice?
10.14.2005 11:05am
billb:
Edit buttons, while oft requested, are problematic in online forums because they allow a party to make changes to their arguments after the fact. This is why these forums have preview buttons instead.
10.14.2005 11:19am
Zubon (mail):
Marcus1,
I find your point...unusual, so perhaps I am mis-reading you. David Bernstein's point seems relatively simple and non-controversial, from an economic point of view: unions rules exist primarily to benefit skilled workers at the expense of unskilled workers, and if one group is disproportionately unskilled, it will suffer disproportionately. This is why unions support increases in the minimum wage: to price unskilled labor out of the market as much as possible. If you, as an employer, are required to pay more for unskilled labor, you will use less of it, substituting with technology, skilled labor, or simply skipping insufficiently profitable jobs. By reducing the chance for unskilled laborers to become skilled laborers, you reduce the number of skilled laborers entering the job market and increase the wages of those skilled workers currently in the job market.

Put more simply, every time you raise the bottom rung, fewer people get on the ladder.

Unskilled labor can never "compete for higher paid jobs"; almost by definition, unskilled labor is paid less than anything else in the job market. So yes, there is some large pool of people who would benefit from a greater availability of low-paid jobs, largely because they have no job at present and a low-paid job is your first step into a high-paid job.

I'm not sure how one argues that no one wants low-paid unskilled labor jobs when millions of people come to this country each year in search of them.
10.14.2005 11:36am
John Thacker (mail):
But is there really an unlimited supply of white skilled workers to take every mediocre-paying job that comes along? Even if more of these jobs initially go to whites, clearly the more of these jobs created, the more of them will go to minorities. Increasing the availability of decent-paying jobs will give everybody a better chance of getting one.

Except that mandating a higher wage does not create jobs. Employers will hire employees who can produce marginal value greater than their wages. By setting the minimum wage equal to that of a skilled worker, who can produce much more than an unskilled worker, it becomes unprofitable to hire (and even hire and train) unskilled workers to do the work instead. Those who start out behind without skills never get a chance to be hired and become skilled.

At any level of pay, employers will hire skilled workers over non-skilled workers. The answer to your dichotomy is that we should pay more unskilled jobs compared to skilled jobs to level the playing field.

Even without these laws, skilled workers would make higher wages than non-skilled workers. They demand it, among other things. In addition, employers clearly compete for skilled workers. If an employer tried to pay unskilled and skilled workers the same amount of money, another employer would come along to poach the skilled workers. Work can generally be performed in a variety of ways, with more or less capital (like machines and robots), or with more or less skill. Davis-Bacon does makes uneconomic to employ many unskilled workers at lower wages, making the only economic choice for an employer to pay fewer skilled workers higher wages. That can be good for the skilled workers, but bad for the unskilled.

The answer to your dichotomy is that we should pay more unskilled jobs compared to skilled jobs to level the playing field.

Under any possible circumstance, skilled workers are skilled precisely because they can produce more value. There is no possible way whatsoever to "pay unskilled jobs more compared to skilled jobs to level the playing field" successfully. It's easy, for example, to simply pretend to be unskilled in response. Then you have people who have skills who could be doing skilled labor performing jobs inefficiently. You also remove the incentive for people to become skilled and able to produce more, thus making society poorer. This was part of the problem with some of the late 19th century experiments with utopian socialism in various colony towns.
10.14.2005 11:46am
B. B. (mail):
Perhaps unions used to push for increases in the minimum wage for that reason, but I sincerely doubt that is the case anymore. Pricing an unskilled worker at, say, $7 an hour minimum (still not a realistically livable wage in most areas, btw) isn't going to send corporations running to a $25+ an hour skilled union worker.

If the marginal cost between skilled and unskilled was remotely close, I could see the point, but it can't possibly have much of that effect anymore, could it?
10.14.2005 11:48am
Per Son:
There is no proven correllation between unemployment and minimum wages. In fact, minimum wages often increase employment rolls. That is, people who would otherwise not work (because of public benefits, spouse/partner has a job, etc.) are more likely to work if the wages are viewed as preferable to their current situation.
10.14.2005 12:05pm
Bruce Hayden (mail) (www):
John said:
Except that mandating a higher wage does not create jobs. Employers will hire employees who can produce marginal value greater than their wages. By setting the minimum wage equal to that of a skilled worker, who can produce much more than an unskilled worker, it becomes unprofitable to hire (and even hire and train) unskilled workers to do the work instead. Those who start out behind without skills never get a chance to be hired and become skilled.

What must be remembered about Davis-Bacon though is that real economics do not fully apply here. In particular, in the private economy, people and companies can price themselves out of the market. It is almost as if one of the purposes of the Act is to counteract that.

I don't like the Act because of its intentional pro-Union effects - why should we, the tax payers, be supporting Union workers over non-Union workers? I also don't like that it was enacted with obvious racial intent.

But my biggest problem with the Act is the assumption that we, the tax payers, should have our taxes increased to pay more for skilled, union, workers than if work were done by less skilled, non-union workers. This hearkens back to a day before Keynsian economics had been debunked, and this sort of thing could be justified through the Keynsian multiplier. Well, most of us now know that that is bunk. It just results in more money being taken out of the productive sector, resulting in even greater job loss as a result.
10.14.2005 12:08pm
Marcus1:
Zubon,

>[U]nions rules exist primarily to benefit skilled workers at the expense of unskilled workers, and if one group is disproportionately unskilled, it will suffer disproportionately. This is why unions support increases in the minimum wage: to price unskilled labor out of the market as much as possible<

I think that's a vast overstatement. It may be one theoretical effect, but it's certainly not the primary purpose. The primary purpose is to organize and create bargaining power to counter that of large corporations.

How do the unskilleds suffer? If you think a minimum wage stunts the economy and leads to less hiring, that could hurt minorities as well as everyone. I disagree with that theory, but I don't think it was Mr. Bernstein's point.

>Put more simply, every time you raise the bottom rung, fewer people get on the ladder.<

We're not raising the rung. We're not requiring more skills. We're just paying more for the bottom rung. These economic theories are way over-stated. Bernstein made this statement:

"If a contractor has to pay an entry-level laborer almost as much as a skilled worker, he will often hire the more versatile worker, even if that worker winds up primarily doing unskilled work."

Yes, he will often do this. But often he will not. And quickly he will find that there aren't a limitless number of skilled laborers to do all of these jobs.

Do you really believe that minorities are hurt by the lack of low paying jobs in this country? You said yourself, millions of people a year come here in search of them. We have plenty of low-paying jobs. Unemployment is not a big problem in our country. It is not why we have so many minorities living in poverty. The lack of decent paying jobs for people without a whole lot of education is a much bigger problem.
10.14.2005 12:28pm
Marcus1:
John T,

>Employers will hire employees who can produce marginal value greater than their wages. By setting the minimum wage equal to that of a skilled worker, who can produce much more than an unskilled worker, it becomes unprofitable to hire (and even hire and train) unskilled workers to do the work instead. Those who start out behind without skills never get a chance to be hired and become skilled. <

Is this reality? So you think Davis-Bacon has created a dearth of low-paying jobs?

Clearly, most employees are worth much more than they are paid. The huge salaries of people at the top depend on this. The idea that low wage workers simply wouldn't be worth the money if we had to pay them a little more is bunk. Maybe the bonuses going to CEO's would just have to be a few million less.
10.14.2005 12:45pm
corngrower:
Unions = Skills. ? In this entire thread the assumption is that union membership equates to skills. That assumption holds no water. It is not true. I have woked along side union electicians that could not wire a three-way switch. I have worked with union carpenters that could not figure out the pitch of a roof in less than 20 minutes, or lay out a set of stair bucks with a square in less than a year. This is an area the government does not belong. The Davis Bacon Act should repealed by congress, and the unions should sink or swim on their own merits
10.14.2005 12:56pm
Bruce Wilder (www):
We are talking about whether construction workers in southern Mississippi are going to be paid $7.00/hour or $9.00/hour.

Getting all self-righteous over hourly wages in the single digits, while Bush is handing out no-bid contracts in the hundreds of millions and even billions of dollars to the likes of Bechtel and Halliburton is unseemly.

The Bechtels and Halliburtons of the world will screw their workers; a federal law, which bars the U.S. government from complicity in their abuse of their employees is a good thing.
10.14.2005 12:58pm
Per Son:
The nobids are being rescinded.
10.14.2005 1:03pm
none (mail):
Unions support minimum wage law because it provides the floor from which they bargain for higher wages for their members. Starting from a higher floor is better for the unions.
10.14.2005 1:34pm
none (mail):
Skilled workers should be preferred to unskilled workers. It's the merit system. The problem of discrimination is in the barriers to blacks becoming skilled workers. This law is not the cause of those barriers.
10.14.2005 1:40pm
cfw (mail):
Berstein must work in a hugely different construction sector than what I see in Los Angeles. He makes D-B out as vastly complex - not something I have seen as any sort of problem for minority or non-minority contractors or subcontractors, including small companies.

He makes it out as somehow offensive and opposed by minority contractors - not what I have seen in subway and waterworks projects and the like in Los Angeles.

The law does put more money in the hands of labor, which I would consider a good thing. And I say that as one who pays taxes and represents management and not labor. The folks who need a trimming these days are not the labor forces, in my view.
10.14.2005 1:50pm
roy solomon (mail):
The main problem with the argument made here in regard to lower skill workers is it's just plain wrong with regards to the rates paid.
There are 36 categories classified from the lowest unskilled laborer at $8.24 +1.20 = $9.44/hr up to the highest skilled( in this case, electrician) at 22.09+6.00= $28.09/hr.

The blended average is $15.82/hr including fringe benefits. I have no idea what the typical distribution across the categories would be on a given project.

This is from The GPO tables.
10.14.2005 2:12pm
perryair:
The only thing that davis-bacon does is incease the costs of already sharply escalating construction costs. You're talking a minimum of 5% tacked onto construction budgets already swollen with increased materials costs and costs of transportation. This does nothing to to mention the additional costs related to compliance with davis bacon imposed on contractors/subcontractors (the monitoring and documenting/etc costs).

Regardless of its macro impact on wages/racism/etc - it can often be the difference between a project being feasible and not-feasible. Yes you would have put more money into the hands of labor, but if the project never ends up getting built because of it, you haven't put any money in the hands of anybody, have you?
10.14.2005 2:25pm
corngrower:
ya know my son got a job as a young teenager. There was no job there, he bartered for it. took things other than money. But he got the job, and after the owner saw his work ethic he started paying him from the payroll. The reason no job existed is because the owner could not budget the minimum wage for 20 or so hours a week. minumum wage reduces opportunity. let the market set the wage. BTW His first check was for more than 7 bucks an hour
10.14.2005 3:28pm
Per Son:
Corngrower:

Sure, there are cases, where an employer could not afford minimum wage, but economists have been unable to demostrate (outside of models) any real world cases where unemployment rose as a result of minimum wage increases. There are studies that show net employment rose though.
10.14.2005 4:01pm
Dave Meyer (mail) (www):
You do your argument a disservice by failing to mention the training and apprenticeship programs unions use to create skilled labor. Trade unions help poor people of all colors move from unskilled positions to skilled, in the process helping people secure a midle class standard of living.

Repealing Davis Bacon would seriously undermine apprenticeship programs. Unskilled laborers are easily hired, easily fired, facing serious challenges to the accumulation of human capital that is necessary for personal advancement.

Nathan Newman prebutted Bernstein's position a month ago:
http://www.tpmcafe.com/story/2005/9/15/84746/1855

You can read more about Davis Bacon, and the effect that it's having on Katrina reconstruction here:
http://slingshot.org/?s=bacon&submit=Search
10.14.2005 4:07pm
JosephSlater (mail):
Where to begin? First, given that the percentage of blacks in unions is now greater than the percentage of blacks in society, one could argue that laws that supposedly favor unionized firms therefore favor black workers at the margins (of course one would need to go industry by industry for specific cases).

Second, D.B. is loose with the word "intent." The point of D.B. was to bar government contractors from paying workers less than what workers in that industry normally got, not to disriminate against blacks per se. Sure, to the extent some employer/contractors could get away with paying blacks significantly less than whites in those days due to pervasive societal racism, they couldn't get Davis-Bacon contracts. But I it's hard to credit the idea that Davis-Bacon (even in combination those unions that were racially exclusiveat the time) was the main reason blacks were disadvantaged economically in the 1930s. And for 40 years, federal law has (rightly) prohibited both private contractors and unions from discriminating against blacks, so it's hard o see what this has to do with current debates about post-Katrina reconstruction.

The real premise of Davis-Bacon is that government bidding for public works projects can act as a serious destabilizing force in area labor markets because the projects are often very large and long-term in nature, and there is a great deal of competition for those contracts. In order to prevent a situation where contractors are low-balling bids and paying the lowest wages possible, or "importing" and exploiting workers from areas where workers are typically paid less, the government should pay whatever the prevailing wage is in the area's private construction projects, effectively taking wages out of competition and theoretically preserving the labor market's integrity.

Knowing this, contractors will compete on the basis of quality assurances and building or constructing to specification rather than on labor costs.

It has also been argued that the government should be setting a good example as public owners of construction projects: providing better wages and better quality workers.

And the evidence is indeed that D-B laws have that effect. An important reminder from Econ 101: labor costs are not equivalent to project costs. In fact, there is very little correlation between wages paid and end costs of construction projects. In fact, higher wages may end up reducing end costs. The problem is that once wages are eroded, skilled construction workers leave the industry and contributions to private health, retirement and training funds dwindle such that workers have even fewer incentives to work in construction and receive less training. This can result in shoddy workmanship and accidents.

Unfortunately, most studies only look at the differences in bid costs and not the end construction and social costs and benefits associated with the law.

But there is evidence that when state "little" Davis Bacon Acts are repealed, this has resulted in:
-- wage decline for both union and nonunion workers
-- cost overruns
-- decline in apprenticeship and training rates, including safety training
-- increased rate of occupational injury and illness; and
-- no discernable reduction in cost of public construction projects
10.14.2005 4:18pm
Marcus1:
Dave Meyer,

I thought this statement from the article you site is particularly important:

>If Katrina opens up a building boom of jobs at decent levels, its Reconstruction can be the basis of building a new expanded middle class of black workers in the South, with the wages and training to continue in the building trades and associated high-skill services for the future.

Or it can be the conversion of the building sector into a permanent sweatshop sector that ends up being not a ladder, but a trap-door to permanent poverty wages for all in the sector.<

That's the refutation of Mr. Bernstein, I think. This idea that we help minorities by ensuring the availability of low-paying jobs strikes me as excedingly cynical. Maybe the government should actually artificially depress wages, then, if it really wants to create jobs for minorities?
10.14.2005 6:12pm
Daniel Chapman (mail):
Good analysis, JosephSlater.
10.14.2005 7:44pm
JosephSlater (mail):
Aside from the normal typo or two in my post, there was one almost amusing ambiguity. I wrote:

Second, D.B. is loose with the word "intent." The point of D.B. was to bar government contractors from paying workers less than what workers in that industry normally got...

I hope that clarity from context was greater than my accidental use of the same initials to mean two different things, but for the record: the first "D.B." was meant to refer to "David Bernstein" and the second "D.B." was meant to refer to "Davis Bacon." Perhaps we could have a new thread on "academics who critique laws that share their initials, and commentators who are confused by that." But the set might be one.
10.15.2005 11:52am