Virginia is one of just eight states that have never had a prevailing wage law, for which the citizens of the Commonwealth should be thankful and proud; thankful because prevailing wage laws drive up the cost of public works construction and proud because discrimination is at the very heart of the real reasons these laws exist.
The words prevailing wages imply that the wages to be paid are wages prevailing in the community where the work is being done. Nothing could be further from the truth, but without a more detailed explanation, the misconception stands.
The best known prevailing wage law is the federal Davis-Bacon Act (DBA) that applies to all construction with $2,000 or more in federal funding.
The DBA was enacted in 1931 for the stated purpose of preventing low bidders on federal public works construction from undermining local area wages. However, the reality was that this law was intended to protect the building trades unions that had a long history of discrimination against minorities, from competition.
A huge discrepancy can be seen between what the government determines to be the prevailing wage and the wage that truly prevails in the marketplace. This can be demonstrated by comparing DBA wage determinations with what selected trades in certain geographic locations around the state actually make. The wage determined to be the mean hourly wage by the office of Occupational Employment Statistics (OES) is used for comparison purposes. The OES wages are derived from the Bureau of Labor Statistics’ Current Population Survey and are considered to be very accurate.
The DBA wage for a painter in Fairfax County is $24.64 plus $7.16 in fringes per hour, while the OES wage for a painter is $16.44. The DBA wage is 50 percent higher than the OES wage.
The DBA wage for a carpenter in the City of Falls Church is $26.38 plus $7.00 in fringes per hour, while the OES wage for a carpenter is $18.88. The DBA wage is 40 percent higher than the OES wage.
The DBA wage for a sheetmetal worker in King George County is $23.39 plus $11.07 in fringes per hour, while the OES wage for a sheetmetal worker is $18.91. The DBA wage is 24 percent higher than the OES wage.
The DBA wage for a plumber in Loudoun County is $37.67 plus $14.69 in fringe benefits per hour, while the OES wage is $22.09. The DBA wage is 70 percent higher than the OES wage.
The DBA wage for a boilermaker in Powhatan County is $30.96 plus $16.87 in fringes per hour, while the OES wage for a boilermaker is $23.17. The DBA wage is 33 percent higher than the OES wage.
The DBA wage for a laborer in Prince William County is $19.57 plus $4.68 in fringes per hour, while the OES wage is $12.59. The DBA wage is 44 percent higher than the OES wage.
The DBA wage for an electrician in Westmoreland County is $39.10 plus $12.82 in fringe benefits per hour, while the OES mean hourly wage for an electrician is $22.03. The DBA wage is 77 percent higher than the OES wage.
The DBA wage for a structural ironworker in the City of Winchester is $28.83 plus $13.29 in fringes per hour, while the OES wage for an ironworker is $19.31. The DBA wage is 49 percent higher than the OES wage.
Fortunately, the Department of Labor’s Davis-Bacon wage determinations in Virginia are not usually based on union scale. Much of the credit for that is because of regulatory reforms that were pushed through by Ronald Reagan’s first Secretary of Labor, Ray Donovan. The above examples do illustrate, however, that the determination of prevailing wages is seriously flawed.
The problem is the methodology by which prevailing wages are determined. Wages are determined to be prevailing as the result of a survey with voluntary participation. Union contractors, realizing that a determination of union scale as prevailing will protect them from competition and egged on by union representatives, have a very high level of motivation to participate in these surveys.
In contrast, open shop contractors that have no interest in bidding on public works construction covered by prevailing wage laws have little incentive to participate in the voluntary surveys. Additionally, some open shop contractors distrust the government agency conducting the survey to keep the information provided confidential and have expressed concerns about their competition using it when preparing bids or union organizer’s finding it useful to organize the company’s employees.
This leads to survey results being heavily weighted with union contractor responses. A 2001 study by Kentucky’s Legislative Research Commission reported that 81 percent of the workers represented in prevailing wage determinations were union members, while their best estimate of union density in Kentucky’s construction industry workforce at the time was 22 percent.
In many states survey results are then used to determine the prevailing wage using a method called norming that allows the highest number of identical replies in a sample to prevail. Norming is a legitimate survey methodology under some circumstances, but when used to determine prevailing wages, it has a strong tendency to favor union wages. Using a norm rather than an average, if the wages of ten carpenters are surveyed and two of them are union members earning an identical wage while eight of them are not union members and each earns a different wage, the union wage is the “norm” and is determined to prevail. A weighted average method would produce an entirely different wage determination from the same survey results.
The methodology for prevailing wage surveys in the construction industry is further complicated by a requirement that the wages be identical. In the unionized construction industry, the wages paid are almost always identical, but in the non-union construction industry, it is very common for workers in the same craft working for the same employer to make different wages based on factors such as skill level and the length of their employment with the company.
Because prevailing wage laws require payment of wages higher than those that actually prevail, many contractors who are paying market wages to their employees are reluctant to bid on public works construction projects. It is difficult to explain to an employee why he or she is making more money one day working on a public works project than the next day, doing exactly the same work on a private job.
In addition, the record keeping and reporting requirements for compliance with prevailing wage laws can be a difficult, time consuming and costly. The DBA requires federal contractors to file weekly reports with the government of the wages paid to each worker. Many small firms do not have the lawyers and accountants needed to stay out of trouble on compliance issues and so choose not to bid at all. The reduced competition on public works construction projects, particularly from small business, is another contributing factor to the increased cost of public works construction caused by prevailing wage laws.
Considering all of the above problems with wage determination, it is remarkable that the DBA was not repealed long ago. Repeal legislation, H.R. 746, was introduced in February of this session of Congress by Florida Representative, Connie Mack. The results of the November 2010 elections and the greater pressure to reduce federal spending and job killing regulations should give it a much better chance of success than last year’s bill.
Financial pressure on state governments is also very likely to result in serious consideration of repeal of state prevailing wage laws in areas where until very recently such consideration would be impossible.
It would be prudent for public agencies in Virginia to check the Davis-Bacon wage determination before accepting any federal funding for public works construction. If only a small percentage of the total funding is from federal sources, or if the federal participation is in the form of a loan guarantee that carries DBA wages with it, it may cost less to do the project without federal help than with it.
This article was previously published in the March 2011 issue of Commonwealth Contractor.