• Mr. Steven J. Muehler

Steve Muehler's Plan to Repeal the Davis-Bacon Act

Updated: Apr 23

Since 1935, the Davis-Bacon Act has required that workers on all Federally Funded or Federally Assisted Construction projects whose contracts total more than $2,000 be paid no less than the prevailing wages in the area where the project is located. (A Federally Assisted Construction project is paid for in whole or in part with funds provided by the Federal Government or borrowed using the credit of the Federal Government.) The Department of Labor determines prevailing wages on the basis of the wages and benefits earned by at least 50 percent of the workers doing a particular type of job or on the basis of the average wages and benefits paid to workers performing that type of job.

Under my Administration, we would repeal the Davis-Bacon Act and reduce appropriations accordingly. The government's authority to enter into obligations for certain transportation programs would likewise be reduced.

Once this change is implemented, the Federal Government would spend less on construction, saving $12 BILLION USD in discretionary outlays over ten years. Mandatory spending on Federally Funded or Federally Assisted construction projects would also decline, but by less than $1 BILLION USD over that period. Savings would generally accrue to Federal Agencies that engage in construction projects. In 2018, about half of all Federal Funded or Federally Assisted construction was funded through the Department of Transportation, although a significant portion of federal construction projects were funded through the Department of Defense, the Department of Housing and Urban Development, and the Department of Veterans Affairs.

In general, savings in outlays are smaller than savings in budget authority for construction projects because the outlays occur over many years. However, the rate at which those outlays occur can vary for different types of projects. Because repealing the Davis-Bacon Act would affect many types of Federally Funded or Federally Assisted construction projects, the difference between budget authority savings and outlay savings in this option represents the average difference across the affected projects.

CBO's estimate of the savings associated with this option is primarily based on the agency's estimates of Federal Spending on construction and of the share of that spending that would be eliminated if the Davis-Bacon Act was repealed. In CBO's estimation, repealing the Davis-Bacon Act would reduce total Federal Spending on construction by 0.9 percent. Most of those savings—0.8 percentage points—would result from a reduction in wages and benefits. The other 0.1 percentage point would stem from a reduction in compliance costs associated with the Davis-Bacon Act. In addition to a reduction in Federal Spending on construction, there would be a small amount of savings for the Department of Labor associated with the elimination of the act's administrative costs.

The largest source of uncertainty in this option is CBO's estimate of the share of Federal Spending on construction that would be eliminated by repealing the Davis-Bacon Act. Some research suggests that repealing prevailing wage laws by eliminating the act would not result in savings (Azari-Rad, Philips, and Prus 2003), whereas other research suggests that repealing such laws would result in greater savings than CBO estimates (Dunn, Quigley, and Rosenthal 2005).

An argument for repealing the Davis-Bacon Act is that, since the 1930s, other policies (including a Federal Minimum Wage) have been put in place that ensure minimum wages for workers employed in Federal or Federally Assisted construction.

Moreover, when prevailing wages (including fringe benefits) are higher than the wages and benefits that would be paid in the absence of the Davis-Bacon Act, the act distorts the market for construction workers. In that situation, Federally Funded or Federally Assisted construction projects are likely to use more capital and less labor than they otherwise would, thus reducing the employment of construction workers.

Additional arguments for repealing the Davis-Bacon Act are that the paperwork associated with the act makes compliance more difficult for small firms than for large firms and that the act is difficult for the Federal Government to administer effectively. For instance, prevailing wage rates are based on surveys and are supposed to be issued for job classifications by county. However, survey responses are often insufficient to generate county-level estimates of prevailing wages for some occupations. Finally, under current law some agencies charge people separate fees or higher rates than they otherwise would to fund certain Federal Construction Projects. To the extent that those agencies passed on the savings from reduced constructions costs to their users, those users would experience lower costs for services.

One argument against repealing the Davis-Bacon Act is that doing so would lower the earnings of some construction workers. Another argument against such a change is that it might jeopardize the quality of construction at Federally Funded or Federally Assisted projects. When possible, managers of some construction projects would decrease costs by paying a lower wage than is permitted under the Davis-Bacon Act. As a result, they might attract workers who are less skilled or do lower-quality work. Also, if one of the objectives of Federal Projects is to increase earnings for the local population, repealing the Davis-Bacon Act might undermine that aim. The act prevents out-of-town firms from coming into an area, using lower-paid workers from other regions of the country to compete with local contractors for Federal work, and then leaving the area upon completion of the work.

My Administration would be aware of these arguments against repealing the Davis-Bacon Act and would propose specific legislation that would minimize these possible negative effects.

Steve Muehler is the Founder & Managing Member of the Private Placement Markets:

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