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  • Labor Department Incorrectly Calculates Davis–Bacon Wage Requirements

    Should government agencies use the best information possible? For more than 80 years, the Labor Department has answered that question in the negative.

    The Davis–Bacon Act (DBA) of 1931 requires federal construction contractors to pay their workers at least the “prevailing wage” in their locality. The Act charges the Labor Department with estimating these prevailing wage rates. Fortunately, the Labor Department has a dedicated agency that specializes in calculating such labor statistics. Regrettably, the Labor Department does not use that agency—the Bureau of Labor Statistics (BLS)—to calculate Davis–Bacon rates.

    Instead the Labor Department has tasked its Wage and Hour Division (WHD) with estimating local construction wages. The WHD is an enforcement agency—it prosecutes violations of overtime and minimum wage laws. It has no expertise in estimating wage rates.

    It shows. For decades the Government Accountability Office and the Office of the Inspector General have criticized the WHD’s surveys. First, the WHD uses such confusing forms that they have 100 percent error rates—no one can fill them out correctly. Second, the WHD does not use scientifically representative samples. Instead it uses self-selected samples of primarily large unionized businesses. Third, the WHD uses unreliably small samples—half of its estimates come from surveys of 12 or fewer workers.

    Unsurprisingly, unrepresentative, error-riddled surveys of a dozen workers do not produce accurate results. In many cities, the WHD estimates Davis–Bacon rates well above actual market wages. In other cities they come in below actual pay.

    For example, electricians on Long Island, New York (Nassau and Suffolk Counties), make an average of $30.76 an hour. However, Davis–Bacon rates force federal contractors to pay $44.75 an hour. By contrast, the WHD says carpenters in Sioux Falls, SD, earn $12.17 an hour. They actually make $15.57 an hour—over one-fifth more.

    These errors add up. Davis–Bacon rates average 22 percent above market wages nationwide. That adds over $10 billion a year to federal construction costs.

    The Labor Department could solve this problem by transferring Davis–Bacon surveys from the WHD to the Bureau of Labor Statistics. The BLS has the resources and expertise to competently administer surveys and extrapolate meaningful results—but the Labor Department refuses to make this switch.

    Some in Congress think this makes little sense. Representative Paul Gosar (R–AZ) recently introduced the Responsibility in Federal Contracting Act (H.R. 448). The bill requires the Bureau of Labor Statistics—not the Wage and Hour Division—to conduct Davis–Bacon Act surveys using proper statistical sampling methods. This reform is common sense, as the Labor Department has no excuse for basing pay on unreliable data.

    Rudy Takala is currently a member of the Young Leaders Program at The Heritage Foundation. For more information on interning at Heritage, please visit: http://www.heritage.org/about/departments/ylp.cfm.

    Posted in Economics [slideshow_deploy]

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