The fallacy of the prevailing wage

Posted: Aug 10, 2005 12:00 AM

 In its contempt for the market, the federal government is setting high wages that keep people poor.

 On government construction jobs, federal law requires that everyone be paid "the prevailing wage." By "prevailing wage," the feds mean the wage the bureaucrats were prevailed upon to set. The Davis Bacon Act, passed in 1935, requires every construction worker be paid exactly what the bureaucrats decree.

 The real "prevailing wage" is set by the law of free exchange, of course: If you don't pay enough, no one will work for you. Demand too much, and you won't get much construction work. Supply and demand make sure people are paid a wage that's most efficient for the most people.
The Davis Bacon Act redefines the term "prevailing wage." For the facts of the market, it substitutes the arbitrary whims of bureaucrats. But the facts are the facts, and ignoring them is never safe. In this case, the victims of the government's self-deception are the people the government is refusing to see: the people for whom the real prevailing wage -- the amount they can earn on the open market -- is lower than that set by the government.

 Under Davis Bacon, the government issues wage edicts that are different in every town. The wage rates are based on a complicated formula that supposedly averages previous union and non-union wages in a given town. But, of course, the union contractors, because they're organized, are more likely to get their wage data to the government, so the averages are skewed.

 Construction had long been the kind of work where young people could break in by helping, watching and working cheap until they acquired skills. The Davis Bacon Act eliminates that.

 When Chicago decided to repair the Cabrini Green housing project, people who lived in the project assumed such a big job would provide work for the unemployed young men who grew up there. But because of Davis Bacon, every contractor had to pay high salaries -- even for the simplest jobs. So contractors, locked into paying high salaries, were not about to take a chance on beginners. They hired the most experienced union workers they could find. They used workers who would "normally never come near our neighborhood," said aspiring construction worker John King. "I think it's wrong that they do that. We want to provide. We're not just derelicts and drug dealers and thugs."

 If it weren't for Davis Bacon, people like King could have competed for jobs by being willing to accept a lower wage. If you've got a choice between inexpensive, inexperienced workers and expensive experts, it often makes sense to hire at least some of the new people. Their work isn't as valuable, but since their pay is lower, it may be a better deal for the money -- and if you hire a few old hands, too, the beginners can learn from them, making their labor more valuable to you and putting them in a position to charge more on their next job.
But if the law forces you to pay top-scale wages no matter whom you hire, there's no benefit to hiring the inexperienced people. For expert's pay, you can get expert's work, so that's what you do. The would-be beginner doesn't get a start. He's just not worth what you'd have to pay him.

 Unions claim Davis Bacon is necessary "to make sure government buildings are well-built." Without first-class union labor, unions say, the buildings might not be safe. That might sound reasonable if you didn't stop to consider that most buildings are  not government buildings, and they're safe.

 There are some in Congress who realize this and want to repeal the Davis Bacon Act. There is almost no chance that they will succeed. The people who like the law make good money from it and lobby well. The people Davis Bacon hurts are less organized. When you're trying to learn a trade and become a productive citizen, you don't have much time to lobby your congressman.

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