The Davis-Bacon Act in the US requires prevailing wages to be used for government-contracted workers on public projects. Different states have their own methods for determining these wages, which can be controversial and lead to extra spending and benefits for unionized workers. Critics argue that this leads to wasteful spending and favors unions.
Prevailing wages are the wages paid to the majority of people involved in a specific job in a specific geographic area. In the United States, an act of Congress known as the Davis-Bacon Act stipulates that prevailing wages will be used to determine the wages and benefits of government-contracted workers for public projects. Different state governments use their own specific methods of determining what those wages should be. Identifying prevailing wage rates can be controversial as it can result in extra spending on public projects and benefits for workers protected by unions.
In 1931, the US Congress passed the Davis-Bacon Act. Its purpose was to prevent the government from exploiting workers by setting wages for a particular job that were less than the normal amount paid to workers doing that job. This law also stemmed from perceived racial discrimination in unions, as it allowed all government-hired workers to receive wages comparable to union wages. Many states have since passed their own version of the Davis-Bacon act to institute a localized method for determining prevailing wages.
While different methods are used, the prevailing wages for an area are usually determined by the wages earned by the majority of workers in a given field. For example, imagine a particular state has 100 certified welders, and of those, 65 make $35 US dollars (USD) per hour. If so, the prevailing wage rate for a welder in that state would be $35 USD an hour, and that would be the rate paid for any welder hired by the state for a public project. This is also a method that can be used to determine the benefits paid to such workers.
This method means that prevailing wages do not always reflect the average amount of wages paid to a given group of workers. Using the example above, imagine that the $35 per hour rate is actually the highest rate paid to welders in that state. This means that other welders in the state who don’t produce that rate are all paid less. In this case, the average amount made by welders in the state would be less than the rate determined as the prevailing wage rate.
For this reason, many critics of prevailing wage laws complain that the practice leads to wasteful spending on public projects, which increases the costs of those projects. This can lead to budget shortfalls, higher taxes, and fewer public projects being launched. Furthermore, some see prevailing wage laws as a way to cater for unions, whose workers typically command the highest rates and, therefore, may have a competitive advantage in getting these public contracts over firms with non-union workers to produce less.
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