Wednesday, December 17, 2008

what's an extra $8.6 billion between friends?

A timely discussion from Frank Conte in Budget & Tax News-- of the (current) impact of (federal) prevailing wage laws on the cost of infrastructure-- in light of Obama's hopes for massive infrastructure spending. (The study does not measure the impact of similar state laws.)

Beyond its exaggerated impact on the macro-economy, it's clear that infrastructure is attractive to constituents in general (obvious benefits vs. subtle/diffuse costs) and to particular constituents (urban and unions).

In the case of prevailing-wage laws (or Davis-Bacon laws at the national level), unions benefit by having wages for public works kept artificially high. This makes it more difficult for non-union firms to compete and drives up the cost of these projects. Perhaps most interesting, the origins of Davis-Bacon laws are explicitly racist. (I pointed this out in an essay commissioned by the C-J. They decided to reneged when they saw the final product-- presumably when they found out that the results pitted unions against minorities.)

Biases in the measurement of the federal "prevailing wage" force U.S. taxpayers to spend $8.6 billion a year more for public construction projects than they would have to pay if unbiased measures were used, according to a new study by the Beacon Hill Institute at Suffolk University (BHI).

The measurement biases add 22 percent to the cost of labor on public construction projects and 9.91 percent to overall construction costs, the study finds.

"The existing way of measuring the prevailing wage amounts to the maintenance of a costly and arcane welfare system for construction workers," said David G. Tuerck, executive director of the Beacon Hill Institute and a coauthor of "The Federal Davis-Bacon Act: The Prevailing Mismeasure of Wages."

The BHI study compared the estimates reported by WHD to those reported by BLS for a sample of nine occupational categories accounting for 59 percent of all construction workers across 80 MSAs. BHI found on average the DBA prevailing wage is almost $4.43 per hour above the BLS average wage--22 percent higher--when wages are weighted according to the number of workers in each trade and each MSA....

Originally enacted to discourage poor Southern blacks from seeking construction jobs in the North, the prevailing wage law has always been intended to shield local construction workers from "outside" competition, Tuerck noted.

"The whole purpose of a prevailing wage law is to deny employment opportunities to workers from outside the immediate area," said Tuerck. "On that basis alone, the best solution would be to repeal Davis-Bacon and to render unnecessary the whole problem of divining what the prevailing wage is."...


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