Prevailing Wage - A Primer
Monday, April 27, 2009 at 2:03PM No matter what anyone thinks of the government’s reaction to the Great Depression, it can’t be denied that the era has had a profound and lasting impact upon the country. Whether it is the Social Security program, the TVA or the trails you walk on within Mammoth Cave (built by the Works Progress Administration) – economic policy from that period fundamentally departed from the prevailing “free market” approach toward an underlying philosophy that proscribed an activists role by the federal government.
One of the many interventions that grew from that time was the Davis-Bacon Act of 1931. (Interesting note: Davis-Bacon was enacted under Herbert Hoover, a Republican – further demonstrating the absolute penetration of Keynesian economics into the country’s political-economy).
Davis-Bacon, like most programs from the era, was well-intended. There was a migration of extremely cheap labor from the South to the Northeast and Midwest that competed for construction work with the local workers. Naturally, the cheaper alternative gained traction and got the jobs.
Intending to protect local workers, Congress required that a “prevailing wage” must be paid on public works projects, which by tying the wages to the local norm ensured that migrating labor couldn’t significantly undercut the native labor force.
We can debate whether the policy makes economic sense. For us though, it is what it is and remains a fact of life today.
Many states followed by adopting their own version of prevailing wage laws for state-funded projects. Kentucky adopted its version in 1940. (See KRS 337.505 to KRS 337.550) The prevailing wage was applied to Kentucky’s school projects during the mid-1990s.
Like so many public policy issues – though the prevailing wage had a logical basis when enacted, it is questionable whether or not it is relevant today. Labor migration isn’t occurring like it did during the Depression. Other laws and regulations regarding labor standards keep the playing field pretty level.
Given that – it is reasonable to ask whether the prevailing wage makes sense in today’s world? Especially given the “costs” associated with it.
Costs? What costs?
Remember last week when we said that of the $350 million allocated to school construction, $35 million wouldn’t be going to building and updating facilities?
I imagine that you know exactly where this is going…
Reader Comments (1)
There was a migration of extremely cheap labor