The Davis-Bacon Act
JUNE 01, 1984 by HANS SENNHOLZ
Dr. Hens Sennholz heads the Department of Economics at Grove City College in Pennsylvania. He is a noted writer and lecturer on economic, political and monetary affairs.
To determine the nature and measure of guilt, criminal law searches for man’s plans and intentions. It makes important distinctions between criminal action that is premeditated, and action without intent but with malice and in the heat of passion—between voluntary action that means to do some harm, and unintentional or negligent behavior that is violating the law. Punishment is meted out according to the judge’s or jury’s perception of guilt.
In economics, no such distinctions are made. An economist merely inquires into the means to be applied for the attainment of chosen ends. He does not dwell on the choosing of ends. He does not inquire into the intent of a legislator who casts his vote for a certain bill and endorses certain policies. An economist does not search for criminal intent to inflict harm on certain people, but he does ascertain the harm that is inflicted on them. He does not unmask the racist motives of legislators casting their votes for certain policies; but he may conclude that the votes cast may have consequences that are detrimental to certain groups and races.
The Davis-Bacon Act of 1931 provided ample food for thought for both the criminal psychiatrist and theoretical economist. It ordered contractors performing construction work for the federal government to pay their workers “prevailing” wage rates. Later amendments to the Act added “prevailing” fringe benefits and other costs for federally assisted projects as well.
The legislation was the first to establish minimum wages in the construction industry, benefiting white organized labor at the expense of many other workers and the American public. The Act established a new pattern of discrimination against racial minorities and drew an ugly line against young people, the poor and the handicapped. Subsequent to the federal law, most states enacted their “prevailing wage” acts covering state construction expenditures. Moreover, the Davis-Bacon concept of government wage determination spilled over to numerous other federal and state acts. Today, at least 75 federal acts contain Davis-Bacon clauses.
Working Evil on Minorities
One of the bill’s sponsors, Congressman Miles Clayton Allgood of Alabama, spoke freely of his racist motive: “Reference has been made to a contractor from Alabama who went to New York with bootleg labor. That is a fact. That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country.” Some legislators presented the bill as a revival and full-employment measure; others simply viewed it as an opportunity for benefiting construction workers or for pleasing labor leaders.
According to George Mason University professor, Walter Williams, the original supporters of the Act knew very well that the law would reduce opportunities for blacks. In recent testimony before the Senate Subcommittee on Labor he likened the Act to similar restrictions imposed by the government of South Africa: “White racist unions there support laws like the Davis-Bacon Act for the expressed purpose of protecting white labor from low wage black competition. Over there they call these laws ‘standard rate.’ Their stated intent is one thing; yours is another. The effect is roughly the same in both places.” But no matter what the motives may have been, the Act inflicted mass unemployment on black workers and continues to weigh heavily on them until this very day.
In unhampered markets wage rates reflect labor productivity, which is the value of the productive contributions made by a worker. If government and labor unions forcibly raise wage rates above the market rates, some workers are likely to be “disemployed.” They become “submarginal” in productivity as their costs are made to exceed their productivity. Unless they are discharged immediately they consume income and capital of their employers, and, in time, eat away the very business that employs them. By calling for “prevailing” wage rates the Act openly discriminates against all workers earning less than the “prevailing” rates and bars them from Davis-Bacon employment.
Minority Workers Are the Primary Victims
The primary victims of such legislative tactics are minority workers. Their labor productivity may be lower than the “prevailing” rates because of lower levels of training and experience. They may live in rural communities far removed from product markets, or they may reside in places with less capital investment per head of population. In most cases they are the primary victims even where there is no discriminatory intent. But the Act actually breeds discrimination as it creates a surplus of job seekers. Without Davis-Bacon, minority workers could offer their services at market rates that are lower than the Davis-Bacon rates. A non-discriminating employer could buy their services at a lower price; a discriminating employer would have to pay higher prices for white labor, which amounts to a penalty for discrimination. The Davis-Bacon Act eliminates this market penalty.
The Act eliminates opportunities for low-skilled minority workers because it restricts the employment of trainees and helpers. The Department of Labor does not recognize semiskilled or helper categories in its wage determination. A Davis-Bacon worker must be paid the full rate for a job classification, regardless of his skill level. A plumber’s helper who fetches the pipes must be paid a skilled plumber’s wage, which generates instant discrimination against helpers, trainees, and laborers. As many minority workers are helpers, trainees, and laborers, they may suffer the Davis-Bacon discrimination, which they are likely to interpret as white racism.
After more than 50 years of Davis-Bacon legislation the Department of Labor has not been able to fix rates satisfactorily. A single construction job may require anywhere from 10 to 300 job classifications. The Branch of Wage Determination must make tens of thousands of de terminations every year. As can be expected, it is quick to impose the rates determined by readily available collective bargaining agreements. An overwhelming number of determinations, therefore, carry union wage rates that usually are far above the market rates. This explains why the strongholds of unionism always are the centers of unemployment. Minority workers in such centers are prone to linger in chronic unemployment and deep despair.
High compliance costs discourage many small contractors from bidding on Davis-Bacon projects. Under the Act contractors must submit weekly payroll information, such as hours worked and wages paid, for every employee on a government-sponsored project. While large contractors may be able to handle the reporting requirements and bear the expenses, small contractors may chafe under such loads, which may discourage them from competing with the larger companies. The compliance regulations favor large unionized companies, and work evil on smaller firms that are likely to employ minority workers.
In many communities local contractors employing local labor may not choose to bid on Davis-Bacon projects, which makes room for construction firms that specialize in Davis-Bacon work. Before 1931, contractors with cut-rate “bootleg colored labor” were damned for traveling about the country and competing with white labor. Today, contractors with bootleg white labor working at union rates are moving about without much competition, which permits them to raise their rates with impunity.
It is not uncommon for out-of-town union contractors to obtain government-sponsored construction contracts in nonunion communities. In fact, it is not uncommon for union shops with preponderantly white labor to obtain Davis-Bacon contracts in black neighborhoods. They provide public facilities and build subsidized housing for the poor and underprivileged, many of whom are made and kept poor by the Davis-Bacon Act. If it were not for the intervention of “affirmative-action” judges, most urban-renewal projects for the benefit of racial minorities, costing tens of billions of dollars, would be undertaken by white unionized labor while minority craftsmen would be forced to watch in idleness and despair.
In the strange world of power and politics, one agency of government inflicts an evil, another seeks to alleviate it. One law raises the costs of housing construction, another seeks to offset the raises through construction grants, low-interest loans, and subsidized rents. One regulation erects offensive barriers for minorities, another seeks to give assistance for overcoming those barriers. Void of freedom, confusion is reigning supreme.
Depressing the Depression
Many sponsors of the Davis-Bacon Act speak of jobs and full employment. They deny any discriminatory intent, but point all the more resolutely at the number of jobs the Act is supposed to have created for “non-bootleg” labor. But this claim is as unconvincing as the other. The Act was a dismal failure as an economic revival and full-employment measure. Soon after its passage, on
March 3, 1931, construction activity contracted in all industries. The period from the summer of 1931 to midsummer 1932 was one of deep gloom and despair. The prices of all securities tumbled, stock and bond markets moved down drastically. The Federal Reserve Index for industrial production dropped sharply from 80 in the late summer of 1931 to below 60 in the summer of 1932. And average unemployment in 1931 soared from 16.3 percent to 24.9 percent in 1932.
Surely, no one would care to contend that the Davis-Bacon Act contributed to economic revival and prosperity. But it can be concluded, without much contradiction, that the Act contributed to the economic collapse that was getting under way. Worst of all, it revealed the growing popularity of radical government intervention that soon would not be content with fixing construction wages, but would reach out to countless other endeavors.
The Davis-Bacon Act directly contributed to the economic disintegration by obstructing the necessary readjustment. When economic activity was slackening and unemployment soaring, when goods prices were tumbling and employers were suffering staggering losses, the cost of labor needed to be reduced. In the face of the greatest economic debacle ever, there was no greater need than to raise labor productivity and lower its cost. But the Davis-Bacon legislators chose the very opposite: they raised construction costs, which greatly aggravated the situation.
A few months later, in March, 1932, the same Congress passed the Norris-LaGuardia Act, which imposed strict limitations on the power of federal courts to issue injunctions for the protection of private property against labor union aggression. It limited government protection to cases where “substantial and irreparable injury to complainant’s property will follow . . . .” which obviously left unions free to inflict “insubstantial” and “reparable” injury to the property of employers. The Act outlawed employment contracts that commit an employee not to join a labor union, but expressly sanctioned labor’s use of strikes, picket lines, and secondary boycotts. In short, it conferred legal immunities and privileges on unions and greatly strengthened their power to raise production costs and aggravate the depression.
Tariffs and Taxes
It would be misleading to attribute the Great Depression to the Davis-Bacon Act and the Norris-LaGuardia Act alone. There were other acts that were equally harmful to the smooth operation of the market order. In June, 1930, federal legislators in Congress assembled had passed the Hawley-Smoot Tariff Act, which raised American tariffs to unprecedented levels. It practically closed U.S. borders to foreign goods and cut off international markets.
The same politicians who prescribed the Davis-Bacon Act and the Norris-LaGuardia Act also imposed the sharpest increase in federal tax burden in American history. While economic conditions went from bad to worse and unemployment rose to 12.4 million, they passed the Revenue Act of 1932, which doubled the income tax, boosted corporation tax rates, raised estate and gift taxes, and imposed a host of indirect taxes. When state and local governments faced shrinking tax collections they, too, joined the federal government in imposing new levies. All along, President Hoover was lecturing the nation’s industrial leaders on the benefits of corporate spending. In the face of declining sales and rising losses he pledged them not to reduce wages and prices, but to expand production. His administration set the tone by embarking upon massive public works programs, and urging state governments to follow suit.
It is futile to estimate the economic harm inflicted by the Davis-Bacon Act since its passage in 1931. The number of buildings not built, the jobs not created, is hidden in the haze of the past. But it should always be remembered that the Act pointed the way toward the most significant economic and political changes to come. It made government the regulator of wages and income, thereby aggravating and prolonging the depression, which in turn gave rise to ever more government tasks and functions. It led to the Full Employment Act of 1946 and countless other government programs for economic stimulation and full employment.
Moreover, the flagrantly anti-Negro tenor of the Act planted the seed for the “civil-rights revolution” during the tumultuous 1960s, which ranged from violence in the streets to militant federal and state legislation. It bore its most bitter fruit in the rioting in a Negro district of Los Angeles that took 34 lives and caused $48 million in property damage.
And finally, the Act contributed its share to the age of inflation, which is marked by government spending and deficit financing on behalf and for the benefit of the poor and underprivileged. Surely, a small share of the trillion and a half dollar debt incurred from 1931 to the present must be attributed to the great desire to alleviate the suffering of unemployed minorities and compensate them for the injuries inflicted by other policies.
Despite its numerous undesirable economic and social consequences the Act has survived more than half a century and may live on indefinitely. It generated controversy from its beginning, and yet, it persists unchanged and unaffected. It is costing taxpayers more than $1 billion annually, boosting the cost of federal construction projects, and yet, it persists unscathed under Democratic as well as Republican administrations. Nearly every study concludes that the Act’s primary effect is the serious harm inflicted on nonunion and minority workers, and yet, its victims continue to be victimized year after year.
Why Does Davis-Bacon Persist?
The harmful effects of the Davis-Bacon Act do not seem to impair its popularity. They are interpreted away and placed on the doorsteps of capitalism. The American public does not suspect the Davis-Bacon Act, the Norris-LaGuardia Act, or the Hawley-Smoot Tariff Act of having played an ominous role in the Great Depression. It lays the blame instead on mysterious failings of the private-property order and the profit motive. It does not suspect labor legislation of causing unemployment, especially among minorities. Instead, the public is persuaded that white middle-class racism, especially among employers, is responsible for the unemployment plight.
To raise the income of labor by legislative fiat or union coercion is the very essence of interventionism. In the eyes of the American public, to raise wages is virtue, to take from employers is morality. In the world of reality, however, inexorable economic principles contradict such notions and point up the inevitable consequences of policies based on these notions. In economic life, principle must prevail in the end. In the halls of politics, consensus and popularity may sway over truth. Error has a great deal of political clout. 
5. The Department of Labor estimated the Davis-Bacon costs in 1982 to exceed $1 billion: inflated wage costs $570 million, compliance costs $100 million, restrictive practices costs $480 million. Congressional Budget Office, Modifying the Davis-Bacon Act: Implications for the Labor Market and the Federal Budget, July 1983, p. 29.
7. Roscoe Pound, Legal Immunities of Labor Unions (Washington: American Enterprise As sociation, Inc., 1957), p. 21 et seq.; also Sylvester Petro, The Labor Policy of The Free Society (New York: The Ronald Press Co., 1957), p. 125 et seq., and Power Unlimited (New York: The Ronald Press Co., 1959).