Friday, 2. March 2012
Getting Out the Vote, at Public Expense
Prevailing wage laws govern worker compensation on government-funded construction projects. They direct that workers be paid “prevailing wages.” This may not sound like such an evil thing, but these laws end up boosting construction costs significantly, and restrict opportunity for many construction workers.
There are competing views about the value of these laws from “good government” organizations. But at the end of the day, prevailing wage laws look like good examples how the well-connected few use government to serve their own ends, at the expense of the many.
State and federal government finances have gotten to the point where people are arguing how close to Greece the United States has become. Prevailing wage laws have been part of the gas in the burner under our Boiling Pot. Fortunately, there are some good groups working for the repeal of these laws.
Words and Deeds
Public policy often turns into wordsmithing. Words are chosen, words are applied, and words can “gain currency” and become commonly used.
Public policy advocates frequently use words artfully and strategically. This tendency can evolve into a form of lying, even in lawmaking. For example, titles to statutes are often rife with creative spin, including legislation like the PATRIOT Act, the No Child Left Behind Act, and FDICIA (the “FDIC Improvement Act”).
So what does the word “prevailing” mean, when discussing prevailing wage laws?
First, let’s go to the dictionary. You have to be careful here because of the distinctions between the noun and adjective forms for “prevailing” and the verb “prevail.”
The Oxford English Dictionary (OED) is an authoritative source. In the context we are looking at, “prevailing” is an adjective, describing the noun “wage.” The OED entry for the adjective includes two senses. Here is the first sense:
1. That is or proves to be superior in any contest; victorious; ruling; effective, influential.
The second sense of “prevailing” is quite different:
2. Predominant in extent or amount; most widely occurring or accepted; generally current.
With the competing meanings, the “prevailing wage” term can leave a false impression. It can be a little too easy to presume a law like this must be reasonable, as it seemingly directs that wages be consistent with current, common, or even market wages.
But that is not what “prevailing” means in prevailing wage legislation. Power, not free choice and cooperation, determines the outcome.
Prevailing wage laws date to the late 1800s when they were first becoming established at the state level. They became a matter of federal law when Congress passed the Davis-Bacon Act in 1931 during the Great Depression. As the Depression intensified, so did competition for construction projects, with government projects gaining a greater share of the pie. Politically significant local contractors faced competition from other contractors with non-white and/or migrant laborers. (Put more bluntly, some critics use the word ‘racist’ to describe an important motivation for these laws). The Davis-Bacon Act responded by directing that workers on federal construction projects be paid no less than “locally prevailing” pay for similar work. Over time, state laws covering state and local government projects also flowered around the 50 states, becoming Little Davis-Bacon Acts.
What, exactly, did the Congress mean when it directed that compensation on federally-funded construction projects be no less than a “prevailing wage?”
In a way, Congress meant the same thing as when it directed the Federal Reserve to pursue “maximum employment, stable prices, and moderate long-term interest rates” when conducting monetary policy–Congress left it up to administrative discretion.
In the case of the Davis-Bacon Act, locally prevailing wages were to be determined by the federal Secretary of Labor. In practice, these laws became a vehicle for taking competitive bidding out of the equation, and for putting a floor on compensation at union rates at the federal as well as state and local levels.
It doesn’t take a great leap of faith to presume that laws like this enrich construction contractors and union members on taxpayer-funded projects. They also make it more difficult for unconnected companies and workers to acquire work. Public policy tends to reward well-organized special interest groups at public expense, and prevailing wage laws are not an exception to prove the rule. Special interest groups can “prevail” in public policy, at least, without effective education and good leadership to the contrary.
The market for public policy ideas includes a variety of competing organizations. They have different perspectives, based on their underlying philosophies and goals.
Good Government vs. Good Government Oversight
The Project on Government Oversight (POGO) is a Washington D.C.-based “good government” organization. They also describe themselves as a “whistleblower protection” organization.
Back in early 2011, POGO and a few similar organizations gave President Barack Obama a “Transparency Award.” They took some heat for this, in part because the award was ultimately given in a meeting closed to the press. But critics have also faulted the award for effectively whitewashing the Obama Administration, which, in their view, has presided over a federal government that has become even harder on whistleblowers, and less transparent, than its evil predecessor (for example, see this article).
Speaking of transparency, POGO’s website today has a section called Foundation Support. When you click on it, today, you get a list of Foundations, but only for Fiscal 2008. Contributions and grants to POGO in 2008 came to $1.4 million, and soared the following year, after President Obama’s election. It will be interesting to review POGO’s Foundation Support for 2009 if and when it becomes available at POGO’s website.
What does this have to do with “prevailing wages?” Well, POGO’s “government oversight” includes review of government projects for compliance with labor standards, and POGO deems “good government” to include compliance with those standards. For example, in early 2010, the Obama Administration developed its “High Road Contracting Policy,” a very union-friendly set of policies which was described in this article as “part of the Administration’s attempt to spur economic growth through procurement reform and are driven by the Center for American Progress and the Service International Employees Union.” That article quoted a POGO “investigator” whose contribution included POGO’s praise for those policies.
Politics makes strange bedfellows, the saying goes. Well, in this case, the bedfellows may not be so strange. POGO serves union interests in some of its oversight of government behavior. And unions have been overwhelmingly the largest source of money for federal campaign funds in recent decades, predominantly for Democratic candidates. (Unions make up 12 of the top 20 donors to federal campaigns, in total dollars, since 1989. See this data at OpenSecrets.gov, including reference to the Service Employees International Union.)
You scratch my back, I’ll scratch yours, as the saying goes. Well, here we seem to have a three-way back-scratching effort.
Some Other “Good Government” Groups
There is a growing class of alternative “good government” public policy organizations out there. These groups are respectful but concerned about the ability of well-organized special interest groups (unions being just one example) to take the reins and control “public” policy to serve their own ends. Well organized groups threatened by their public spirited work frequently vilify them, calling them ‘right wing’ or other nasty names. They work at the national level (see for example this comprehensive and persuasive article from the Cato Institute) as well as on state and local policy. Here are examples of recent efforts from four state-focused free market think tanks on the prevailing wage issue.
1851 Center for Constitutional Law. Just established in 2010, the Ohio-based Center is led by Maurice Thompson, an attorney and constitutional scholar. The Center emphasizes litigation and legal writing approaches to policy advocacy. Last year, the 1851 Center won a significant victory in the prevailing wage area when its lawsuit in the case of Oleksa v. Murray prompted the Ohio School Facilities Commission to stop funding school construction projects where contracts implemented prevailing wage agreements. The 1851 Center argued that these agreements were unconstitutional, and led to corruption, reduced competition, and heightened taxpayer expense.
The Commonwealth Foundation. The Commonwealth Foundation recently updated an article on Pennsylvania’s Prevailing Wage Law. It cited a study by the Pennsylvania Association of Boroughs that found significant premiums on prevailing wage rates above market wage rates, implying what the Commonwealth Foundation estimated to be $2 billion in extra costs annually for Pennsylvania taxpayers on the affected projects. Pennsylvania’s neighboring state Ohio allowed an exemption for its law for local school districts. The Commonwealth Foundation cited significant cost savings and quality retention from that experiment as a lesson. The Pennsylvania legislature is currently considering reforms including allowing local school districts to opt out of the statewide mandate, but there is apparently no broad repeal of the state’s law in the works.
The Freedom Foundation. Earlier this month, this Washington-state based organization produced a study of local prevailing wage law. Written by Hillsdale College student Portia Conant with guidance from Freedom Foundation’s Terry England, this review gave a brief history of the development of these laws at both federal and state levels around the United States, along with a valuable description of shortcomings in methods used to estimate “prevailing wages.” The state of Washington passed its own law in 1945. Conant and England argued that that Washington taxpayers pay inflated construction costs and that artificially high wages decrease the availability of jobs. They recommended repeal of the state law. Failing that, they argued for raising the threshold for the size of projects on which the law applies, and also called for revisions in estimation methods.
Mackinac Center for Public Policy. Paul Kersey is a prolific director of labor policy for the Mackinac Center, in a state (Michigan) with some of the most dramatic history and pressing policy issues for labor markets in the nation. In January 2012, Kersey authored an op-ed in the Detroit Free Press titled “It’s Time to Repeal Prevailing Wage Law.” Kersey argued the time was ripe for repeal, and cited ‘conservative’ estimates of $200 million annually for the state were the law to be repealed. That estimate was based in part on Kersey’s thorough and important 2007 study for Mackinac titled “The Effects of Michigan’s Prevailing Wage Law.”
*Disclosure: I am the Director of Research for Social Movement Sciences. We have developed a patent-pending evaluation system for assessing the performance and impact of not-for-profit organizations. We have applied this system in turn for a new fund that has been established, called the Liberty Markets Fund for Freedom, which includes among its potential beneficiaries some of the organizations cited above. This article is based in part on recent work we’ve done for that fund.
Bill Bergman has 10 years of experience as a stock market analyst sandwiched around 13 years as an economist and financial markets policy analyst at the Federal Reserve Bank of Chicago. He earned an M.B.A. as well as an M.A. in Public Policy from the University of Chicago in 1990. Mr. Bergman is currently working with Social Movement Sciences LLC, a new enterprise developing evaluation and funding services for not-for-profit organizations.
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