The Davis-Bacon Act was passed in 1932. It specifies that the Secretary of Labor can establish minimum “prevailing wages” that contractors must pay workers when engaging in any construction that is paid for or subsidized with federal funds. The Department of Labor Wage Determination Division has typically determined “prevailing wages” to mean union wages. In their bargaining sessions with employers, negotiators for construction unions become more and more set on increasing negotiated rates. In a normal situation, an increase in wage rates (when there is no inflation) will lead to a decrease in employment, but this is not the case for federally assisted construction projects. The government requires that the contractors hire workers at the prevailing minimum. Therefore, government will foot whatever increase in the bill is due to increased union wages.

Federal projects account for almost 30 percent of all construction work in the United States. That means that almost 30 percent of all construction projects have the Davis-Bacon minimum applied to them. Obviously, construction union negotiators realize that there are many federal construction projects for which they can get the high wage rates that they establish in negotiation. As can be expected, with union wage rates rising rapidly, the number of jobs available in private construction at the union rate has declined.

How might the Davis-Bacon Act end up reducing union employment in the long run?