Biden's New 'Prevailing Wage' Rule Will Cost Taxpayers, Benefit Unions, and Hike Inflation

In the same week as government data revealed that inflation is stubbornly ticking higher again, the Biden administration put its final stamp of approval on a new rule that will hike the cost of infrastructure projects.

The Department of Labor announced Wednesday that it will change how it calculates so-called prevailing wages paid to government contractors working on construction and infrastructure projects. In its announcement of the new rule, the Labor Department claims the changes are meant to "modernize Davis-Bacon," the 1931 law that governs compensation for federal building projects.

Actually, the changes are a significant step backward. Biden is effectively undoing a major change made by the Reagan administration—changes that were made, fittingly, to help combat inflation.

That change, made in 1982, repealed the "30 percent rule" that guided the process for determining what wages would be paid on which projects. Under the 30 percent rule, the prevailing wage for any particular area would be based on the highest wages paid to at least 30 percent of workers within the same area.

You don't need an advanced degree in accounting to see how that mandate could artificially hike wages on federal projects. The government barred itself from even considering bids that might pay average wages, thereby obligating taxpayers to pay more than they might have had to in an open market.

A 1979 report from the General Accounting Office (now the Government Accountability Office) drew a direct link between the wage mandate and inflation. "We are recommending that the Congress repeal the Davis-Bacon Act because…the Department of Labor has yet to develop an effective program to issue and maintain accurate wage determinations, and it may be impractical to ever do so, and the act is inflationary and results in unnecessary construction and administrative costs of several hundred million dollars annually," the report concluded.

Three years later, the Reagan administration approved a new prevailing wage rule based on a weighted average of all wages in a given area. An imperfect solution, but undeniably an improvement.

Biden, however, is resurrecting the 30 percent rule, among other changes announced this week. The changes are meant to ensure "that the jobs being created under the Biden-Harris administration's Investing in America agenda are good jobs, and that workers get the fair wages and benefits they deserve," Acting Secretary of Labor Julie Su said in a statement.

As I noted last year when this change was first proposed, labor unions tend to be big fans of Davis-Bacon because it helps limit competition from nonunion shops for public works projects—and has historically been used to disadvantage black and minority workers. Labor unions' gains come at the expense of taxpayers, who will get less for their money. Imposing higher costs on construction projects means fewer miles of road and rail can be built with the same pot of money.

Indeed, repealing the Davis-Bacon law entirely would save taxpayers an estimated $24.3 billion over the next decade, according to a recent Congressional Budget Office report.

"This is yet another Biden administration handout to organized labor on the backs of taxpayers, small businesses and the free market," Ben Brubeck, vice president of regulatory, labor, and state affairs for the Associated Builders and Contractors (ABC), an affiliation of nonunion construction shops, said in a statement.

Brubeck said the changes make it "much more likely" that the Department of Labor will adopt union wage rates for federal infrastructure projects, giving a huge advantage to union shops in bidding for those projects. That's despite the fact that just 11.7 percent of the construction industry is unionized.

In short, there's nothing "prevailing" about the wages mandated by the Davis-Bacon law.

"The Biden administration's decision to turn back the clock on Davis-Bacon Act regulations to a Carter administration-era version," said Sean Higgins, a labor policy expert at the Competitive Enterprise Institute, a free market think tank, "will benefit a few well-connected unions while raising costs on taxpayers."