November 13, 2013

Discretionary SpendingOption 27

Multiple Budget Functions

Repeal the Davis-Bacon Act

(Billions of dollars) 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2014-2018 2014-2023
Change in Spending                        
  Spending authority 0 -1.6 -1.7 -1.7 -1.8 -1.8 -1.8 -1.9 -1.9 -2.0 -6.8 -16.2
  Budget authority 0 -0.9 -0.9 -1.0 -1.0 -1.0 -1.0 -1.0 -1.1 -1.1 -3.8 -9.0
  Outlays 0 -0.4 -0.9 -1.3 -1.5 -1.6 -1.7 -1.7 -1.8 -1.8 -4.1 -12.7

Note: This option would take effect in October 2014. Spending authority includes budget authority as well as obligation limitations (such as for certain transportation programs). The option would also result in reductions in mandatory spending of less than $50 million per year (not shown in the table).

Since 1935, the Davis-Bacon Act has required that workers on all federally funded or federally assisted construction projects whose contracts total more than $2,000 be paid no less than “prevailing wages” in the area in which the project is located. (A federally assisted construction project is paid for in whole or in part with funds provided by the federal government or borrowed on the credit of the federal government.) The Department of Labor measures such wages on the basis of the wages and benefits earned by at least 50 percent of the workers in a particular type of job or on the basis of the average wages and benefits paid to workers for that type of job.

This option would repeal the Davis-Bacon Act, reducing appropriations, as well as limits on the government’s authority to enter into obligations for certain transportation programs, accordingly. If this policy change was implemented, the federal government would spend less on construction, saving $13 billion in discretionary outlays from 2015 through 2023, the Congressional Budget Office estimates. Savings would accrue to federal agencies that engage in construction projects: In 2013, about half of all federal or federally financed construction was funded through the Department of Transportation, although a significant portion of federal construction projects were funded through the Department of Defense, the Department of Housing and Urban Development, and the Department of Homeland Security, among others.

A rationale for repealing the Davis-Bacon Act is that, as a result of the enactment of other federal and state laws (including the adoption of a federal minimum wage) and other changes in labor markets since the 1930s, the Davis-Bacon Act is no longer needed to ensure minimum wages for workers employed in federal or federally financed construction. Moreover, when prevailing wages (including fringe benefits) are higher than the wages and benefits that would be paid in the absence of the Davis-Bacon Act, the Davis-Bacon Act distorts the market for construction workers. In that situation, federally funded or federally assisted construction projects are likely to use more capital and less labor than they otherwise would, thus reducing the employment of construction workers. In addition, by reducing the cost of federally funded or federally assisted construction projects, this option would result in more construction projects being undertaken for a given amount of federal dollars; however, the savings shown above would be attained only if federal funding was reduced. Additional rationales for repealing the Davis-Bacon Act are that the paperwork associated with the act effectively discriminates against small firms and that the act is difficult for the federal government to administer effectively.

An argument against repealing the Davis-Bacon Act is that it prevents out-of-town firms from coming into a locality, competing with local contractors for federal work using lower-paid workers from other areas of the country, and then leaving the area upon completion of the work. Another argument against repealing the act is that doing so would lower the earnings of some construction workers. An additional argument against such a change is that it might jeopardize the quality of construction at federally funded or federally assisted projects. When possible, managers of some construction projects would reduce costs by paying a lower wage than what is permitted under the Davis-Bacon Act. As a result, they might attract workers who are less skilled and do lower-quality work.