On August 8, Vice-President Kamala Harris announced the first comprehensive reform of the methods for calculating prevailing wages on federally assisted construction projects in more than 40 years. As technical as that sounds, these new Labor Department regulations are an important public policy contribution to building worker power, especially in light of the hundreds of billions of federal dollars that will be spent on construction under the Bipartisan Infrastructure Law, the CHIPS and Science Act, and the Inflation Reduction Act. The regulations likely will increase the number of construction workers represented by unions. This post will explain the regulation's implications. But first, a quick primer on prevailing wages and why we have them.
Literally speaking, “prevailing wages” are the wages most commonly paid to construction workers in the county or region where a federally supported construction project is going to be built (note: the Service Contract Act applies the same principle to federal service contracts). The Davis-Bacon Act (DBA) and a series of laws that expand the DBA’s reach require that construction contractors bidding on federal contracts or sub-contracts pay prevailing wages to their employees who will work on those contracts. Prevailing wages are broken out by occupation; that is, there is a prevailing wage for plumbers, another for carpenters, and yet another for laborers, and so on, because these craftspeople are paid different amounts. If benefits prevail, the law requires contractors on federal projects to pay for them, as well. The Labor Department makes prevailing wage and benefits determinations in every state and as many counties as possible in each state. Contractors include these wage determinations in their bids. Wage determinations are local because the cost of living, and therefore wages, vary widely in our country. The prevailing wage in Manhattan is substantially higher in every construction occupation than the prevailing wage in rural Alabama, or even Montgomery, Alabama, for example.
The DBA’s logic is simple: federal funding of construction projects should not become a race to the lowest wages and the fewest benefits. Contractors seeking to secure work on a federal project bid against other contractors who perform the same kind of work (e.g., plumbers vs. plumbers, HVAC vs. HVAC). A contract's nominal cost --- that is, the raw dollar cost of goods or services --- can play a decisive role in determining which contractor will win a contract or sub-contract. One common way contractors cut these costs is to reduce wages and withhold benefits. The DBA prevents that outcome by establishing the prevailing wage as a floor.
Of course, union construction workers are generally paid higher wages than non-union construction workers. They are also more likely to receive benefits from their employers (or a labor-management plan funded by their employers). If prevailing wages are set below the levels negotiated by unions, then the construction unions must either agree to reduce wages or risk non-union contractors winning the contracts. If the prevailing wage is the collectively bargained wage in a jurisdiction, then union and non-union contractors will compete on factors other than wages and benefits. In essence, prevailing wage laws take wages and benefits out of competition and, as a result, union contractors are more likely to win bidding contests. Intriguingly, the weight of the academic evidence is that prevailing wage laws do not increase the costs of construction contracts.
All this means the definition of “prevailing” plays an important role in determining whether union or non-union contractors will win the competition for federal construction contracts and sub-contracts. Winning these competitions is fundamental to how building and construction trades unions sustain and increase their memberships. Certainly, many of these unions organize in traditional ways --- meeting workers, building organizing committees, campaigning, gathering authorization cards, and holding NLRB elections or seeking voluntary recognition from employers. But the seasonal and short-term nature of most construction projects, and the fact that wages and benefits are frequently set by contract before the work has begun, makes traditional organizing difficult. For this reason, building and construction trades unions also organize by cooperating with their members’ employers to secure as much work as possible on public projects and others. If unionized contractors win contracts, more union construction workers (and apprentices) get jobs. Prevailing wages, therefore, play a central role in worker organizing in this industry.
In one of the most important provisions of the new regulations, the Labor Department will reinstate a rule that governed for more than four decades prior to the Reagan Administration. Under the new regulations, as under the pre-Reagan regulations, a wage will “prevail” if 30% of workers in the occupation in the jurisdiction are paid that wage. President Reagan’s Labor Department raised that threshold to 50%. In 2022, around 13% of construction workers were union members nationally. The math tells us that union-negotiated wages are more likely to prevail in more jurisdictions if the threshold is 30% instead of 50%. There will be more work for union construction workers in those jurisdictions, as a result.
While this provision of the regulation may be the most important with regard to worker power, it is not the only relevant provision. Two other important provisions will eliminate a practice that has significantly disadvantaged construction unions. When the Labor Department seeks to make a wage determination based on collectively bargained wages, it can read the relevant collective bargaining agreements and find the most current wages and benefits. When a wage determination is based on non-union wages, there is no agreement to read. Instead, prevailing wages and benefits are determined using surveys of contractors, unions, and others in the jurisdiction. Since the Labor Department does not have the resources to conduct surveys every year in every jurisdiction, some of these surveys are quite old. When I was the Deputy Secretary of Labor, surveys in some states for the residential housing construction industry were more than 10 years old, for example. The result is that non-union wages appear even lower than collectively bargained wages because the non-union wages do not reflect years of cost-of-living increases or other pay hikes.
The new regulation will address this problem in two common-sense ways. First, the Labor Department will adjust non-union wage determinations based on a Bureau of Labor Statistics measure of wage growth known as the Employment Cost Index (ECI). ECI-based adjustments will produce more accurate estimatres of the most current wages and benefits. Second, the federal Labor Department will rely more often on recent state and local wage determinations that are comparable in quality to the department’s own wage determinations rather than waiting to conduct its own surveys in every jurisdiction. The result will be better and more current wage and benefits information in more states.
Like many federal rules, these new prevailing wage regulations are lengthy and complicated. This post discusses only a few of the more than two dozen substantive changes included in the rule. Only the true prevailing wage cognoscenti --- the people who are fluent in that world’s patois --- will understand all the implications of all the changes in these new regulations. But some provisions’ implications jump off the pages of the Federal Register and point not only in the direction of higher wages and better benefits for construction workers on federal projects, but also worker empowerment and increased union membership.
That’s reason enough for us who are not experts in the construction industry to learn about these regulations and appreciate another public policy victory for worker power.
