President Obama’s American Jobs Act is fraught with problems, not the least of which is that when the nation is reeling in a debt crisis it is hardly the time to go hundreds of billions deeper in debt. But the bill is far worse than that. It is a thinly disguised effort for the federal government to help Obama’s friends in organized labor. It would spend hundreds of billions of dollars as a down payment on the hundreds of millions of dollars he hopes the unions will spend to re-elect him in 2012. It really ought to be called the American Union Jobs Act.
A significant portion of the money for jobs would go to local government to prevent layoffs in education and public safety. This is a direct benefit to the unions.
Public employment is 36 percent union compared to just 7 percent in the private sector, and these segments of public employment are more heavily unionized than most.
The real meat of Obama’s jobs proposal is infrastructure construction spending — highways, schools and other public buildings. Because construction industry employment is only 13 percent union, it is harder to make the case that this is an obvious payoff. Harder, that is, until you consider the impact of the Davis-Bacon Act.
The Davis-Bacon Act is a Depression-era law by which the Department of Labor dictates the wages to be paid on federally financed construction projects.
The problem with Davis-Bacon is that the survey methodology is stacked in favor of union wages. Davis-Bacon wage determinations are on average about 25 percent higher than real-world prevailing wages.
In many areas where construction union density is very low, Davis-Bacon’s wage inflation guarantees that unionized firms are on better competitive footing, while nonunion companies are effectively excluded.
The impact of the Davis-Bacon Act is pervasive. It adds significantly to the cost of every pork project Congress approves. When it was enacted in 1931, it applied only to projects costing more than $5,000. That threshold was reduced to $2,000 in 1935, and it hasn’t been increased since.
This is of great importance in the 18 states that don’t have their own “mini Davis-Bacon” laws on the books. In states like Virginia where there is no prevailing wage law, the slightest federal involvement in a project triggers application of Davis-Bacon to the entire project. The increased costs can easily outweigh the value of the federal contribution.
Even states with prevailing wage laws usually have application thresholds far higher than Davis-Bacon’s $2,000. In Maryland, for example, the threshold is $500,000.
This means that even a tiny amount of federal support — say, for a roof at a new school — triggers Davis-Bacon and thus brings higher costs.
There is a provision in the Davis-Bacon Act that allows the president to suspend its provisions in the case of a national emergency. If Obama had been serious about using the spending power of the federal government to kick-start the economy with massive new spending on infrastructure, he would have led off by announcing that he was using his executive power as president to suspend application of the Davis-Bacon Act to all spending under the American Jobs Act of 2011.
Better yet, he could have included repeal of this wasteful relic in the bill.
David Denholm is president of the Public Service Research Foundation.
