On November 9, 1993, the Institute for Justice filed a lawsuit challenging the constitutionality of the Davis-Bacon Act. A relic of an era when laws were passed to prevent blacks from competing for economic opportunities, the Davis-Bacon Act has racist origins and continues today to have a devastating impact on economic outsiders. If successful, the Institute's lawsuit will open employment opportunities for thousands of workers and save taxpayers billions of dollars in unnecessary spending.
The Davis-Bacon Act, passed by Congress in 1931, re-quires private contractors to pay "prevailing wages" to employees on all federally funded construction projects over $2000. Most often, the "prevailing wage" corresponds directly to the union wage. This is especially true in urban areas, where union membership tends to be higher.
The Davis-Bacon Act covers a significant portion of the projects undertaken by the construction industry. Approximately 20 percent of all construction projects in the U.S. are covered by the Act, affecting more than 25 percent of all construction workers in the nation at any given time.
The Act was passed with the specific intent of preventing non-unionized black and immigrant laborers from competing with unionized white workers for scarce jobs during the Depression. This invidious law con-tinues to have devastating discriminatory effects, as minor-ities tend to be vastly underrepresented in highly unionized skilled trades, and over-represented in the pool of unskilled workers who would benefit,if the prevailing wage laws were abolished.
Davis-Bacon restricts both contracting and employment opportunities for minorities. Most minority-owned construction firms are small and non-unionized. Davis-Bacon mandates inflated wage rates (e.g.,$40,000 a year ditch diggers and $60,000 a year carpenters) and creates rigid job classifications and procedures which, though standard operating procedure for unions, are anathema to small non-unionized firms. Such firms literally have to become less efficient in order to compete for Davis-Bacon contracts. Workers who perform a variety of tasks must be paid at the highest applicable skilled journeyman rate (e.g., a general laborer who hammers a nail must be paid as a "carpenter," at perhaps three times the company's regular wage rate). Unskilled workers can be employed only if the company can afford to pay high wages, and training can be provided only through limited and heavily regulated apprenticeship programs. Paperwork is voluminous, complex, and cumbersome, accompanied by the constant threat of fines or litigation from government officials or unions. Not surprisingly, small minority-owned companies are often placed at a serious disadvantage in competing for Davis-Bacon contracts and are often discouraged from doing so, which was, of course, the motivation for the law in the first place. And entry-level employment and training opportunities are lost by the tens of thousands in an industry where such opportunities otherwise would be plentiful.
The Institute's Lawsuit
The Institute for Justice is committed to a program of litigation that will help restore judicial protection of "economic liberty" -- the basic right of every American to pursue a business or profession free from arbitrary or excessive government regulation. The Institute is especially concerned with the way that government actions affect those with relatively fewer economic opportunities. The challenge to the Davis-Bacon Act is the Institute's most ambitious undertaking to date in support of these goals.
The minority contractors challenging the constitutionality of the Davis-Bacon Act in this lawsuit have seen business opportunities lost and their ability to hire minority workers from their communities greatly restricted because of the requirements of the Act. From 1984 to 1990, Tyrone Dash of Seattle, Washington, owned and operated his own company, T & S Construction, and hired as many as 25 employees for work on highway jobs installing guardrails and other safety items. For a small, new company, the prevailing wage requirements and administrative costs of the Davis-Bacon Act had a particularly devastating effect on the ability to successfully compete for federal contracts. The Act required that Dash pay his workers almost $19 an hour, regardless of their experience or skill levels. Because the company could not afford adequate administrative help, Mr. Dash, even after a long day on the construction site, would often do the work himself in order to meet the burdensome paperwork requirements of the Act. Finally, in 1990, his company went bankrupt due to its inability to control labor costs. Today, Dash is out of the construction business and his workers are out of jobs. Dash would go back into business immediately paying his employees competitive wages, if the Davis-Bacon Act were eliminated.
Other minority-owned contractors in this lawsuit have had similar experiences with the Davis-Bacon Act. Martin and Nona Brazier own a recycling company and a construction firm. Their construction business has mostly been inoperative due to unsuccessful bids on federal contracts. Again, the wage requirements of the Davis-Bacon Act have made their company uncompetitive with larger, more established (and usually non-minority) construction firms. In addition to lost business opportunities, Art Pearson Electric & General Contracting Co. and Square C Construction, two other companies challenging the constitutionality of the Davis-Bacon Act, have found that the Act severely limits their ability to hire and train minority youths from their communities. Smaller construction companies simply cannot afford to train their workers at close to $20 an hour. The approved union apprenticeship programs under Davis-Bacon do not allow Mr. Pearson and Mr. Ellis of Square C, to go into their own communities or local schools to recruit young people and train them in various construction skills in company-sponsored apprentice programs.
Kenilworth-Parkside Resident Management Corporation has been a model for other resident initiatives in public housing throughout the country. Kenilworth-Parkside in Washington, D.C., was once a community rife with crime, drugs, and deteriorating housing conditions. The residents, led by activist Kimi Gray, gained management and power of the development from the public housing authority and thereby regained control over their community, improving the quality of life for the residents. However, the Davis-Bacon Act has proved over the years a major impediment to introducing public housing residents into rebuilding programs at their developments.
In the late 1980s, Kenilworth-Parkside secured an $18 million grant for a rehabilitation and modernization program, but due to Davis-Bacon workplace rules, not one of the construction jobs was filled by a public housing resident. Public housing resident groups in developments throughout the country have experienced similar difficulty introducing residents into construction projects. Because of their desire to empower residents of public housing and remove impediments to residents working on construction projects in their own communities, the National Association of Resident Management Corporations and the National Tenant Union have joined the Kenilworth-Parkside Resident Management Corporation as plaintiffs in the lawsuit to overturn the Davis-Bacon Act.
The defendants in this lawsuit are officials of the Department of Labor charged with implementing and enforcing the Davis-Bacon Act, including Secretary of Labor Robert Reich, Acting Assistant Secretary for Employment Standards John Fraser, and the Administrator of the Department's Wage and Hour Division, Maria Echaveste.
The History of the Davis-Bacon Act
Prior to the enactment of the Davis-Bacon Act, the construction industry afforded tremendous opportunities to blacks, especially in the South. In at least six southern cities, more than 80 percent of unskilled construction workers were black. Blacks also represented a disproportionate number of unskilled construction workers in the North and constituted a sizable portion of the skilled labor force throughout the country.
This was so despite the fact that most of the major unions that represented construction workers excluded blacks, and that blacks faced widespread discrimination in occupational licensing and vocational training. These unions felt seriously threatened by the competition from blacks, and favored any attempt to restrict such competi-tion.
The co-author of the Davis-Bacon Act, Rep. Robert Bacon, represented a congressional district in Long Island. Bacon's opinions on issues like immigration demonstrate the extent to which his views were patently racist. For example, in 1927, the same year he introduced the Davis-Bacon Act, he submitted the following statement from 34 university professors concerning a new immigration law into the Congressional Record:
We urge the extension of the quota system to all countries of North and South America from which we have substantial immigration and in which the population is not predominantly of the white race. . . . Only by this method can that large proportion of our population which is descended from the colonists . . . have their proper racial representation. . . . Congress wisely concluded that only by such a system of proportional representa-tion . . . could the racial status quo be maintained.
In 1927, Bacon submitted H.R. 17069, "A Bill to Require Contractors and Subcontractors Engaged on Public Works of the United States to Comply With State Laws Relating to Hours of Labor and Wages of Employees on State Public Works." This action was a response to the building of a Veterans' Bureau Hospital in Bacon's district by a contractor from Alabama, who employed only black laborers.
Representative William Upshaw, understanding the racial implications of Bacon's proposal, stated: "You will not think that a southern man is more than human if he smiles over the fact of your reaction to that real problem you are confronted with in any community with a superabundance or large aggregation of Negro labor."
In the course of the next four years, Bacon submitted 13 more bills to regulate labor on federal public works con-tracts. Finally, the bill submitted by Bacon and Senator James Davis was passed in 1931, at the height of the Depression, with the support of the American Federation of Labor. The Act required that contractors working on federally funded public works projects over $5000 pay their employees the "prevailing wage." The Act was amended in 1935, reducing the minimum to $2000 and delegating the power of determining the "prevailing wage" to the Department of Labor. The Department of Labor responded by promulgating regulations governing the determination of wages that remained basically unchanged until 1983. Under these regulations, the prevailing wage was equated with the union wage in any area that was at least 30 percent unionized. In practice, however, the "prevailing wage" was almost universally determined to be the same as the union wage.
The comments made by various congressmen during the debate over the different bills submitted by Bacon betrayed the racial animus that motivated the passage of the law. Representative John Cochran stated, "I have received numerous complaints in recent months about southern contractors employing low-paid colored mechanics getting work and bringing the employees from the South." Representative Clayton Allgood similarly complained, "That contractor has cheap colored labor that he transports, and he puts them in cabins, and it is labor of that sort that is in competition with white labor throughout the country."
Other derogatory comments were made about the use of "cheap labor," "cheap, imported labor," "transient labor," and "unattached migratory workmen." Thus, while the sponsors and supporters of the Act also intended it to disadvantage immigrant workers of other races, these thinly veiled references make it clear that the Act was primarily intended to discriminate against blacks.
The statements made by many Congressmen during the debates over the various prevailing wage bills were also replete with anti-capitalist rhetoric, with the representa-tives railing against "unfair contractors." In reality, such contractors wanted only to establish a national market in labor and pay their workers the actual market value of their services. Representative McCormack said of Davis-Bacon, "It will force the contractor who heretofore has used cheap, imported labor to submit bids based upon the 'prevailing wage scale' to those employed. It compels the unfair competitor to enter into the field of fair competition."
Two important modifications have been made in the way that the Davis-Bacon Act is enforced in the past decade. In 1982, the Department of Labor altered the basis for determining the prevailing wage in a given area, by only equating the union wage with the "prevailing wage" in places where the construction industry was 50 percent unionized. This change had little effect on minority-owned firms' ability to secure contracts covered by Davis-Bacon, because union membership tends to be much higher in urban areas, where large minority populations reside.
The Department of Labor has also attempted to alter its regulations to allow contractors to hire a limited number of unskilled "helpers" to work on Davis-Bacon projects for less than the prevailing wage. If implemented, this change would diminish some of the discriminatory effects of the Act. Despite the fact that this new rule went into effect on February 4, 1991, thus far Congress has prevented the Department of Labor from enforcing it. Labor unions are now pressuring Congress and the Clinton Administration to repeal the changes. The provisions of the Davis-Bacon Act were suspended by President Bush in South Florida, coastal Louisiana, and Hawaii in October, 1992, following Hurricanes Andrew and Iniki. These emergency waivers were granted in order to expedite the clean up efforts in those areas. Bush's policy of suspending Davis-Bacon in the hurricane-damaged areas was reversed by President Clinton upon entering office.
Legislation sponsored by Senator Hank Brown (R-Colorado) which would repeal the Davis-Bacon Act was introduced in the Senate on July 14, 1993. A similar bill was introduced in the House by Representative Tom DeLay on June 14, 1993, and is still pending before the House Education and Labor Committee. Both bills have attracted congressional co-sponsors, but have not attained majority support.
Effects of the Davis-Bacon Act
Enforcement of the Davis-Bacon Act imposes tre-mendous economic and social costs. Repealing the Act would save the federal government $1 billion on construction costs and $100 million in administrative costs each year. Costs of compliance with the Act for the construction industry total nearly $190 million per year. The Act's repeal would also result in the creation of an estimated 31,000 new construction jobs, most of which would go to members of minority groups.
Over the past six decades, the Davis-Bacon Act has had a devastating impact on the ability of minorities to find work in the construction industry. As was stated earlier, blacks tend to be disproportionately represented among the ranks of unskilled or low-skilled laborers. This has been true since the time of the passage of the Act.
The initial set of regulations promulgated by the Department of Labor relating to Davis-Bacon's enforcement did not recognize categories of unskilled workers except for union apprentices. As a result of this failure, the regulations required a contractor to pay an unskilled worker who was not part of a union apprenticeship program the same wage paid to a skilled laborer. Given that blacks were poorly represented in the unions and their apprenticeship programs, unskilled minority workers were almost completely excluded from working on Davis-Bacon projects. This exclusion effectively foreclosed the only means by which unskilled blacks could learn the necessary skills to become skilled workers.
This claim is borne out by the available statistical evidence. Prior to the passage of the Davis-Bacon Act, blacks suffered from unemployment at approximately the same rate as the general population. After Davis-Bacon became law, the rate of minority unemployment began to deviate from that of whites. This problem persists today. In the first quarter of 1992, the rate of unemployment among blacks was 14.2 percent, even though the overall national unemployment rate was only 7.9 percent.
The difference in unemployment rates between blacks and whites is especially pronounced in the construction industry. According to a recent study by the National Urban League, in the fourth quarter of 1992, 26.8 percent of all blacks involved in the construction industry were unemployed, compared to only 12.6 percent of white construction workers.
Despite the fact that the Bush administration Depart-ment of Labor attempted to alter its regulations, barriers to entry spawned by Davis-Bacon at the time of its passage remain today. According to a study conducted by the American Enterprise Institute in 1980, union apprenticeship programs, even if it is assumed that they no longer discriminate, strictly limit the number of enrollees and impose arbitrary educational requirements on potential applicants. Thus, the most disadvantaged workers remain excluded from such programs.
Davis-Bacon's requirements also make it extremely difficult for minority, open-shop contractors to employ and train unskilled minority workers. Given that unskilled workers must be paid the same wage as a skilled worker, there exists no incentive to hire the unskilled worker. Ralph C. Thomas, executive director of the National Association of Minority Contractors, stated that a minority contractor who acquires a Davis-Bacon contract has "no choice but to hire skilled tradesmen, the majority of which are of the majority. This defeats a major purpose in the encouragement of minority enterprise development -- the creating of jobs for minorities. . . . Davis-Bacon . . . closes the door in such activity in an industry most capable of employing the largest numbers of minorities."
The evidence supports Thomas' claim. The Department of Labor frequently sets wages at unreasonably high levels, forcing the contractor to pay laborers consid-erably more than the market value of their work. For example, in Philadelphia, electricians working on projects covered by the Davis-Bacon Act must be paid $37.97 per hour in wages and fringe benefits. The average wage of electricians working for private contractors on non-Davis-Bacon projects is $15.76 per hour, with some laborers working for $10.50 per hour. Similarly, in Chicago, electricians working on projects subject to Davis-Bacon must be paid $31.32 per hour, where workers employed on projects not covered by Davis-Bacon are paid on average $18.72 per hour, with some workers earning $11.00 per hour.
The amount of paperwork that a contractor is required to fill out as a result of regulations governing Davis-Bacon also prevents small, minority-owned firms from seeking Davis-Bacon projects. Many small firms do not have available personnel with the necessary expertise to complete the myriad of forms and reports the regulations require. This provides a great advantage to the larger (and usually highly unionized) firms who have more resources to devote to complying with the Act's requirements.
One of the most severe problems with the current way the Davis-Bacon Act is administered is that it destroys the ability of rural and inner-city laborers and contractors to work on projects in their own communities. This is especially ironic since this is one of the difficulties Davis-Bacon was intended to prevent. Representative Bacon said during the debate over the Act, "Members of Congress have been flooded with protests from all over the country that certain Federal contractors on current jobs are bringing into local communities outside labor, cheap labor . . . and giving rise to the complaint by local labor that the government is in league with contract practices that make it possible to further demoralize local labor conditions."
Such a claim could easily be made today by inner-city and rural contractors. A 1982 Oregon State University Study found that the Davis-Bacon Act drove up construction costs in rural areas by 26 to 37 percent. Yale Brozen, an economist at the University of Chicago found that the "prevailing wage" set by the Department of Labor for the Appalachian region of Western Pennsylvania is set at the same level as that of Pittsburgh, a city with a high concentration of union workers. This is so despite the fact that the wages normally paid by the rural contractors are only half of what union contractors in Pittsburgh tend to pay. The same is true of the inner cities, where small, minority owned open-shop firms are forced to pay union wages when working on Davis-Bacon projects, because of the high concentration of unionized workers in other parts of the city.
The result of these inflated wage rates is two-fold. First, inner-city and rural contractors are deterred from seeking Davis-Bacon contracts because they cannot afford to pay the higher wages to their employees. Second, larger and more highly unionized firms that are able to pay the higher wages are given an incentive to seek out such contracts. The result makes it clear that the government is in fact "in league with contract practices" that "demoralize local labor conditions," only now at the expense of minorities rather than whites.
The results of this practice were clearly demonstrated in Los Angeles after the riots. In the parts of the city where the riots occurred, the rate of unemployment for black workers is 27.6 percent. Despite the fact that there is an ample supply of local labor to help with the rebuilding of the city, Davis-Bacon has and continues to freeze out local unskilled minority workers from those available jobs. This provides a stark contrast to the situation in South Florida and coastal Louisiana, where the Davis-Bacon Act was suspended by President Bush in the wake of Hurricane Andrew. In those areas, the suspension of Davis-Bacon was responsible for the creation of 5,000 to 11,000 jobs.
In addition to this statistical evidence, many individuals tied directly to the construction and renovation of low-cost public housing in the inner-cities have testified to the disastrous effects of the Davis-Bacon Act. Ralph L. Jones is the president of a company that manages housing projects for the Department of Housing and Urban Development. When his company gained control of a pair of dilapi-dated 200-unit buildings in Tulsa, Oklahoma, Jones intended to hire many of the building's unemployed residents to tear out the unsalvageable parts of the structures and then assist skilled craftsmen in restoring the property. He planned to pay the workers $5 per hour, in hopes of helping them to acquire some skills in the building trades. The Davis-Bacon Act prevented him from pursuing this plan, as it required him to pay everyone working on the project $14 per hour. Jones was forced to hire only skilled laborers, very few of whom were minorities or residents of the developments.
Mary Nelson, director of Bethel New Life Inc., a social service organization located in Chicago, has found that the Davis-Bacon Act adds up to 25 percent to her total costs and frequently prevents her from hiring unskilled low-income workers to work on projects renovating the public housing that they themselves live in.
Elzie Higginbottom, builder of low-income housing in Chicago's South Side, has complained of the same problems. Davis-Bacon requires him to pay carpenters (defined by the Act as someone who hammers in a nail) $23 per hour. For obvious reasons, Higginbottom is prevented from hiring unskilled minority workers from the community. He stated, "I've got to start out a guy at $16 per hour to find out if he knows how to dig a hole. I can't do that."
These examples illustrate perhaps the most pernicious of Davis-Bacon's effects: the imposition of arbitrary barriers to the empowerment of low-income people. By ruling Davis-Bacon unconstitutional, the courts will open opportunities to thousands of individuals to gain greater control over their destinies as productive members of society.
The constitutional challenge to Davis-Bacon is a cornerstone of the Institute for Justice's program to restore economic liberty as a fundamental civil right. The Institute for Justice challenges the Davis-Bacon Act on the grounds that it is racially discriminatory. The Act was passed with a specific intent to discriminate against blacks and immigrants, and as a result, it violates the equal protection guarantee of the Fifth Amendment. If the courts determine that racial discrimination was among a law's purposes, it will be declared unconstitutional, even if it appears to be racially neutral on its face.
In order to make this determination, the courts can look to the legislative and administrative history of the law. In the case of Davis-Bacon, such records are replete with both explicitly and implicitly racist statements. Consequently, the Act should be rendered unconstitutional. As the Supreme Court stated in Village of Arlington Heights v. Metropolitan Housing Development Corporation, "Where there is proof that a discriminatory purpose has been a motivating factor in the decision . . . judicial deference [to the legislature] is no longer justified." The Institute will also demonstrate to the court that the law continues to have lingering discriminatory effects.
The Davis-Bacon Act also impinges on the right of individuals to pursue employment opportunities and thus violates guarantees of the Fifth Amendment's due process clause. The Act prevents individuals from freely bargaining for employment opportunities, by setting the terms of such contracts at a rate beyond the means of those who would employ them, with no rational basis for doing so.
The Davis-Bacon Act has undermined the efforts of economic outsiders to find employment in the construc-tion industry for more than six decades. Borne of racial animus, the law continues to disrupt the efforts of blacks and other minorities to gain precious employment and contracting opportunities and to establish for themselves more prosperous communities. Given the influence that the labor unions exercise over Congress and the Clinton administration, it is highly unlikely that either of these branches of government will repeal or substantially modify the Davis-Bacon Act. The only avenue that remains is litigation. If successful, the Institute for Justice's efforts will constitute a tremendous victory for the cause of economic liberty and individual empowerment.
Prepared for the Institute for Justice by Scott Bullock and John Frantz
For more information contact: John Kramer Vice President of Communications Institute For Justice 901 N. Glebe Road, Suite 900 Arlington, VA 22203(703) 682-9320