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October 18, 2017
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Prevailing Wage Law
Updated On: Dec 13, 2007

Home Page - Prevailing Wage Law - Enforcement


References:

Davis-Bacon Act (Federal Prevailing Wage Law)

Prevailing Wages on State Projects Act 166 of 1965 (Michigan Prevailing Wage Law)

 


The Idea of a “Prevailing Wage”:  A Brief History

The idea of legislating a prevailing wage law began in the late 19th Century as a way to assist workers trying to support themselves and their families. Initially, the rationale was poignant but limited: to lessen the economic exploitation of an ever-growing number of hourly wage workers.   A second reason that later gained broad, public support – and the one most often voice by political reformers – was that forcing workers to work for low wages was contrary to the nation’s goal of raising the standard of living for all Americans.

 

In that early industrial era, almost all jobs were low paying and worker protections were non-existent.   Even worse, though the courts had ruled otherwise, those who sought change using collective action were still often viewed as part of a ”criminal conspiracy.” For workers, conditions couldn’t be worse.  While the economy as whole continued to expand, most industries (and their workers) suffered from fairly regular and sometimes extreme business fluctuations – making work relationships tenuous at best and making job security an all but impossible goal to achieve.

 

In such an economic environment, employers were free to “bargain” with workers – primarily to see which one would work for the lowest wage.   With exploitation so pervasive, workers could find themselves working up to twelve or more hours per day and seven days a week for less than subsistence.  For workers with families, their economic plight often made it necessary to have more than one income – forcing both parents to work many hours each day for meager pay and often forcing children to work instead of going to school.

 

However, even before the end of the last century, many Americans began to question why such conditions were afflicting an ever-greater number of workers.   More to the point, a growing number came to believe that, having an economic system that favored businesses which paid the least possible wages was clearly incompatible with our country’s founding principles of freedom, equality, justice, and the “pursuit of happiness.”   In fact, many reformers went further, charging that it was blatantly hypocritical for America to espouse the benefits of a “free enterprise system” while the reality was increasing impoverishment.

 

In 1891 Kansas became the first state to attempt to alleviate these problems by passing, the Eight-Hour Bill, which included the idea of a prevailing wage. It is of interest to note that, around the turn of the century, wages were generally paid on a per diem basis.  The Kansas Eight-Hour Bill required that the minimum per diem wage that prevailed before passage of the law would remain at that rate for an eight hour work day on all public works projects.  Over the next three decades many states adopted legislation similar to the Kansas bill and by the end of the 1920s forty-one states had passed some sort of prevailing wage provision.

 

The Construction Industry Before Davis-Bacon:  The “Roaring 20’s”

During the “Roaring ‘20s” the construction industry generally and workers in particular, became increasingly demoralized as underbidding and cutthroat competition became pervasive. For example, in 1927 New York contractors eagerly sought the many federal contracts being awarded to build a Veteran's Hospital. However, because the New York contractors submitted bids based on wages prevalent in the local labor market, they found themselves under-bid by an Alabama “construction company.”   Once the contracts had been awarded, the Alabama company imported all its workers from its home state where wage levels were substantially lower than those paid in New York.   Coming to the defense of his local businessmen, Representative Robert Bacon submitted a bill to Congress that required any contractor awarded a federal contract to pay its workers at least the “prevailing wage” in the local area.  Though Bacon’s bill was initially defeated, his proposed legislation would eventually become the basis for the Davis-Bacon Act.  Representative Bacon justified his proposal as follows:

The Veteran's Hospital was awarded to a firm from Alabama who had brought some one thousand workers into my district.  They were herded onto this job, they were housed in shacks, they were paid a very low wage, and the work proceeded. It seemed to me that the federal government should not engage in work in any state and undermine the labor conditions and wages paid in that state.  The least the government should do is comply with the local standards in the locality where the construction is to take place.

 

The Need for a Prevailing Wage Standard

In the early 1930s, in the depths of the Great Depression, Congress was under enormous pressure to deal with the growing problems arising out of unfair contract-labor practices on public works projects such as those denounced by Representative Bacon.  By awarding federal contracts in this environment, the federal government became involved as an "unwilling collaborator with unscrupulous firms that sought to get government business by cutting wages. "

 

For many in Congress (both Republicans and Democrats), the structure of the federal bidding process unconscionably tended to favor contractors with low-wage, low-skill laborers (even if family-wage contractors were otherwise superior in terms of efficiency, management of sub-contractors, quality of work, and profit rates).  Compounding the problem further, the low-wage, low-skill contractor too often balanced out poor efficiency, poor quality, and poor management by grinding down the wages and benefits of its laborers.  Nevertheless, the federal bidding process might—and often did—require the awarding of contracts to such firms in preference to an efficient, well-managed, high-quality product, family-wage firm.

 

In effect, it had become clear to Congress that in order to combat such unfair and damaging contracting practices, and to establish better and more productive standards of competition, a means of setting minimum standards for wage rates on public construction projects was necessary.   The response was not long in coming from the Hoover Administration and its Republican allies along with Democrats in Congress.

 

Passage of the Davis-Bacon Act and Early Refinements

 

The Davis-Bacon Act of 1931 was sponsored by two Republicans, Representative Robert Bacon (R-NY) and Senator James Davis (R-PA).  The Act was designed to address the above and other such problems by requiring wages paid on federally financed projects to be no lower than the wage standard in the community where the project is to be built.   Thus it placed a floor on wages paid, and directed contractors to compete on the basis of management efficiency, profit rates, quality of work, and better management of sub-contractors and materials suppliers.

 

Yet the original 1931 Act was short and left a number of loopholes. Clever contractors found numerous ways around the Act's requirements. In response to this evasion of the Act, President Hoover issued an executive order the following year (1932) to strengthen its enforcement:

  • All wages to be paid once a week.  This went a long way toward standardizing record keeping, prevented employers from holding wages over extended periods, and strengthened enforcement.
  • Employees to be paid for the duties they perform.  Some contractors had tried to evade the Act by giving all their workers low-pay job titles even though they were doing the work normally associated with higher-pay job titles. Henceforth employees would have to be paid on the basis of the work they did and not on the basis of their job titles.
  • Contractors to make payroll information available to the contracting agency for review, and to post a schedule at the work site of the prevailing rates of wages for each class of worker.   By making payroll information available to the contracting agency, compliance with the Act could be more easily determined. Posting wage rates at the job site allowed employees to become educated as to their rights, thereby increasing the likelihood that violations would be reported and abuses corrected.

  • Violations of Davis-Bacon Act provisions to result in the termination of the contract or other penalties.  Faced with penalties for violations of the Act, contractors would be more likely to provide fair wages to their employees.

The Act also provided that the President of the United States, in the case of national emergency, could suspend the wage provisions of the Act.   The Act has been suspended three times since 1931:

  1. President Roosevelt suspended the Act for three weeks in 1934 in order to manage administrative adjustments in light of the New Deal;
  2. President Nixon suspended the Act for one month in 1971 in an effort to reduce pressures of inflation; and
  3. President Bush suspended the Act briefly in 1992 to aid in the reconstruction of buildings damaged by hurricanes. Bush's suspension was open-ended and many believed that it was not justified.  After President Clinton took office in 1993, he re-instated the Act.

 

The “Anti-Kickback" Act

 

Another method dishonest contractors used to evade the Act was to pay their employees the prevailing wage rates in the first instance.  Then require employees to "kick back" a portion of their wages under the table as a condition of continuing employment or in the face of other sorts of threats.  These "kickback" schemes were rampant and lead to the passage of the Copeland "Anti-Kickback" Act, sponsored by Senator Royal Copeland (R-NY) in 1934.   This Act made it illegal to induce an employee "to give up any part of the compensation to which he is entitled under his contract of employment. "  The Copeland Act also required employers to file weekly reports of wages paid to employees on a given project, incorporating two of the provisions of Hoover's 1932 executive order.

 

Congress Strengthens the Davis-Bacon Act in 1935

The Davis-Bacon Act was substantially amended and clarified in 1935. As amended, the Act required that

  • All "laborers and mechanics" employed on federally financed public works construction projects in excess of $2,000 had to be paid no less than the rate of wages prevailing for similar work in the same locality.
  • "Prevailing rates" were defined as those found to be the prevailing (or most common) wages received by other laborers performing similar duties on projects of similar character in the same locality.
  • The 1935 amendments also required the Secretary of Labor to notify contractors as to the prevailing wage rates at or before the time of contracting.

The enforcement provisions of the Act were also strengthened. 

  • If a contractor failed to pay the prevailing wages, the remedies for public agencies included withholding payments to the contractor, termination of the contract, and/or requiring the contractor to pay restitution to the employees. 
  • A contractor who violated the law could also be declared ineligible to bid on public construction projects for up to three years.

 

Several provisions of Hoover's executive order were rolled into the Act itself.   Contractors were now required by statute to post prevailing wage rates at the project site.  Contractors were also required to pay wages at least once a week. This latter provision was designed to prevent contractors from devising methods of keeping some of the earned wages, including variations on the "kickback" abuses that were also outlawed.

The Davis-Bacon Act Continues to Enjoy Strong Support in Congress But . . . 

Since the 1930’s, there have continued to be persistent attempts to repeal or substantially undermine the provisions of the Davis-Bacon Act.  However, while the Davis-Bacon Act has continued to receive strong support from a majority in Congress, its supporters know they must remain ever vigilant and prepared to vigorously defend it anew.

 

In addition, and of even greater concern since the 1980s, the struggle over the prevailing wage has spread to the states.  During the past two decades, nine states have repealed their prevailing wage laws.  In other states, only successfully fought epic battles between supporters and a host of anti-union organizations and non-union contractors have kept their states from the same fate.  A litany of struggles that is well-known to all prevailing wage supporters in Michigan -- a state which has been at or near the epicenter of some of the fiercest struggles in recent years.  (For more, read Professor Daniel Kruger’s article “Why Keep Michigan’s Prevailing Wage?”)


 

 

MICHIGAN’S PREVAILING WAGE ACT

 

Michigan’s Prevailing Wage Act became law in 1965.  Like the provisions of its federal counterpart, the Davis-Bacon Act, the prevailing wage was enacted for two primary purposes:

  1. To ensure that skilled construction workers who worked on state and local publicly funded projects would be paid at least the wages and benefits that “prevailed” in their local communities
  2. To ensure that predatory contractors would not have an incentive to import unskilled or low-skilled workers from other parts of the country who were willing to work for less than the local market was paying.

Since 1965, Michigan's economic and social structures have benefited from this progressive public policy.  This Prevailing Wage summary details the positive aspects of Michigan's Public Act 166 of 1965.

 

THE REAL FACTS ARE:

  1. Michigan's Prevailing Wage Law does not increase costs.
  2. Michigan's Prevailing Wage strongly supports the construction industry by providing:

    • excellent healthcare coverage
    • sound pension programs
    • favorable wage packages
    • fully funded training

    All of these positive lifestyle factors reduce the negative societal impact of cost shifting from inadequate healthcare, lack of pension coverage, meagerly funded training programs and substandard wages.


  3. Michigan's Prevailing Wage provides a critical foundation for construction trades apprenticeship training programs. These apprenticeship programs are the cornerstone of Michigan's highly skilled and highly productive construction workforces. Having a highly qualified construction workforce helps make Michigan an attractive place to build a new plant or modernize an existing factory. Michigan's highly qualified contractors and tradespeople help bring manufacturing jobs back to Michigan.
  4. Michigan's construction industry already has a difficult time trying to recruit young people into our trade. Repealing the Prevailing Wage and slashing wages is totally contradictory to the pursuit of recruiting more young people. If fewer young people choose construction as a career, our ability to build the industrial, institutional, and commercial job providing facilities is severely compromised.

 


 
 
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