[House Hearing, 112 Congress]
[From the U.S. Government Publishing Office]
EXAMINING THE DEPARTMENT OF LABOR'S IMPLEMENTATION OF THE DAVIS-BACON
ACT
=======================================================================
HEARING
before the
SUBCOMMITTEE ON WORKFORCE PROTECTIONS
COMMITTEE ON EDUCATION
AND THE WORKFORCE
U.S. House of Representatives
ONE HUNDRED TWELFTH CONGRESS
FIRST SESSION
__________
HEARING HELD IN WASHINGTON, DC, APRIL 14, 2011
__________
Serial No. 112-18
__________
Printed for the use of the Committee on Education and the Workforce
Available via the World Wide Web:
http://www.gpoaccess.gov/congress/house/education/index.html
or
Committee address: http://edworkforce.house.gov
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COMMITTEE ON EDUCATION AND THE WORKFORCE
JOHN KLINE, Minnesota, Chairman
Thomas E. Petri, Wisconsin George Miller, California,
Howard P. ``Buck'' McKeon, Senior Democratic Member
California Dale E. Kildee, Michigan
Judy Biggert, Illinois Donald M. Payne, New Jersey
Todd Russell Platts, Pennsylvania Robert E. Andrews, New Jersey
Joe Wilson, South Carolina Robert C. ``Bobby'' Scott,
Virginia Foxx, North Carolina Virginia
Duncan Hunter, California Lynn C. Woolsey, California
David P. Roe, Tennessee Ruben Hinojosa, Texas
Glenn Thompson, Pennsylvania Carolyn McCarthy, New York
Tim Walberg, Michigan John F. Tierney, Massachusetts
Scott DesJarlais, Tennessee Dennis J. Kucinich, Ohio
Richard L. Hanna, New York David Wu, Oregon
Todd Rokita, Indiana Rush D. Holt, New Jersey
Larry Bucshon, Indiana Susan A. Davis, California
Trey Gowdy, South Carolina Raul M. Grijalva, Arizona
Lou Barletta, Pennsylvania Timothy H. Bishop, New York
Kristi L. Noem, South Dakota David Loebsack, Iowa
Martha Roby, Alabama Mazie K. Hirono, Hawaii
Joseph J. Heck, Nevada
Dennis A. Ross, Florida
Mike Kelly, Pennsylvania
[Vacant]
Barrett Karr, Staff Director
Jody Calemine, Minority Staff Director
------
SUBCOMMITTEE ON WORKFORCE PROTECTIONS
TIM WALBERG, Michigan, Chairman
John Kline, Minnesota Lynn C. Woolsey, California,
Todd Rokita, Indiana Ranking
Larry Bucshon, Indiana Donald M. Payne, New Jersey
Trey Gowdy, South Carolina Dennis J. Kucinich, Ohio
Kristi L. Noem, South Dakota Timothy H. Bishop, New York
Dennis A. Ross, Florida Mazie K. Hirono, Hawaii
Mike Kelly, Pennsylvania George Miller, California
[Vacant]
C O N T E N T S
----------
Page
Hearing held on April 14, 2011................................... 1
Statement of Members:
Hirono, Hon. Mazie K., a Representative in Congress from the
State of Hawaii, submission for the record................. 50
Walberg, Hon. Tim, Chairman, Subcommittee on Workforce
Protections................................................ 1
Prepared statement of.................................... 3
Additional submissions:
Prepared statement of the Women Construction Owners &
Executives, USA.................................... 57
Letter, dated Feb. 18, 2004, ``Concerns Persist With
the Integrity of Davis-Bacon Act Prevailing Wage
Determinations''................................... 58
Draft, dated July 29, 2004, ``Davis-Bacon Process
Evaluation--Final Report''......................... 61
Woolsey, Hon. Lynn, ranking minority member, Subcommittee on
Workforce Protections...................................... 4
Prepared statement of.................................... 5
Questions submitted for the record....................... 98
Statement of Witnesses:
Eisenbrey, Ross, vice president, Economic Policy Institute... 18
Prepared statement of.................................... 20
Supplemental statement dated May 4, 2011................. 95
Markey, Thomas M., Deputy Administrator for Program
Operations, Wage and Hour Division, U.S. Department of
Labor...................................................... 9
Prepared statement of.................................... 11
Response to questions submitted for the record........... 99
Mistick, D. Thomas, on behalf of Associated Builders and
Contractors................................................ 32
Prepared statement of.................................... 34
Sherk, James, senior policy analyst in labor economics, the
Heritage Foundation........................................ 22
Prepared statement of.................................... 24
Letter submitted for the record.......................... 100
Sherrill, Dr. Andrew, Director of Education, Workforce, and
Income Security, U.S. Government Accountability Office..... 7
Prepared statement of.................................... 9
Response to questions submitted for the record........... 100
EXAMINING THE DEPARTMENT OF LABOR'S IMPLEMENTATION OF THE DAVIS-BACON
ACT
----------
Thursday, April 14, 2011
U.S. House of Representatives
Subcommittee on Workforce Protections
Committee on Education and the Workforce
Washington, DC
----------
The subcommittee met, pursuant to call, at 10:04 a.m., in
room 2175, Rayburn House Office Building, Hon. Tim Walberg
[chairman of the subcommittee] presiding.
Present: Representatives Walberg, Kline, Bucshon, Woolsey,
Payne, Kucinich, Bishop, Hirono, and Miller.
Staff present: Katherine Bathgate, Press Assistant; Kirk
Boyle, General Counsel; Casey Buboltz, Coalitions and Member
Services Coordinator; Ed Gilroy, Director of Workforce Policy;
Benjamin Hoog, Legislative Assistant; Barrett Karr, Staff
Director; Ryan Kearney, Legislative Assistant; Brian Newell,
Deputy Communications Director; Molly McLaughlin Salmi, Deputy
Director of Workforce Policy; Ken Serafin, Workforce Policy
Counsel; Linda Stevens, Chief Clerk/Assistant to the General
Counsel; Alissa Strawcutter, Deputy Clerk; Loren Sweatt,
Professional Staff Member; Aaron Albright, Minority
Communications Director for Labor; Tylease Alli, Minority
Hearing Clerk; Daniel Brown, Minority Staff Assistant; Jody
Calemine, Minority Staff Director; Brian Levin, Minority New
Media Press Assistant; Jerrica Mathis, Minority Legislative
Fellow, Labor; Celine McNicholas, Minority Labor Counsel;
Richard Miller, Minority Senior Labor Policy Advisor; Megan
O'Reilly, Minority General Counsel; Julie Peller, Minority
Deputy Staff Director; Meredith Regine, Minority Labor Policy
Associate; Melissa Salmanowitz, Minority Communications
Director for Education; Michele Varnhagen, Minority Chief
Policy Advisor and Labor Policy Director; and Michael Zola,
Minority Chief Investigative Counsel.
Chairman Walberg [presiding]. A quorum being present, the
subcommittee will come to order. Good morning and welcome to
today's hearing. I would like to thank our witnesses for
joining us. Our panel has a wide range of knowledge and
experience with the Davis-Bacon Act and your testimony will
provide important insight as we work to ensure the law is
serving the interest of job creators, workers and taxpayers.
We are in the middle of an important debate over the
country's fiscal future. Years of reckless borrowing and
spending by the federal government have brought our nation to
the brink of a crisis and something must be done.
We can no longer accept waste and inefficiencies as the
price of doing business with the federal government, which is
why we are here today. Established by the Hoover Administration
in 1931, the Davis-Bacon Act requires workers to be paid the
prevailing wage rates on federal construction projects costing
taxpayers more than $2000.
Prevailing wages are determined through a complex system of
wage surveys administered by the Department of Labor. The
surveys collect salary and fringe benefit information on
various job classifications based on similar projects for a
given location, typically at the county level.
Businesses and labor organizations voluntarily report wage
information and the Department can also rely upon local
collective bargaining agreements when determining the wage
rate.
Federal contractors must submit weekly payroll reports to
the Department, certifying appropriate wages have been paid.
While intended as a temporary effort 80 years ago, the Davis-
Bacon Act remains a significant feature of federal spending to
this day.
That is why a recent report by the Government
Accountability Office is deeply troubling. Despite years of
review and oversight, the GAO found considerable challenges
still plague the Department's implementation of the Davis-Bacon
Act.
GAO revealed problems with accuracy, quality, bias and
timeliness of the wage data. Of the surveys reviewed, one in
four of the final wage rates were based on the wages of just
six or fewer workers.
Forty-six percent of the prevailing wages for non-union
workers were based on wages reported ten or more years ago. The
report also identified a lack of transparency about how wage
rates are determined, raising concerns for businesses trying to
bid for work and taxpayers who want to ensure their dollars
aren't being wasted.
According to the GAO, the Department of Labor also fails to
follow guidance issued by the Office of Management and Budget
and even disregards its own policy manual by ignoring the
impact of non-responses in the accuracy of the survey.
Despite recent changes adopted by the Department, the GAO
still found issues with timeliness and believes any
improvements the Department hopes to achieve, quote--``may not
be fully realized.''
Perhaps the GAO outlined best what is at stake and I
quote--``If the resulting prevailing wage rates are too high,
it potentially cots the federal government and taxpayers more
for publicly funded construction projects or if too low, they
cost workers in compensation.''
These are stunning conclusions for a law that governs how
hundreds of billions of taxpayer dollars are spent. In fact the
failed stimulus committed an estimated $300 billion to federal
construction projects that could potentially be covered by
Davis-Bacon wage rates.
In 2009 alone federal construction and rehabilitation
projects totaled roughly $220 billion. Are these taxpayer
dollars being well spent? And if not then what should be done
about it? Those are the questions we hope to answer today,
simply accepting the status quo that has been in place since
the great depression is unacceptable.
We have a responsibility to determine whether the law is
meeting the needs of today's taxpayers and workers. Again I
would like to thank our witnesses. And we will now recognize
the senior democratic member of the sub-committee, Ms. Woolsey,
for opening remarks.
[The statement of Chairman Walberg follows:]
Prepared Statement of Hon. Tim Walberg, Chairman,
Subcommittee on Workforce Protections
Good morning and welcome to today's hearing. I would like to thank
our witnesses for joining us. Our panel has a wide range of knowledge
and experience with the Davis-Bacon Act, and your testimony will
provide important insight as we work to ensure the law is serving the
interests of job-creators, workers, and taxpayers.
We are in the middle of an important debate over the country's
fiscal future. Years of reckless borrowing and spending by the federal
government have brought our nation to the brink of a crisis and
something must be done. We can no longer accept waste and
inefficiencies as the price of doing business with the federal
government, which is why we are here today.
Established by the Hoover administration in 1931, the Davis-Bacon
Act requires workers be paid the ``prevailing wage rates'' on federal
construction projects costing taxpayers more than $2,000. Prevailing
wages are determined through a complex system of wage surveys
administered by the Department of Labor.
The surveys collect salary and fringe benefit information on
various job classifications based on similar projects for a given
location, typically at the county level. Businesses and labor
organizations voluntarily report wage information, and the department
can also rely upon local collective bargaining agreements when
determining the wage rate. Federal contractors must submit weekly
payroll reports to the department certifying appropriate wages have
been paid.
While intended as a temporary effort 80 years ago, the Davis-Bacon
Act remains a significant feature of federal spending to this day. That
is why a recent report by the Government Accountability Office is
deeply troubling. Despite years of review and oversight, the GAO found
considerable challenges still plague the department's implementation of
the Davis-Bacon Act.
The GAO revealed problems with accuracy, quality, bias, and
timeliness of the wage data. Of the surveys reviewed, one in four of
the final wage rates were based on the wages of just six or fewer
workers. Forty-six percent of the prevailing wages for non-union
workers were based on wages reported 10 or more years ago.
The report also identified a lack of transparency about how wage
rates are determined, raising concerns for businesses trying to bid for
work and taxpayers who want to ensure their dollars aren't being
wasted. According to the GAO, the Department of Labor also fails to
follow guidance issued by the Office of Management and Budget, and even
disregards its own policy manual by ignoring the impact of nonresponses
in the accuracy of the survey.
Despite recent changes adopted by the department, the GAO still
found issues with timeliness and believes any improvements the
department hopes to achieve ``may not be fully realized.'' Perhaps the
GAO outlined best what's at stake: ``If the resultant prevailing wage
rates are too high, they potentially cost the federal government and
taxpayers more for publicly funded construction projects or, if too
low, they cost workers in compensation.''
These are stunning conclusions for a law that governs how hundreds
of billions of taxpayer-dollars are spent. In fact, the failed stimulus
committed an estimated $300 billion to federal construction projects
that could potentially be covered by Davis-Bacon wage rates. In 2009
alone, federal construction and rehabilitation projects totaled roughly
$220 billion.
Are these taxpayer dollars being well spent, and if not, then what
should be done about it? Those are the questions we hope to answer
today. Simply accepting the status-quo that has been in place since the
Great Depression is unacceptable. We have a responsibility to determine
whether the law is meeting the needs of today's taxpayers and workers.
Again, I would like to thank our witnesses, and will now recognize
the senior Democrat of the subcommittee, Ms. Woolsey, for her opening
remarks.
______
Ms. Woolsey. Thank you, Mr. Chairman. And thank you for
holding this hearing to examine the Department of Labor's
implementation of the Davis-Bacon Act because it provides us a
forum today to highlight how it has helped maintain decent
wages for workers in support of local communities that are
vulnerable to changes to the economy.
Of course we are also here because the Government
Accountability Office, GAO, has determined that there are
issues with the survey process used by the Department of Labor
to determine local prevailing wages.
GAO--from that time surveys used outdated wage data and had
low response rates. And it is my understanding that--and the
other questions that you brought up--that the department has
instituted policies to address these issues, most of them, to
be sure.
So let us be clear. We all agree that the department must
work to see that its survey process is effective and the wage
rates it publishes for federal projects are accurate. Making
certain that federal policies work as intended is not a
partisan issue.
We should be careful however not to read into the GAO
report and draw conclusions that it absolutely doesn't make.
The report does not conclude that Davis-Bacon drives up the
cost of construction projects or inhibits job growth. These are
discredited theories that don't hold up to scrutiny.
The Davis-Bacon Act requires contracts and contractors on
federal construction projects to pay their employees no less
than the locally prevailing wage. This is important because it
ensures that the federal government does not use its bargaining
power to drive down wages which would actually hurt local
economies.
Instead the act makes certain that federally financed
projects encourage competition, contribute to the development
of a skilled workforce for the future and pay decent wages.
This is sound and proven public policy.
Without prevailing wage laws like Davis-Bacon contractors
would be encouraged to assemble the cheapest and most
exploitable workforce rather than the best trained, equipped,
and managed workers. It would be a race to the bottom
subsidized by the federal government.
Much of the opposition to prevailing wage protections is
grounded in decades of false rhetoric and misinformation.
Studies consistently show that Davis-Bacon prevailing wage
requirements do not increase the cost of federal construction.
In addition, several reports on prevailing wage
requirements have found that prevailing wages provide numerous
benefits including higher wages, better workplace safety,
increased government revenues and they elevate workers skills
and standards in the construction industry.
My point is the 2006 study determined that states with
prevailing wage laws had higher rates of construction training
programs. And the trainees were more likely to complete their
programs compared to the states without prevailing wage laws.
We have seen the effects when prevailing wage laws have
been repealed at the state level. Competitive pressures in the
industry led to lower wages for workers. There is also an
increase in work related injuries and illnesses. The last thing
construction workers need in this economy is to have their
wages cut.
At the end of the day that is just what any argument
against Davis-Bacon prevailing wage protection would amount to,
a reduction in wages and the elimination of a standard of
living for workers where they can raise and educate their
families while ultimately ensuring their own retirement.
Mr. Chairman, I have confidence that we can use this
hearing constructively to discuss the legitimate issues raised
by the GAO and not as a policy to debate whether or not Davis-
Bacon has some merit that we know they have. I yield back.
[The statement of Ms. Woolsey follows:]
Prepared Statement of Hon. Lynn C. Woolsey, Ranking Minority Member,
Subcommittee on Workforce Protections
Thank you Mr. Chairman and thank you for holding this hearing to
examine the Department of Labor's implementation of the Davis-Bacon Act
because it provides us a forum today to highlight how it has helped
maintain decent wages for workers and supported local communities that
are vulnerable to changes in the economy.
Of course, we're also here because the Government Accountability
Office (GAO) has determined that there are issues with the survey
process used by the Department of Labor to determine local prevailing
wages. GAO found that at times surveys use outdated wage data and had
low response rates. It is my understanding and the other questions that
you brought up that the Department has instituted policies to address
some of these issues.
Let's be clear: we all agree that the Department must work to see
that its survey process is effective and the wage rates it publishes
for federal projects are accurate. Making sure federal policies work as
intended is not a partisan issue.
We should be careful, however, not to read into the GAO report and
draw conclusions that it absolutely doesn't make. The GAO's report does
not conclude that Davis-Bacon drives up the costs of construction
projects or inhibits job growth. These are discredited theories that
don't hold up to scrutiny.
The Davis-Bacon Act requires contractors on federal construction
projects to pay their employees no less than the locally prevailing
wage. This is important because it ensures that the federal government
does not use its bargaining power to drive down wages which would
actually hurt local economies. Instead, the Act makes certain that
federally financed projects encourage competition, contribute to the
development of a skilled workforce for the future, and pay decent
wages. This is sound and proven public policy.
Without prevailing wage laws, like Davis-Bacon, contractors would
be encouraged to assemble the cheapest and most exploitable workforce
rather than best trained, equipped, and managed workers. It would be a
race to the bottom, subsidized by the federal government.
Much of the opposition to prevailing wage protections is grounded
in decades of false rhetoric and misinformation. Studies consistently
show that Davis-Bacon prevailing wage requirements DO NOT increase the
cost of federal construction. In addition, several reports on
prevailing wage requirements have found that prevailing wages provide
numerous benefits including: higher wages, better workplace safety,
increased government revenues, and they elevate worker skills and
standards in the construction industry.
Likewise, a 2006 study determined that states with prevailing wage
laws had higher rates of construction training programs, and trainees
were more likely to complete their programs compared to the states
without prevailing wage laws.
We have seen the effects when prevailing wage laws have been
repealed at the state level--competitive pressures in the industry lead
to lower wages for workers. There is also an increase in work-related
injuries and illnesses.
The last thing construction workers need in this economy is to have
their wages cut. At the end of the day, that is just what any argument
against Davis-Bacon prevailing wage protections would amount to--a
reduction in wages and the elimination of a standard of living for
workers where they can raise and educate their families, while
ultimately ensuring their own retirement. Mr. Chairman, I have
confidence that we can use this hearing constructively to discuss the
legitimate issues raised by the GAO and not as a policy to debate
whether or not Davis-Bacon has the merits that we know they have.
______
Chairman Walberg. I thank you, Ranking Member. Pursuant to
committee rules all members will be permitted to submit written
statements to be included in the permanent hearing record. And
without objection the hearing record will remain open for 14
days to allow questions for the record. Statements and
extraneous material reference during the hearing to be
submitted for the official hearing record.
It is now my pleasure to introduce our distinguished panel
of witnesses. Dr. Andrew Sherrill is Director of Education,
Workforce and Income Security with the U. S. Government
Accountability Office in Washington, D. C. He was appointed to
GAO's senior executive service in 2009.
In his 20 years at GAO he has led teams in producing
reports for the Congress on a broad range of topics including
workforce development, unemployment insurance, workers'
compensation programs, women in the labor force, welfare
reform, foreign labor programs, and mass care after hurricane
Katrina.
Mr. Sherrill received his PhD and M. A. from the University
of Texas at Austin and his B. A. from Trinity University at San
Antonio, Texas. In addition he completed course work in the
masters program at the Lyndon Baines Johnson School of Public
Affairs at the University of Texas at Austin. He is a member of
the National Academy of Social Insurance. And we welcome you.
Mr. Thomas M. Markey is the deputy administrator of program
operations at the U. S. Department of Labor. Mr. Markey has
served at the Department of Labor in a variety of positions
since 1972 including his role as the Director for the Federal
Employees Compensation Program from 1985 through 1998. Mr.
Markey is a graduate of Rutgers University and is a veteran of
the United States Army. And we thank you for your service.
Mr. Ross Eisenbrey is vice president of the Economic Policy
Institute and a former staffer with this committee, welcome
back. Mr. Eisenbrey is a lawyer and former commissioner of the
U. S. Occupational Safety and Health Review Commission. Prior
to joining the Economic Policy Institute he worked for many
years as a staff attorney and legislative director in the U. S.
House of Representatives and as a committee counsel in the U.
S. Senate.
Additionally he served as policy director of the
Occupational Safety and Health Administration from 1999 to
2001. Mr. Eisenbrey holds a J. D. from University of Michigan
Law School--go Blue--and a B.A. from Middlebury College as well
as was raised in Michigan itself, so welcome.
Mr. James Sherk is senior policy and analyst of labor
economics at the Heritage Foundation. In his position Mr. Sherk
works on minimum wage, card check, rising standards of living
and other tax, labor and economic issues in Heritage Center for
Data Analysis.
Mr. Sherk received an M. A. in Economics with a
concentration in Econometrics in Labor Economics from the
University of Rochester and a Bachelor's Degree in Economics
and Mathematics from my district, Hillsdale College. Welcome,
glad to have you here.
Mr. Thomas Mistick is principal of the Church Restoration
Group. Mr. Mistick's Church Restoration Group offers
restoration and construction services for historic and sacred
sites across the country.
Mr. Mistick has completed more than $1 billion in
construction and restoration during his 30-plus years running
the Mistick family of companies. Mr. Mistick has a great deal
of experience trying to navigate the Davis-Bacon regulations,
otherwise known as real-world experience.
Mr. Mistick received his undergraduate degree from Harvard
College where he graduated cum laude. He holds a graduate
degree in Systems Analysis and Finance from Stanford
University's Graduate School of Business and a J. D. from the
University of Pittsburg School of Law. Mr. Mistick is
testifying on behalf of the Associated Builders and
Contractors. Thank you, each of you, for being here.
Before I recognize each of you to provide your testimony
let me briefly explain our lighting system. You will each have
5 minutes to present your testimony. When you begin--and I
guess I would say 5 minutes unless the Chairman here enjoys
your testimony so much and is known to let it go on and on.
I know that the ranking member and the full committee--the
gentleman from California--will make it very clear to me when I
have gone past that red light.
And I appreciate that, Mr. Miller.
When you begin the light in front of you will turn green.
When 1 minute is left the light will turn yellow and when your
time has expired the light will turn red at which point I will
ask that you wrap it up quickly. Your remarks are important but
the time is of necessity as well.
After everyone has testified members will each have 5
minutes to ask questions of the panel.
And so having said that let me start with Mr. Sherrill,
your testimony we appreciate.
STATEMENT OF DR. ANDREW SHERRILL, DIRECTOR OF EDUCATION,
WORKFORCE, AND INCOME SECURITY, U.S. GOVERNMENT ACCOUNTABILITY
OFFICE
Mr. Sherrill. Mr. Chairman, ranking member Woolsey, and
members of the sub-committee, I am pleased to be here today to
discuss the Department of Labor's procedures for determining
prevailing wages under the Davis-Bacon Act.
Our prior reports--in those of Labor's Inspector General
have made various recommendations to improve these procedures.
Today I will present the results of our report that was
publicly issued last week.
This report covers two topics, first the extent to which
labor has addressed concerns regarding the quality of the
Davis-Bacon wage determination process and second additional
issues identified by stakeholders regarding the wage
determination process.
In recent years Labor has taken several steps to improve
its wage determinations. However, Labor has not addressed some
key issues with survey quality such as the representativeness
and sufficiency of survey data collected.
Among the steps Labor had taken is to shift away from a
one-size-fits-all approach for the four construction types. For
highway surveys Labor began using certified payrolls as the
primary data source. For building and heavy surveys Labor
adjusted timeframes to better manage the quality of data
received.
Labor expects these and other changes to reduce the time
needed to process highway surveys by more than 50 percent--by
more than 80 percent and building and heavy surveys by more
than 50 percent.
While it is too early to fully assess the effects of
Labor's changes a review found that they may not achieve
expected results. Of the 12 surveys conducted under Labor's
review process that we assessed against Labor's new timelines
we found that ten were behind schedule, some by several steps
in the process.
Many published wage rates are several years old. Labor's
2010 performance goal was for 90 percent of published wage
rates for building, heavy and highway construction to be no
more than three years old. Labor achieved 61 percent. When we
drilled down we found almost 75 percent of the union prevailing
rates were three years old or less. In contrast 36 percent of
the non-union prevailing rates were three years old or less,
almost half were ten or more years old.
We also found critical problems with Labor's wage survey
methodology--continued or survey-hindered survey quality. Labor
cannot determine whether its wage determinations accurately
represent prevailing wages because it does not calculate survey
response rates or analyze those who do not respond.
A low response rate may mean the results are misleading or
inaccurate if those who differ--if those who respond differ
substantively and systematically from those who do not respond.
While Labor is required by law to issue wage rates by the civil
sub-division of the state, its goal to issue them at the county
level is often not met because of insufficient survey response.
We reviewed four surveys that were issued in 2009 or 2010
and found that Labor issued 11 percent of wage rates for key
job classifications using data from a single county. Forty
percent of the wage rates were based on statewide data. That
means that the rate was based either on data from all of the
rural--or all of the metropolitan counties in the entire state.
In the four surveys over one-quarter of the wage rates for
key job classifications were based on data reported for six or
fewer workers. The statutory requirement to issue rates by
civil sub-division limits Labor's ability to address inadequate
data. Labor's not able to augment its survey data with sources
that draw on other geographical areas such as metropolitan
statistical areas that may better reflect regional markets.
We interviewed a wide variety of stakeholders including
academics, contractors, contractor associations, unions to
obtain their perspectives. They voiced two key concerns, first
little incentives to participate in the wage surveys, second a
lack of transparency in the survey process.
Stakeholders cited various factors. They said were
disincentives to participate, for example, kit contractors may
lack the necessary resources, do not understand the purpose of
the survey, may not see the point in responding.
Stakeholders also said there was a lack of transparency
about the number of workers and wage rates used to calculate
prevailing wages for each job classification and for providing
such information could enhance understanding of the process and
result in greater participation.
So in sum, to improve the quality and timeliness of the
wage surveys we recommended that Labor enlist the National
Academies or another independent statistical organization to
evaluate and try to provide objective advice on the survey, its
methods and design, potential for conducting a sample survey
instead of a census survey and other aspects of doing the
process.
We also recommended that Labor take steps to improve the
transparency of its wage determinations which could encourage
greater participation in the survey. Finally we suggested that
Congress consider amending the requirement that Labor issue
wage rates by civil subdivision to provide the agency with more
flexibility.
Mr. Chairman, ranking member Woolsey, members of the sub-
committee, that concludes my remarks. I would be happy to
answer any questions you may have.
[The statement of Mr. Sherrill may be accessed at the
following Internet address:]
http://www.gao.gov/new.items/d11486t.pdf
------
Chairman Walberg. Thank you, Dr. Sherrill.
Mr. Markey?
STATEMENT OF TOM M. MARKEY, DEPUTY ADMINISTRATOR FOR PROGRAM
OPERATIONS, WAGE AND HOUR DIVISION, U.S. DEPARTMENT OF LABOR
Mr. Markey. Chairman Walberg, ranking member Woolsey and
members of the sub-committee, thank you for the opportunity to
talk to you today about the role of the Department Wage and
Hour Division in Davis-Bacon wage determination.
The Davis-Bacon Survey Program was evaluated extensively in
the 1990s and early 2000s. The two evaluations that are most
relevant of what we will be discussing today are the 1999 GAO
report and the 2004 OIG report. Both reviews concluded that
despite Wage and Hour's efforts there were still numerous
problems with timeliness and accuracy of wage determinations.
To address these concerns Wage and Hour enlisted the help
of McGraw-Hill Construction Analytics to assess our process and
operations. They recommended improving and stabilizing the IT
system, developing policies and training for survey staff,
establishing metrics to measure time limits and productivity
and improving communication with internal staff and external
stakeholders.
Wage and Hour has implemented improving this based on these
recommendations which are starting to bear fruit. From 2005
through January 2011 Wage and Hour issued several major
releases to both its automated systems. These changes were
designed to complete and publish wage determinations in a more
timely fashion. In 2007 a bridge connecting both of these IT
systems became operational, thereby allowing improvements to
survey performance measurements.
In addition Wage and Hour increased the number of survey
staff, established a new yearly training program for all survey
staff, drafted a new manual of operations--and using a manual
and a training guide that is updated with each IT system
release--instituted performance measures for the age of wage
rates, the period of time from completion of the survey to
publication and the time required to conduct surveys.
It also incorporated analyst tracking reports enabling
supervisors to monitor the time spent by analysts and survey
processing and in specific task. Finally it developed new
performance standards in the fiscal year 2010 rating cycle for
Wage and Hour staff. Wage and Hour's recent re-engineering
efforts are as follows.
For highway construction many state departments of
transportation conduct surveys of highway construction using
the same payment data as Wage and Hour. We now work with these
states to issue and maintain current prevailing highway wage
rates.
For residential surveys to combat traditionally low
response rates we are now conducting these surveys separately
so we can also call and visit to supplement the mailing that
contractors receive.
For building and heavy construction we initiate a pilot
program of completing these in a shorter period of time--on
average Wage and Hours' completing these surveys under this
pilot within 24 months as opposed to many years in the past. At
the same time Wage and Hour was conducting all these
improvements the agency published wage determinations for 22
statewide backlog surveys.
The 2011 GAO report contains two recommendations. With
regard to the first one on the National Academies or other
statistical organizations we feel that given that we are
currently making changes to contract to a different
organization and evaluate the efforts of Wage and Hour may be
premature, especially in light of cost considerations. Wage and
Hour nevertheless will explore the options for seeking
independent evaluation of survey methodology.
With regard to a transparency the wage determinations are
housed on WDOL, which is the result of a collaboration of
multiple federal agencies. Consequently any changes to the
website must be made in collaboration with these other entities
and cannot be made unilaterally by the department. We do,
however, agree that the public should have more information to
clearly understand the process here and have opened a dialogue
with these other agencies.
Eight years after its enactment, the Davis-Bacon and
related Acts continued to protect the wages of hard-working
Americans as they build the nation's infrastructure. Wage and
Hour is doing its part in this endeavor by re-engineering the
Davis-Bacon Survey Program to ensure that the injection of
federal construction funds to communities does not depress the
wages of the local workforce. Again thank you for the
opportunity to testify today. I am happy to answer any
questions that the sub-committee may have.
[The statement of Mr. Markey follows:]
Prepared Statement of Thomas M. Markey, Deputy Administrator for
Program Operations, Wage and Hour Division, U.S. Department of Labor
Chairman Walberg, Ranking Member Woolsey, and Members of the
Subcommittee, thank you for the opportunity to talk with you today
about the role of the U.S. Department of Labor's Wage and Hour Division
(WHD) in Davis-Bacon Act wage determinations and enforcement. I
appreciate the opportunity to discuss WHD's efforts to reengineer the
Davis-Bacon Survey Program and our work to revitalize the enforcement
of Davis-Bacon requirements on federally funded construction projects.
The principle underlying the Davis-Bacon Act (DBA) is simple--to
ensure that the Federal Government's extensive contracting activity
does not have the unintended consequence of depressing workers' wages.
Since its enactment in 1931, the DBA has ensured minimum compensation
levels for construction workers based on the wages paid in a given
locality and has provided a level playing field for all contractors in
the construction industry. Construction is a labor-intensive sector of
the economy, often with multiple layers of contracting and
subcontracting. Without the DBA and the over 60 Davis-Bacon ``related
Acts'' that contain Davis-Bacon prevailing wage requirements, the
Federal contracting agencies, state and local governments, and
recipients of Federal grants who are responsible for federally funded
or assisted construction projects might never assume direct
responsibility for the wages of the laborers and mechanics who build
our nation's buildings, pave our roads, dig our trenches, and maintain
our infrastructure.
The DBA and the standards that it imposes on the Federal government
and recipients of Federal funds ensure that hard-working middle class
Americans will not see their wages and benefits undercut by Federal
spending practices. As important, these standards enable local
contractors and subcontractors to compete for local projects by
protecting them from underbidding by contractors who import workforces
from outside the local community. As Secretary Solis' vision for the
Department of Labor appropriately articulates, it is about ``Good Jobs
for Everyone.''
Today, the Federal government continues to construct buildings,
build dams, and fund housing projects. State highway departments pave
roads with Federal funds from the Federal Highway Administration. Local
and State governments build water treatment plants, modernize schools,
and renovate airports. Many of these projects are funded by the
American Recovery and Reinvestment Act of 2009 (Recovery Act), which
appropriated substantial funding for construction, alteration and
repair of Federal buildings and for infrastructure projects. The DBA
therefore is as relevant today as it was when it was first enacted, and
it continues to provide stable wage rates and benefits that attract
higher-skilled labor. And by attracting higher-skilled workers who are
both experienced and productive, construction projects are more often
completed on time and at lower cost.
The average annual earnings for construction workers in May 2009
was $43,350--not significantly higher than the average annual earnings
for construction workers reported in 1995, when the Department last
testified on the DBA before the House Subcommittee on Workforce
Protections. The industry remains particularly susceptible to economic
fluctuations that bring on periods of high unemployment and
underemployment, as we have seen in the most recent recession that
began in December 2007. When Federal construction causes a sudden
significant increase in the demand for local labor in a high
unemployment labor market, absent a prevailing wage requirement, there
is a strong downward pressure on local wages as the unemployed and
underemployed are drawn into the area for work. The Davis-Bacon and
related Acts provide the safety net for those local workers, their
construction companies, and their communities.
DOL and Davis-Bacon Wage Determinations
The longstanding mission of the Department of Labor's Wage and Hour
Division (WHD) is to promote and achieve compliance with labor
standards to protect and enhance the welfare of the nation's workforce.
To this end, the WHD is responsible for administering and enforcing
some of our nation's most comprehensive federal labor laws covering,
among other things, requirements and obligations relating to minimum
wage and overtime pay, recordkeeping, child labor, family and medical
leave, migrant work and worker protections in certain temporary worker
programs, and the prevailing wages for government service and
construction contracts.
The Davis-Bacon Act requires that all contractors and
subcontractors performing work on federal contracts in excess of $2,000
for the construction, alteration, or repair of public buildings or
public works (and contractors or subcontractors performing on federally
assisted contracts under the related Acts) pay their laborers and
mechanics not less than the prevailing wage rates and fringe benefits
listed in the contract's Davis-Bacon wage determination for
corresponding classes of laborers and mechanics employed on similar
projects in the area. Davis-Bacon labor standards clauses must be
included in covered contracts. Since the 1990s, WHD has focused on
improving the accuracy and timeliness of DBA wage determinations by
reengineering the DBA survey program and providing the best
opportunities for increasing stakeholder participation. During the last
24 months in particular, WHD has reevaluated and changed various
administrative processes, addressed recommendations from various
audits, improved outreach, and enhanced enforcement. These changes of
the last two years are already producing positive results.
For example, the survey backlog is gone. The only surveys being
processed in the system at this time are recent surveys and some of
these surveys are nearing publication. Additionally, the time needed
for survey analysis (cutoff date to on-site verification) has decreased
from 2-5 years to less than 12 months.
The 2011 Government Accountability Office (GAO) audit of the Davis-
Bacon Survey Program at issue in today's hearing analyzed WHD's IT
system, the timeliness and accuracy of the survey process, the
effectiveness of WHD personnel, and the performance measures WHD
employed. Prior to the audit, WHD was already engaged in addressing
many of these issues, but, as WHD staff acknowledged to the GAO
auditor, WHD's improvements to its DBA survey program are ongoing.
IT System
WHD has adopted a systematic approach to effect improvements in the
wage determinations IT system. From 2005 through January 2011, twenty-
nine (29) major releases and updates were made to WHD's Automated
Survey Data System (ASDS) and seventeen (17) major releases and updates
were made to the Wage Determination Generation System (WDGS). The
changes were designed to increase the speed of processing so that
surveys could be completed and published in a more timely fashion. In
2007, a ``bridge'' connecting both of these IT systems (an enhancement
that had been discussed in WHD's May 2006 report to Congress) became
operational, thereby allowing improvements to survey performance
measurements and other reports.
These IT improvements have enhanced the efficiency and
effectiveness of myriad tasks performed both by the WHD's analysts and
by the agency's contract staff at the University of Tennessee's
Construction Industry Research and Policy Center (CIRPC). For example,
the usual time needed to complete basic business processes, such as
loading F.W. Dodge reports that identify construction projects within a
particular geographic area, has been reduced from three weeks to one
hour; the time needed to prepare documents for on-site verification has
been reduced from one month to one day; and area practice resolution by
WHD staff has been reduced from weeks to one day.
IT development and resulting changes to the survey process to
further increase the accuracy and timeliness of DBA wage surveys and
wage determinations are still ongoing. Also, improvements to reports
used to assess the performance of both WHD analysts as well as the
overall program continue to be developed and implemented.
Process (Timeliness and Accuracy)
Prior to the 2011 GAO audit, WHD began reviewing survey processes
in the key areas in which there was substantial time expenditure by
staff (WHD and contract staff). Many of the large time expenditures
were reduced by IT improvements. For example, the time spent by WHD
survey analysts on administrative/clerical type functions was greatly
reduced when WHD modified the University of Tennessee contract, thereby
freeing WHD staff to concentrate on analysis and clarification of data.
Regional WHD analysts are now performing analysis and clarification of
data within two weeks of the receipt of such data. Despite a large
amount of data still being received on the survey cut-off date,
processing time is quicker than before because all other data is
reviewed and processed by the cut-off date. Currently, contractor,
third party, and on-site verification are being performed within an
average of six to eight months from survey cut-off date compared to the
12-15 months it took prior to 2010.
Early IT problems had caused a backlog of surveys awaiting on-site
verification, analysis, review, and publication. In 2005, there were 22
statewide surveys in WHD's Automated Survey Data System (ASDS) that had
been started in the years 2002 through 2004. This backlog of surveys in
the data system affected the start of new surveys. To remedy this,
changes were made to the IT program allowing cross-regional work and,
as a result, new surveys were started in 2007. Additionally, all of the
22 ``old'' surveys were completed and published either in FY 2009 or in
FY 2010.
Beginning in 2002, new statewide surveys were conducted of all four
types of construction (residential, highway, building, and heavy) in an
effort to maximize responses. Because they covered all four types of
construction at one time, the surveys were very large and clarification
and analysis became much more difficult. In 2009, WHD determined that
it would be more efficient for residential and highway surveys to be
conducted separately, while continuing to conduct building and heavy
construction statewide surveys concurrently because the same universe
of contractors are engaged in both building and heavy construction.
Additionally, most building construction is related to heavy
construction, i.e., site prep and utility infrastructure.
Concerning highway construction, because many state Department of
Transportation (DOT) offices conduct state surveys of highway
construction using the same payment data used by WHD in their surveys,
WHD contacted all state DOTs regarding state conducted highway
construction surveys to obtain their data and survey information. For
those states in which highway surveys were not conducted by the state,
WHD began working with those states to obtain certified payroll data so
that WHD could conduct the survey. Based on this effort, 33 states now
work with WHD to issue and maintain current prevailing highway wage
rates. Three states (Arkansas, Mississippi, and Utah) were surveyed by
WHD, and new highway rates were published in 2008. WHD will also
publish 11 statewide highway surveys funded under the Recovery Act in
2011 (Oklahoma, New Mexico, North Carolina, South Carolina, Nebraska,
Maine, Vermont, New Hampshire, Colorado, Louisiana, and Florida). WHD
will work with the state DOTs on the three remaining states (Kentucky,
Massachusetts, and Idaho) to obtain state data or conduct a survey in
2012. Also in 2012, WHD will schedule new highway surveys for Arkansas,
Mississippi, and Utah. Upon publication of these surveys, WHD will have
met its goal of having all surveys of highway construction completed
with results (wage rates) published within the last three years. WHD
will then develop a survey plan with a schedule of publishing rates for
17 states each year so that highway construction wage rates are based
on data no older than three years.
Residential surveys are the most difficult of all surveys to
conduct because the construction projects are small and the contractor
response rate is the lowest of all survey types. As a result, WHD
decided to conduct these surveys separately so that additional calls
and/or visits to contractors to solicit participation could be made.
WHD began its revised residential construction program in 2010 with a
statewide survey of Missouri. Residential surveys of Maine, Vermont,
New Hampshire, Maryland, Virginia, North Carolina, South Carolina,
Nevada, Washington, and Oregon will follow in 2011 and 2012.
Personnel
WHD has increased the number of both its Federal survey staff in
the regional offices as well as contract staff at the University of
Tennessee to provide support for the increased number of surveys and
the reduced timeframes in which surveys are to be concluded.
In 2006, the WHD national office established a new yearly training
program for all of the field offices in each region. Training is also
provided to University of Tennessee staff by WHD national office
personnel.
Additionally, WHD has drafted a new manual of operations. Once
approved, it will be posted on the WHD Intranet for use by staff as
well as on the agency's public website. Moreover, with each new update
to WHD's IT systems (WDGS and ASDS), a training guide is now also
prepared and training on the new release is provided to analysts. WHD
prepared a comprehensive user manual for each of the automated systems
in 2008. The manuals are updated with each release and are maintained
on the WHD Intranet.
Yearly planning meetings are held with the Regional Wage
Specialists (RWS), Senior Wage Analysts, and National Office staff.
Monthly conference calls are held with all regional and national office
staff. In addition, regular calls as well as on-site visits are made to
contractors.
Performance Measures
From 2004 through 2009, the only performance measure that WHD
reported for the Davis-Bacon Survey Program was related to the
processing of wage determinations submission (``WD-10'') forms, which
measured only how efficiently WHD staff processed the survey forms.
However, in 2006, WHD instituted additional performance measures for
this program to address the timeliness of the DBA wage survey and wage
determinations program. The age of wage rates, the period of time from
completion of the survey to publication, and the time required to
conduct surveys are now measured. Reports measuring these items are in
ASDS and WDGS and are calculated based on the work processes performed
in the system.
The 2011 GAO Report indicates that start dates are being entered
into the system differently by regions and, therefore, the ability to
accurately measure the survey timeliness is affected accordingly.
However, the surveys reviewed and discussed in the 2011 GAO report were
entered into ASDS in early January 2009, prior to the date when a new
survey time tracking report was implemented in the October 2009 ASDS
release. This accounts for the differences in reporting by the regions.
In the planned April 2011 release, ASDS will automatically populate the
fields when the region enters data so there will be uniformity in
reporting. This report, along with the analysts' time reports, will
allow WHD to monitor the processes in which large amounts of time are
being spent and allocate resources accordingly.
Analyst time tracking reports were incorporated into ASDS in 2009,
enabling supervisors to monitor the time spent by analysts in survey
processing and in specific tasks. Additionally, all WD-10s reviewed and
submitted by analysts are also reviewed by the senior wage analyst in
each region and feedback is given immediately to the analysts. All of
these initiatives have resulted in more accurate reporting of
information, allowing, among other things, WHD national office
personnel to monitor the time spent in specific survey activities.
Additionally, new performance standards were also developed for the FY
2010 rating cycle for WHD regional and national office survey and wage
determinations staff. These standards are closely aligned to the
agency's program performance goals and measures.
As documented in the foregoing, WHD has implemented numerous
changes over the last five years. As GAO acknowledges with respect to
timeliness, it is too early to assess the effects of Labor's 2009
changes. This is also true with respect to other process improvements
that WHD has implemented over the last two years. For building and
heavy construction, the new processes instituted in 2009 and 2010 broke
down the survey process for these types of construction into discrete
tasks and estimated how long each task should take, with a goal of
completing building and heavy surveys in a shorter period of time (19
months). There were five surveys in the pilot: Montana, Wyoming, North
Carolina, South Carolina, and West Virginia. The 2011 GAO Report states
that WHD is behind schedule in each of these surveys. The pilot program
was developed to test this process, refine it, and eventually meet the
estimated goal of 19 months. Of the nine building and heavy statewide
surveys started in 2009 with data collection cut-off dates from
December 31, 2009, to February 28, 2010, four surveys (Montana,
Wyoming, New Hampshire, and Vermont) are being published now; three
surveys (North Carolina, South Carolina, and Maine) will be published
in next two months; and two surveys (West Virginia and Nebraska) are in
on-site verification and will be published in the summer of 2011. This
is an average of 24 months from the time the survey was entered in the
system to publication and an average of 12 months from the survey cut-
off date to publication. This clearly indicates that WHD has
substantially reduced the time in every process as compared to five or
ten years ago. WHD continues to make improvements to the survey process
in order to reach its goal of a 19-month turn around time period.
In addition to conducting and completing all of the above surveys,
WHD conducted and completed a building, heavy, highway, and residential
survey of Guam in 2010, and a residential weatherization construction
survey of 50 states and Washington D.C. in 2009. The weatherization
construction survey in particular stands out as a significant
accomplishment for WHD as the agency completed it within 3 months. The
Department of Energy's weatherization program received $5 billion as a
result of the Recovery Act. The Recovery Act also applied Davis-Bacon
Act provisions to the program for the first time because Congress
wanted to assure that workers employed on Recovery Act-funded projects
were paid the legally mandated wages and benefits. WHD initiated and
completed the prevailing wage rate surveys during July and August 2009
and published weatherization rates for more than 3,000 counties by
September 3, 2009. After publication, it was discovered that due to the
inexperience of some community action agencies with the Davis-Bacon
survey requirements, some of the data submitted to WHD had errors. As a
result, WHD decided to re-verify all the submitted survey data to
ensure the data was accurate and reliable. WHD then published revised
prevailing wage rates for weatherization in December 2009.
Guam will continue to be surveyed every year in accordance with the
legal requirements concerning Federal construction projects on Guam.
The further reduction of survey time should continue as more and more
of the survey and wage determination processes are being automated and
improved.
As WHD conducts surveys more frequently in accordance with the new
processes outlined above, the age of the surveys addressed in the 2011
GAO Report with contractors and unions should be reduced. New wage
surveys of states surveyed in 2002 are already being conducted. Surveys
of Georgia, New Hampshire, Maine, and Vermont are currently being
conducted. Surveys of Florida, Utah, and Nevada are planned for late
2011.
The 2011 GAO Report also refers to the quality of representation
and responsiveness in WHD's survey results. WHD has already taken steps
to address this concern. Notably, the December 2010 ASDS release has
provided the capability to track responses for every contractor and
interested party, and the April 2011 release will give us additional
reporting capability. The automatic breakdown by construction type will
occur later in 2011. This will only affect building and heavy
construction surveys as they are conducted together as one survey.
However, as discussed in the 2011 GAO Report, since these efforts are
ongoing it is premature to assess their effectiveness at this time.
The 2011 GAO Report discusses the lack of incentive for
stakeholders to participate in the survey process. Despite an
aggressive outreach program to increase participation in the survey
process from all parties, including small contractors and their
associations, the Davis-Bacon survey is still a voluntary survey. See
29 CFR 1.3(a). Many of the shortcomings in the surveys arise from the
voluntary nature of the survey process.
There is also a discussion in the 2011 GAO Report about reporting
errors. The errors mentioned in the report were found in the data
verification process of the survey and typically (if not always)
resulted from errors in the information provided by survey respondents,
not from errors by WHD employees. WHD's survey submission form (WD-10)
asks responders to report on the multiple types of work performed by
each classification for which they are reporting data. WHD then bases
rates on the work performed by the classification. While the 2011 GAO
Report states that 19 of 27 interested parties (70%) interviewed by GAO
found the forms easy to use, WHD believes any confusion by any
stakeholder is undesirable. It is important to note, however, that many
of the errors discovered during on-site verification do not impact the
accuracy of the wage rates, such as recording the wrong name or address
of the contractor, or not reporting the correct contract amount. These
all get counted as errors but have no impact on the wage rates
themselves.
The 2011 GAO Report at page 27 indicates that errors may have
occurred because WHD did not pretest a redesigned form. However, this
form is not a new form. It is the old WD-10 data placed on a scannable
format. Over time there has been a substantial increase in electronic
wage determinations submissions; and therefore, a decision was made to
make changes to this format to allow respondents to save data, etc. so
as to ease the information collection process on the part of the
participant. As noted in the 2011 GAO Report, WHD has indicated that
another update is planned to address portions of the form that
respondents find confusing. These changes may only be implemented with
the approval of the Office of Management and Budget (OMB) in
coordination with the U.S. Census Bureau, and in conjunction with
changes to ASDS. The effectiveness of these changes cannot be assessed
until after implementation.
The 2011 GAO Report indicated that stakeholders found problems with
the transparency of the process. WHD agrees that greater transparency
would enhance the process and the agency has already identified a
number of improvements that could be implemented. These improvements
range from improvement to the WHD website, including additional
information on the surveys and survey data, to more descriptive
language on the wage determinations.
In every WHD wage survey, contact is made with unions and
contractor associations. For the Florida and New York surveys mentioned
in the 2011 GAO Report, the contractor associations did not respond to
WHD's offers of pre-survey briefings. WHD will continue to work with
the contractor associations, unions, and other interested parties to
increase participation and to solicit the necessary wage information.
As surveys are conducted more regularly, WHD anticipates that
participation in the pre-survey briefings and in the surveys themselves
will become routine for the stakeholders, thus decreasing confusion and
increasing overall response rates.
2011 GAO Recommendations
The 2011 GAO Report contains two recommendations for WHD. The first
recommendation suggests that the Secretary of Labor direct WHD to
enlist the National Academies or other independent statistical
organization to evaluate and provide objective advice on the wage
survey. WHD has previously enlisted McGraw Hill Construction Analytics,
a firm of leading industry economists with expertise in construction
analysis, trends, and forecasts, to assess WHD's process and
operations. The recommendations from McGraw Hill, which WHD provided to
the GAO auditor, have been implemented and are beginning to bear fruit.
Given that further changes to the process are currently being
implemented or will be implemented in the near future, contracting to a
different organization to evaluate the efforts of WHD may be premature,
especially in light of cost considerations. WHD will, nevertheless,
explore options for seeking independent evaluation of the survey
methodology and identify organizations or academics that may have
expertise in this area.
The second recommendation states that the transparency of wage
determinations needs to be improved. The wage determinations are housed
on the website ``WDOL.'' The WDOL website is the result of a
collaboration of the Department of Labor, OMB, National Technical
Information Service, General Services Administration, and Department of
Defense. Consequently, any changes to the Website must be made in
collaboration with these other entities and cannot be made unilaterally
by the Department of Labor. WHD, however, agrees with the
recommendation that the public should have more information to clearly
understand the information being requested and the calculations and
codes that are used on the wage determinations. As indicated above, WHD
is already undertaking steps to address these concerns.
DBA Enforcement and Compliance Assistance
In Fiscal Year (FY) 2010, in addition to focusing on reengineering
the Davis-Bacon Survey Program, WHD also increased and enhanced its DBA
enforcement and outreach activities, pursuing opportunities made
possible with funds from the Recovery Act to implement new enforcement
and outreach strategies with the objective of realizing Secretary
Solis' vision of Good Jobs for Everyone.
DOL's commitment to improving compliance for workers on DBA covered
construction projects is particularly important because the DBA does
not provide for a private right of action to collect prevailing wages
that are legally owed to them. Additionally, enforcement of the DBA
provisions, as stated earlier, ensures that wage rates in local
communities are not adversely impacted by an influx of workers who are
willing to work at wages below those paid in the local area.
Construction workers who work in high wage areas should not lose out on
opportunities to work on Federal projects in their communities because
workers from other areas are willing to take the jobs for less pay. The
infusion of Federal dollars into communities should never be the
trigger that depresses wages.
In FY 2010, WHD pursued an aggressive enforcement and outreach
program, targeting for DBA compliance 660 contractors and 51 projects
funded under the Recovery Act. In addition, WHD reinforced its policy
to accept third party complaints regarding DBA noncompliance. As a
result, in FY2010, WHD found over $7.4 million in back wage
compensation owed to 3,716 employees on DBA-covered projects.
Additionally, in FY 2010, WHD completed 1,087 DBA and Recovery Act
investigations. As a comparison, in FY 2008, WHD completed 406 DBA
investigations.
In part, WHD was able to achieve this measurable improvement after
creating a new Senior Investigator Advisor (SIA) position, deploying 33
existing investigators to serve as SIAs in various locations across the
country. These advisors were responsible for overseeing all Recovery
Act investigations, training, and coaching other WHD investigators in
DBA enforcement principles, and providing training and outreach to
various stakeholders in the Federal contracting community. Because
basic skills in DBA enforcement had diminished throughout the agency
over the last ten years, training was undertaken at various levels of
the organization on a nationwide basis.
WHD also expanded its efforts to educate contractors and workers
about their rights and responsibilities on DBA-covered work. To reach
as large an audience as possible, WHD conducted a series of free
Prevailing Wage Conferences on the laws and regulations applicable to
Recovery Act projects. Specifically, these conferences included program
seminars on the Davis-Bacon Act, the McNamara-O-Hara Service Contract
Act and the Fair Labor Standards Act; the process of obtaining wage
determinations and adding classifications; WHD's compliance and
enforcement processes; and the process for appealing wage rates,
coverage and compliance determinations.
The initial conferences in Washington, D.C.; Chicago; Orlando; Long
Beach; San Antonio and Boston were intended to reach all geographic
areas of the country. In FY 2010, WHD conducted three more Prevailing
Wage Conferences in Guam, New Orleans, and Cleveland. Altogether, total
registrations at these conferences exceeded 2,170. Due to the success
and positive response WHD received from these conferences, the agency
announced that it will host five more conferences in FY2011 in
Melbourne, FL; New York City; Phoenix; Denver; and Las Vegas.
In addition to the Prevailing Wage Conferences, WHD also increased
its specific outreach to employers and employer associations to provide
compliance assistance and education. The agency made presentations to
the National Association of Women in Construction, the Independent
Electrical Contractors, the Power and Communication Contractors
Association, the Professional Services Council, and the Associated
General Contractors of America, and met with 370 minority/women-owned
construction companies. WHD also developed a webpage dedicated to
providing all of our government contract stakeholders with up-to-date
compliance assistance materials regarding the DBA, SCA, and the
prevailing wage requirements under the Recovery Act.
In addition, WHD provided compliance assistance to various
contracting agencies and hundreds of contracting officers, and
responded to technical assistance requests from many prime contractors
and recipients of federal financial assistance awards, including grant
recipients of the U.S. Department of Agriculture and the U.S.
Department of Commerce for construction of fiber optic lines under the
Broadband USA program, as well as recipients and contractors performing
work under various Department of Energy programs, including the
Weatherization Assistance Program. WHD participated in outreach events
hosted by the President's Recovery Accountability and Transparency
Board including the production of a You Tube video that highlights DBA
requirements on Recovery Act funded projects. WHD also found
opportunities to conduct Recovery Act workshops and staff information
booths at broader events such as the 2010 DOL Informational and
Outreach forum at Rice University in Houston, TX.
On March 31, 2011, the DOL Office of the Inspector General (OIG)
published an audit of WHD's DBA wage determinations and enforcement
processes, particularly the agency's utilization of Recovery Act
funding. The objectives of the audit were to determine whether WHD: (1)
provided adequate compliance assistance/outreach to ensure Recovery Act
contractors and subcontractors complied with the DBA; (2) conducted
timely prevailing wage complaint and directed investigations, in
accordance with applicable policies and regulations; and (3) issued
timely and reliable prevailing wage determinations in response to the
Recovery Act, in accordance with applicable policies and regulations.
The OIG's published report validates WHD's efforts to improve
outreach, enhance enforcement of the DBA provisions, and reengineer the
Davis-Bacon Survey Program. Specifically, the OIG determined that: (1)
WHD outreach efforts were extensive and effective; (2) WHD used
Recovery Act funds to shift the overall focus of DBA investigations
using initiatives that have resulted in lasting improvements to the
investigation program; and (3) WHD conducted timely surveys and
established reliable prevailing wage determinations required by the
Recovery Act as illustrated by WHD's use of Recovery Act funds to
update 10 DBA highway surveys, and quickly issue rates for DOE's
weatherization program. The OIG did not make any recommendations for
improvement.
WHD has implemented program goals and objectives for FY 2011 that
will continue targeting Recovery Act project investigations for DBA
compliance, providing outreach opportunities for educating stakeholders
on the DBA requirements, and aggressively pursuing complaints of DBA
violations with an emphasis on targeting and debarring contractors who
commit repeat or serious DBA violations.
Conclusion
Secretary Solis has consistently stated that all of the work of the
Department of Labor is focused on achieving Good Jobs for Everyone. The
Labor Department's vision of a ``good job'' includes jobs that:
increase workers' incomes and narrow wage and income
inequality;
assure workers are paid their wages and overtime;
are in safe and healthy workplaces, and fair and diverse
workplaces;
provide workplace flexibility for family and personal
care-giving;
improve health benefits and retirement security for all
workers; and
assure workers have a voice in the workplace.
To achieve this goal, the Department is using every tool in its
toolbox, including increased enforcement actions, increased education
and outreach, and targeted regulatory actions. These unifying themes
seek to foster a new calculus that strengthens protections for workers
and results in significantly increased compliance.
Eighty years after its enactment, the Davis-Bacon and related Acts
continue to protect the wages of hard-working Americans as they build
our nation's infrastructure. In addition to providing a stable and fair
contracting environment for businesses that perform construction
covered by Davis-Bacon labor standards, the Acts ensure that
construction workers receive appropriate prevailing wages that
contribute to the quality of their lives and to the communities in
which they live.
WHD is doing its part in this endeavor by reengineering the Davis-
Bacon Survey Program and enhancing enforcement of the DBA requirements
to ensure workers are paid the wages they are legally owed and that the
injection of Federal construction funds into communities does not
depress the wages of the local workforce. These efforts help to
increase workers' incomes and narrow wage and income inequality, and
they ensure the sustainability of American's hard-working middle class.
Again, thank you for the opportunity to testify today. I am happy
to answer any questions the Subcommittee may have on the Department of
Labor's work to improve the accuracy and timeliness of DBA wage
determinations and to enhance DBA enforcement.
______
Chairman Walberg. Thank you, Mr. Markey.
Mr. Eisenbrey?
STATEMENT OF ROSS EISENBREY, ESQ., VICE PRESIDENT, ECONOMIC
POLICY INSTITUTE
Mr. Eisenbrey. Thank you, Mr. Chairman. Congress enacted
Davis-Bacon to assure workers on federal----
Chairman Walberg. Make sure your mic is on.
Mr. Eisenbrey. Congress enacted Davis-Bacon to assure
workers on construction projects a fair wage and to provide
local contractors a fair opportunity to compete. The
requirement to pay no less than locally prevailing wages is
absolutely essential to protect local standards and to prevent
competition based on low wages rather than on productivity,
efficiency and quality.
The act has achieved those goals for 80 years so it is easy
to forget its importance. Like many things in life it is only
when it is gone that we realize just how valuable its
protections really are. Hurricane Katrina is a case in point.
After the hurricane struck the Gulf coast President Bush
suspended the act by executive order. What happened?
Well, workers didn't get a fair wage because contractors
could bid the work at the minimum wage instead of the
prevailing wage. They brought in itinerant crews from outside
the Gulf Coast, even from outside the U. S., and paid rock-
bottom wages.
Workers, for example, were reportedly hired at $60.00 per
day, no benefits and a long workday. Local contractors were
underbid and got passed over at their hour of greatest need and
opportunity. They watched multi-nationals sweep in and take
millions of dollars of federal clean-up contracts. Finally
President Bush reinstated the act.
When local workers are hired there is a benefit to local
businesses beyond construction firms. Local workers spend
locally. Out of state crews take their wages with them. There
are huge regional and state variations in construction industry
pay just as there were in 1931. State hourly wages range from
about $18.00 in Alabama to about $36.00 in Alaska. Construction
wages in adjacent counties can also differ remarkably which is
why Davis-Bacon's preference for county-based wage
determination makes some sense.
Using OES data from the Bureau of Labor Statistics in the
Chairman's home state we see enormous differences between
Washtenaw County where electricians average about $34 and hour
and next door in Livingston County where they average about
$27. Tile and marble setters in Livingston County earn about
$32.00 an hour on average but next door in Genesee they earn
far less, about $22.00 an hour.
The Davis-Bacon Act serves another extremely important
purpose. It supports high quality training by encouraging the
operation of union apprenticeship programs and compelling the
non-union sector to try to compete.
The typical contractor has little incentive to invest in
skills training since the worker can carry that investment to
another employer. Unions overcome contractors' natural
reluctance to make the investment by compelling employers to
contribute to joint apprenticeship funds.
Every signatory contractor pays his fair share and benefits
equally from the training provided. The Davis-Bacon Act
incentivises (sic) these apprenticeships by permitting payment
of lower wage rates to employers enrolled in bone fide a
apprenticeship programs. Contractors can submit lower bids when
they employ bone fide a apprentices as part of their work
force.
Critics claim that the act raises the cost of construction
benefiting the workers at the expense of taxpayers. But a great
deal of empirical research refutes that. There have been
natural experiments--elegant natural experiments where states
have repealed their laws or passed laws and then you see what
happens following that change in state law. And it shows
without question that these laws do not raise construction
costs.
Higher wages lead employers to invest in labor saving tools
and equipment which increases productivity. Better paid, more
skilled workers are safer, work more efficiently and deliver a
better product.
Construction workers in states that have little Davis-Bacon
Act prevailing wage laws are 13 percent to 15 percent more
productive on average than construction workers in non-
prevailing wage states. Given that construction wages and
benefits are only about 30 percent of construction cost it is
easy to see how higher productivity offsets the increased cost
of prevailing wages.
The GAO does identify some problems. The surveys are not--
the response rates are not very good. And I have a couple of
ideas in addition to what GAO suggests which I think makes a
lot of sense. They should do more outreach. The Labor
Department should do more outreach.
They should use Webinars, they should get on the phone and
call contractors. They should really make an effort to get a
higher response rate. But there are other things that could be
done and two in particular I think make a lot of sense.
One would be to pay small employers--contractors--
especially ones who aren't bidders on contracts. Pay them $100
for their time to fill out the surveys. That would give them
the incentive--if he says there is no incentive or little
incentive now. That would give them an incentive.
The other thing that could be done--and I think this is
very important--is to amend the Federal Acquisition Regulations
to require that anyone who does work on a federal construction
contract has to respond. Mandate a response to any relevant
appropriate survey. That would, by itself, greatly increase the
response rate. Mr. Sherk will suggest using an alternative----
Chairman Walberg. Mr. Eisenbrey, your time is up.
Mr. Eisenbrey. I--just to sum up I would just say that
there are problems using the OES. It doesn't have benefits. I
think he recognizes that and the sample sizes are too small to
cover all of the classifications at the metropolitan survey
area.
[The statement of Mr. Eisenbrey follows:]
Prepared Statement of Ross Eisenbrey, Vice President,
Economic Policy Institute
Good morning, Mr. Chairman and members of the subcommittee. I am
Ross Eisenbrey, Vice President of the Economic Policy Institute, a non-
partisan think tank whose mission is to document the impact of the
economy on working and middle class families and to develop policies to
ensure shared prosperity.
The subject of today's hearing, the Davis Bacon Act and its
implementation by the Department of Labor, is important to middle class
Americans. The Act helps stabilize a sector of the economy which is
fundamental to our overall economic performance and which provides good
jobs to millions of non-college educated men and women.
Congress enacted the Davis Bacon Act to assure workers on federal
construction projects a fair wage and to provide local contractors a
fair opportunity to compete for construction contracts. The requirement
to pay no less than locally prevailing wages is essential to protect
local standards and to prevent competition based on low wages rather
than on productivity, efficiency and quality.
The Act has succeeded in those goals for 80 years, so it's easy to
forget its importance. Like many things in life, it's only when it's
gone that we realize just how valuable its protections really are.
Hurricane Katrina is a case in point. After the hurricane struck the
Gulf Coast, President Bush suspended the Act by executive order. What
happened?
Workers didn't get a fair wage because contractors could bid the
work at the minimum wage instead of the prevailing wage. They brought
in itinerant crews from outside the Gulf Coast--even from outside the
U.S.--and paid rock bottom wages. Roofers, for example were reportedly
hired at $60 per day.
Local contractors couldn't compete and got passed over at their
hour of greatest need and opportunity. Stories in the Baltimore Sun,
Atlanta Journal Constitution and New Orleans Times Picayune reported on
the unhappiness of local businesses that watched multinationals sweep
in and take millions of dollars of federal clean-up contracts. An
editorial in the Times Picayune under the headline ``Rebuilding effort
should be localized'' hit the nail on the head:
``[W]e are already moving quickly and boldly in the wrong
direction * * * [Y]ou can hardly entice [our citizens] back if
you're only willing to pay poverty wages. But in the wake of
the disaster, President Bush suspended the Davis-Bacon Act. * *
* In essence, there's no ceiling preventing sky-high profits
for these [out-of-state] contractors and not much of a floor to
ensure that wages to workers are not abysmally low. There is an
intelligent way to rebuild our city. This, however, isn't it.''
When local workers are hired there's a benefit to local businesses
beyond the construction firms themselves because local workers spend
locally. Out-of-state crews take their wages with them.
The importance of the locally prevailing wage requirement in the
Act goes beyond disaster situations, of course. There are huge regional
and state variations in construction industry pay, just as there were
in 1931. In 2010, we have data available for the hourly wage of all
workers in the construction industry by state in 43 states. They
averaged $24.54. However, the range of state hourly wages was quite
large: from a low of $18.33 in Alabama to a high of $36.15 in Alaska.
Five states had hourly wages in construction below $20 an hour
(Alabama, Arkansas, Maine, Mississippi, Texas), and six states' wages
were above $30 an hour (Alaska, Illinois, Massachusetts, New Jersey,
New York, Washington). Likewise, within-state differences can be
extreme.
Construction wages in adjacent counties can differ remarkably,
which is why the Davis-Bacon Act's preference for county-based wage
determinations makes sense. In the Chairman's home state, it's perhaps
no surprise that carpenters average $9 an hour more in urban Washtenaw
County than in rural Charlevoix County, according to BLS data (which do
not account for further differences in fringe benefits). But there are
enormous differences even between Washtenaw County, where electricians
average $33.71 an hour, and next door in Livingston County, where they
average $27.41. Tile and marble setters in Livingston County earn
$31.69 on average, whereas next door in Genessee County they earn far
less--$22.27 an hour.
The Davis Bacon Act serves another extremely important purpose that
was not foreseen by Congress in 1931. It supports high quality training
by encouraging the operation of union apprenticeship programs and
compelling the non-union sector to try to compete. The typical
contractor has very little incentive to invest in skills training since
the worker can carry that investment with him to another employer.
Unions overcome contractors' natural reluctance to make the investment
by compelling employers to contribute to joint apprenticeship funds:
every signatory contractor pays his fair share and benefits equally
from the training provided.
The Davis Bacon Act incentivizes apprenticeships by permitting
payment of lower wage rates to employees enrolled in bona fide
apprenticeship programs. Contractors can submit lower bids when they
employ bona fide apprentices as part of their workforce.
Critics claim these goals are achieved at too high a price, that
the Act raises the cost of construction, benefitting the workers at the
expense of taxpayers. But a great deal of empirical research refutes
the claim that prevailing wage laws inflate construction costs. Work by
Professors Peter Philips and Garth Magnum of the University of Utah, by
Prof. Dale Belman of Michigan State University, and Prof. Hamid Azari-
Rad of the State University of New York, among others, shows that
prevailing wage laws lift workers' wages and compensation without
significantly increasing construction costs.
Higher wages lead employers to invest in labor-saving tools and
equipment, which increases productivity. Better paid, more skilled
workers are safer, work more efficiently, and deliver a better product.
Prof. Philips has calculated that construction workers in states with
``little Davis Bacon'' prevailing wage laws are more productive, on
average, than construction workers in non-prevailing wage states. Their
value added is 13-15% higher per employee. Given that construction
wages and benefits are only about 30% of construction costs, it is easy
to see how higher productivity offsets the increased cost of prevailing
wages.
The GAO report
GAO makes three recommendations, one for Congress and two for the
Department of Labor:
1. Congress should consider giving DOL more flexibility in the
requirement that wage rates be issued by civil subdivision.
2. DOL should obtain expert advice on its survey design and
methodology.
3. DOL should take steps to increase transparency in its wage
determinations.
None of these recommendations is earth-shaking, and the report
makes clear that DOL is engaged in the process of making improvements.
The Department seems to be on the verge of ending a long period of
neglect, when many wage determinations were not updated for more than a
decade and the survey process itself was allowed to drag on
interminably. Highway surveys, for example, which have taken an average
of 42 months, will be completed in eight months.
GAO admits that it is too early to fully assess the effects of
changes DOL made in 2009, but it goes on to criticize the timeliness of
survey data nevertheless. It is important, however, to remember that
the use of older data usually means that wage rates are set lower than
would otherwise be the case. It is employees, first and foremost, who
pay the price for delays.
With respect to the first recommendation, it is clear that DOL
already has considerable flexibility in choosing the survey area for
wage determinations and uses it. If there aren't sufficient responses
in a county, DOL combines nearby counties in groups and super groups,
only resorting to statewide data when absolutely necessary. The large
use of statewide data in the four states GAO examined is an indication
that DOL needs to do more to improve the survey response rate.
As we saw earlier, there are very real differences, county by
county, in how construction workers are compensated. To prevent the
federal government from altering the market, wage determinations based
on surveys that perfectly reflect county wage patterns would be ideal.
The Bureau of Economic Affairs and the Bureau of Labor Statistics do
not collect and report wage data consistently at the county level for
all of the construction industry's occupational classifications. The
most direct solution is to improve the DOL surveys and collect more
complete information.
The surveys are voluntary, and that is a major source of the
response rate problem. Many reasons have been offered for the lack of
participation: some people don't understand the survey's importance,
others don't trust or want to assist the government, while others feel
they can't afford to take the time to respond. The oddest reason GAO
proffered was that some people think the surveys lead to inaccurate
wage determinations, even though their non-participation is a cause of
the inaccuracy they complain about.
GAO's recommendations for greater outreach and transparency seem
like obvious pieces of the puzzle. And I have trouble understanding
DOL's reluctance to seek expert advice on ways to increase the survey
response rate. The quality of the surveys depends on maximizing the
rate and accuracy of the responses. Getting help can never be
premature.
But two other solutions seem to be called for and could make a
bigger difference.
First, OMB could require as a precondition for bidding on federal
contracts that contractors participate in every relevant Davis-Bacon
survey. This would be a small price to pay for the privilege of working
on a federal construction project. And second, paying the respondents
for their time--even $100 per completed survey--might substantially
increase the response rate, especially among small businesses. I am
told the surveys actually take even a small contractor very little time
to complete--about 55 minutes for first-time filers, and less
thereafter.
Suggestions that DOL abandon the Davis Bacon Act survey process and
rely on the Bureau of Labor Statistics Occupational Employment
Statistics (OES) for wage determinations have been made for many years
and rejected after serious consideration. Among the many problems with
the OES are the fact that it doesn't collect benefits data--which can
make up 20% or more of a worker's compensation, and that its sample
size is much too small to report data at the county or even MSA level
on all of the construction occupations in each of the separate, key
market areas: residential, building, highway and heavy. There would be
considerable cost involved in redesigning the OES and increasing its
sample size, and even then it could not meet the statutory requirement
of determining the prevailing wage in the sense of identifying the
single wage paid to a majority of workers in the locality of the
construction, because the OES is an estimate constructed from a three-
year average of reported wages in various ranges.
______
Chairman Walberg. Thank you for your testimony.
Move on to Mr. Sherk.
STATEMENT OF JAMES SHERK, SENIOR POLICY ANALYST IN LABOR
ECONOMICS, THE HERITAGE FOUNDATION
Mr. Sherk. Chairman Walberg, ranking member Woolsey and
members of the sub-committee, thank you for inviting me to
testify. My name is James Sherk and I am a senior policy
analyst in Labor Economics at The Heritage Foundation. However,
the views I express in this testimony are my own and they
should not be construed as representing an official position of
the Heritage Foundation.
I want to explain to you this morning that the Wage and
Hour Division's prevailing wage estimates in our survey is
deeply flawed. And these flaws hurt both workers and taxpayers.
There are three facts about the Davis-Bacon survey that
Congress should be aware of. The first fact is that the Wage
and Hour division uses an unscientific methodology incapable of
accurately estimating prevailing wages. The importance of a
representative sample is a fundamental statistical principle.
Accurate estimates are impossible without them.
To see this just consider what would happen if Rush
Limbaugh polled his audience about whether President Obama
deserves reelection. Presumably an overwhelming majority would
say he does not. Would this mean the President is headed for a
landslide defeat? Not necessarily.
Limbaugh has a more conservative audience than the country
as a whole. Drawing conclusions from an unrepresentative sample
is unscientific and inaccurate. Nonetheless, that is what the
Wage and Hour Division does. Many businesses ignore the Davis-
Bacon Surveys and Wage and Hour does little to follow up with
them. The survey responders who do respond are
disproportionately large, unionized employers. Wage and Hour
does not apply the standard statistical corrections for this
problem, such as waiting and imputation.
As a result, 63 percent of Davis-Bacon wages are union
rates, while only 13 percent of construction workers belong to
a union. The Davis-Bacon survey is not a representative sample
and there is no reason to expect that it would reflect clear
wages. But even if Wage and Hour properly randomized its
survey, it is too few responses to be accurate. Surveys become
less accurate as their sample size drops. When the sample size
drops below 30, it becomes impossible to even estimate the
survey's margin of error.
No professional pollster would conduct a survey of 28
voters. If the GAO finds that three-quarters of Davis-Bacon
wage determinations are based on the wages paid to six or fewer
workers, only one-quarter of them are based on wages paid to
six or fewer workers. These small sample size make the results
meaningless. The Davis-Bacon survey methodology is
unscientific. Only by chance will it report clear wages. The
second fact that Congress should know is that Davis-Bacon
surveys are highly inaccurate.
When Labor puts garbage in, they get garbage out. Now in
most cities, these errors inflate Davis-Bacon rates--wages
above market rates. For example, plumbers in Jackson, Michigan
earn $28 an hour. But the Davis-Bacon rates there are $33 an
hour, a 16 percent premium.
Electricians in Sonoma County, California earn $20-odd an
hour, but Davis-Bacon rates there are $44 an hour, 54 percent
higher. But in other cities, Davis-Bacon rates are well below
market wages.
In Spartanburg, South Carolina the Wage and Hours Division
contends that carpenters there earn federal minimum wage of
$7.25 an hour. That is less than half of what they actually
make.
Nationwide, Davis-Bacon rates are 22 percent above market
pay, and this inflates the cost of federal construction by
about 10 percent. These inaccuracies have caused the government
to hire four construction workers for the price of five,
hurting both workers and taxpayers.
Accurate data would reduce the deficit and allow Congress
to build more construction without additional appropriations.
This would create extra jobs for tens of thousands of
unemployed construction workers without diverting resources
from productive sectors of the economy.
The third fact that Congress should keep in mind is that
the Bureau of Labor Statistics estimates prevailing wages much
more accurately than what the Wage and Hour Division does.
Wage and Hour is an enforcement agency, its job is to
enforce federal laws like the Family and Medical Leave Act, or
the Minimum Wage. It has no expertise in surveying wages and
that is why you got such a bad methodology. The Bureau of Labor
Statistics has exactly this--this expertise.
That is why it exists. BLS methodology, accuracy and data
quality are internationally respected. Now The Bureau of Labor
Statistics already conducts two nationwide occupational wage
surveys. Unlike the Davis-Bacon survey, these surveys are based
on representative samples.
They have large sample sizes and are updated annually. They
are scientific. They are accurate. That is why the Department
of Labor already uses these surveys to enforce prevailing wages
for the Foreign Labor Certification Program and for the Service
Contract Act. The chief obstacle to using BLS data is
calculating hourly fringe benefit rates as required by the act.
No existing nationwide survey covers employee benefits at the
local level.
This problem could be solved either by expanding the
geographic scope of the National Compensation Survey or by
collecting information on construction benefits through the
Occupational Employment Statistics Survey. If Congress wants
accurate prevailing wage rates, it should direct the Bureau of
Labor Statistics to calculate them.
Thank you. I appreciate the opportunity to talk to you
today about the deep flaws with the Davis-Bacon survey and how
it hurts both workers and taxpayers.
[The statement of Mr. Sherk follows:]
Prepared Statement of James Sherk, Senior Policy Analyst in Labor
Economics, the Heritage Foundation
Chairman Walberg, Ranking Member Woolsey, and members of the
Subcommittee on Workforce Protections, thank you for inviting me to
testify before you today. My name is James Sherk and I am a senior
policy analyst in labor economics at The Heritage Foundation. The views
I express in this testimony are my own, and should not be construed as
representing any official position of The Heritage Foundation.
The GAO has identified many severe flaws in the process used to
calculate Davis-Bacon prevailing wages. However, two aspects of the
Department of Labor's methodology are particularly problematic: the use
of a non-representative sample and excessively small samples. These
errors render Davis-Bacon wage estimates scientifically meaningless.
As a result of these flaws, Davis-Bacon wages vary wildly from
market rates. In some states, such as South Dakota, Davis-Bacon rates
are below market rates. In other states, such as California, Davis-
Bacon rates are well above market wages. On average, the Davis-Bacon
rates are 22 percent above market wages.
These errors hurt both workers and taxpayers. My estimates show
that paying true prevailing wage rates--instead of inaccurate Davis-
Bacon rates--would reduce government construction costs by $10.9
billion this year. Those savings could be used to either reduce the
deficit or build more infrastructure at no additional cost to the
public. The latter choice would mean jobs for an additional 155,000
construction workers.
Congress should insist that the Department of Labor produce
scientific and accurate estimates of prevailing construction wages. The
best way to do this is by transferring the resources and responsibility
for conducting Davis-Bacon surveys to the Bureau of Labor Statistics.
The Bureau of Labor Statistics has expertise in producing scientific
wage estimates and could meet this responsibility by expanding its
existing compensation surveys. The Department of Labor has no excuse
for relying on unscientific and error-riddled prevailing wage
estimates.
The Davis-Bacon Act
The Davis-Bacon Act (DBA) requires contractors on federally funded
construction projects to pay their employees at least as much as other
construction workers in the area earn--the ``prevailing wage.'' This
prevents construction contractors from winning federal construction
projects by bringing in outside workers earning below local wages.
Congress passed the Davis-Bacon Act in 1931 to prevent African-
American workers from underbidding white union members on federal
construction projects.\1\ During the Great Depression many African-
Americans moved to the North to search for employment opportunities. In
many cases they won federal construction contracts that would have
otherwise gone to white union members. The Davis-Bacon Act
intentionally made it much more difficult for minorities to compete
against white workers for these jobs.\2\
Despite this origin, the Davis-Bacon Act remains on the books and
applies to almost all federally funded construction projects. The Wage
and Hour Division (WHD) of the Department of Labor estimates the local
prevailing wages that federal contractors must pay.
Unscientific Survey Methodology
The Government Accountability Office (GA) and the Office of
Inspector General have frequently criticized the Wage and Hour
Division's survey methodology.\3\ A recent GAO report finds that
serious flaws persist with Davis-Bacon surveys.\4\ Some of these
problems can be solved by improving existing methods. These include
processing delays and confusing surveys that lead to high error rates
in returned forms.
However, the most significant problem with Davis-Bacon rates is the
WHD methodology itself. The Wage and Hour Division uses unscientific
methods to estimate construction wages. The GAO criticized WHD for not
consulting with survey experts to design its survey and this lack of
expertise shows.\5\
Two fundamental flaws render WHD wage estimates scientifically
invalid. First, WHD does not calculate Davis-Bacon wages using a
representative sample. The importance of a representative sample is a
fundamental statistical principle. A non-representative sample of wages
reveals nothing about true prevailing wage rates.
Second, WHD bases the majority of its wage estimates on too few
responses to be accurate. GAO reports that only one-quarter of Davis-
Bacon wages are based on estimates of 29 or more workers. Fully 26
percent of Davis-Bacon estimates are based on the wages paid to six or
fewer workers. Even if WHD properly randomized its surveys, these small
sample sizes would make the results meaningless.
The WHD survey methodology is unscientific and incapable of
accurately estimating construction wages. It will only approximate
market pay by chance.
Representative Samples
Professional statistical agencies estimate statistics by conducting
surveys. The Bureau of Labor Statistics (BLS) does not have to
interview every business every month to determine how many jobs the
economy created. Instead it surveys a representative sample of
businesses. Statistical agencies achieve representative samples through
random sampling. Using statistical principles they can extrapolate from
a randomly sampled survey to the overall economy.
Without a representative sample surveys say nothing about the
overall economy. As Nobel Prize-winning economist James Heckman has
noted, ``Wage or earnings functions estimated on selected samples do
not in general, estimate population wage functions.''6 Any introductory
statistics text will make the same point.\7\
Non-representative samples are not scientifically valid. They only
provide information about those who respond to the survey. They provide
no statistical information about wages or other aspects of the overall
economy.
To see this, consider if Rush Limbaugh and Rachel Maddow hosted on-
air polls about whether President Obama should be re-elected. Rush
Limbaugh has a much more conservative audience than the country as a
whole. He would probably find an overwhelming majority of respondents
wanting to see Obama defeated. Rachel Maddow has a much more liberal
audience than the country as a whole. Her viewers would probably say
overwhelmingly that Obama deserves a second term. These straw-polls
might provide interesting information about the audience of the Rush
Limbaugh and Rachel Maddow shows, but they would provide no useful
information about President Obama's actual re-election prospects.
Concluding that President Obama was headed for a landslide defeat or
landslide victory based on a non-representative survey would be
unscientific and inaccurate.
Davis-Bacon Survey Is Self-Selected
A representative sample is unnecessary if the government knows the
wages of every worker. Then the government could calculate average
wages directly without generalizing from a sample. The Wage and Hour
Division purports to have this information for construction workers.
WHD sends surveys to every construction firm in a given region.\8\ WHD
bases Davis-Bacon wages on the responses to this ``census.'' This will
provide scientifically valid wage figures--if every business responds.
However, most businesses do not return Davis-Bacon wage surveys.
Davis-Bacon surveys take considerable time and effort to complete and
many contractors do not expend staff resources to complete them.\9\ The
surveys also ask for information in a form that many construction
companies do not track.\10\ If contractors do not respond to the
survey, WHD sends them a follow-up letter asking them to complete the
forms.\11\ If that letter goes unanswered, they are ignored.
This methodology leads to very high non-response rates. Response
rates are so low that WHD reduced its minimum data standards to wages
of three workers from two companies. Too few employers responded to
meet the old standard of data on six workers from at least three
employers.\12\ Those employers who do respond tend to be those with
large staffs. Unions also devote considerable effort to facilitate
unionized employers completing and returning the surveys.\13\
Consequently, Davis-Bacon rates are based on neither a
representative sample nor a universal census of construction workers.
They are based on a self-selected sample of large, unionized
businesses. The GAO report confirms this. Nationwide only 13.7 percent
of construction workers are covered by union contracts.\14\ Nonetheless
63 percent of Davis-Bacon rates are collectively-bargained union wage
rates.\15\ Union rates are more than four and a half times more common
in the WHD survey than would occur in a representative sample. The
Davis-Bacon survey is far from representative.
As a result it is scientifically useless. Accurate estimates of
prevailing construction wages cannot be made from a non-representative
sample. Davis-Bacon rates will only approximate actual prevailing wages
by chance.
Statistical Corrections Ignored
Professional statistical surveys do not suffer from these problems.
The Bureau of Labor Statistics, for example, does not estimate job
creation by conducting a census of all employers. Instead BLS selects a
smaller sample of businesses and takes several steps to make that
sample representative.
First the BLS strives to make its surveys as easy as possible to
understand and complete. They test their surveys with employers before
they put them in the field to ensure ease of use. The Wage and Hour
Division does not do this.\16\
Second, professional statistical agencies like the BLS follow up
with employers who do not initially respond. This includes telephone
calls and in some cases on-site visits to collect the required
information.\17\
As a result of these measures BLS surveys have high response rates.
For example, 78.4 percent of employers respond to the Occupational
Employment Statistics survey.\18\ These high responses help make BLS
surveys representative of the overall population.
Third, professional statistical agencies do not ignore employers
that do not respond. Instead they make adjustments to correct for their
absence. The two principle adjustments statistical agencies make are
weighting and imputation.
Weighting involves adjusting the importance given to the
respondents of the survey based on how likely they are to respond.
Those groups who were more likely to respond count for less and vice
versa. Pollsters do this on a regular basis. For example, a pollster
might survey a state and get a sample with 60 percent men and 40
percent women. In fact that state has equal numbers of men and women--
women simply responded in lower numbers. The pollster would adjust the
weight given to men and women's responses so that both groups
contributed equally to the final results. Statistical agencies weight
responses by variables like firm size so that large businesses are not
overrepresented.\19\
Imputation involves substituting a missing response with a response
from a similar respondent or respondents. For example, if a small
construction firm does not return the Occupational Employment
Statistics survey the BLS does not assume that there are not any
workers. Instead the BLS would randomly select another nearby small
construction firm that did respond and treat its response as the
response of the missing firm.\20\ This introduces some error into the
sample--but much less error than by completely ignoring non-responders.
The Wage and Hour Division does not weight Davis-Bacon survey
responses or impute missing data. The Wage and Hour Division does not
conduct any analysis at all of contractors who do not respond.\21\ WHD
does not take basic statistical steps to obtain a representative
sample. Their methodology has no scientific justification.
Inappropriately Small Samples
The Davis-Bacon methodology suffers from a second fundamental
scientific flaw. Even with a proper representative sample the Wage and
Hour Division surveys too few workers to make statistically accurate
estimates.
Averages in a representative sample are unlikely to exactly match
the average in the overall economy. The power of statistical inference
is that it allows researchers to estimate their margin of error. The
sample may not exactly match the overall population, but researchers
can determine how far off they are likely to be.
As sample size decreases, surveys become less accurate and their
margin of error increases. For example, a representative poll of 1,000
Americans has a margin of error of +/- 3.1 percent while a poll of 100
Americans has a margin of error +/- 10.0 percent.\22\
If sample sizes become too small, however, estimating even the
margin of error becomes impossible. Statistical inference is based on
the central limit theorem.\23\ The central limit theorem only applies
to samples of sufficiently large size, in most cases requiring a sample
of at least 30 observations.\24\ Researchers cannot estimate how
inaccurate the results of smaller samples are.
The Wage and Hour Division routinely uses samples of less than 30
workers. The GAO found that only 25 percent of Davis-Bacon rates are
based on data from 29 or more workers. A greater proportion of wage
rates (26 percent) are based on data from 6 or fewer workers.\25\
Even a properly randomized representative sample of 6 workers would
be too small from which to make statistical inferences. No professional
pollster would conduct a survey of 6 voters.
The WHD minimum data standards are observations on three workers
from two employers. That minimum standard should be data on at least 30
randomly selected workers. The Wage and Hour Division's existing
methodology lacks statistical validity.
Inaccurate Wage Determinations
The Wage and Hour Division uses unscientific methods and
unrepresentative data to estimate prevailing wages. Unsurprising,
Davis-Bacon rates typically bear little relation to actual prevailing
wages. The table below shows Davis-Bacon and market wages (estimated by
the Bureau of Labor Statistics) for several U.S. cities.\26\ The
appendix to this testimony explains the methodology for these
comparisons. Davis-Bacon rates vary wildly from actual market pay.
For most cities, Davis-Bacon rates are well above market wages.
Plumbers in Jackson, Michigan, earn $28.23 an hour, but their Davis-
Bacon rates are $32.79 an hour--a 16 percent premium. Carpenters in the
Twin City region in Minnesota earn $23.92 an hour, but the Wage and
Hour Division requires federal contractors to pay $31.77 an hour--a 33
percent premium. Electricians in Sonoma County, California, earn $28.55
an hour, but Davis-Bacon rates are 54 percent higher at $44.00 an hour.
In some cities, however, the Wage and Hour Division's flawed
methodology reports Davis-Bacon rates below prevailing market wages.
Davis-Bacon rates for plumbers in Sioux Falls, South Dakota, are 17
percent below market wages. The Wage and Hour Division contends that
prevailing wages for electricians in Spartanburg, South Carolina, are
only $7.85 an hour--55 percent below their actual level of $17.47 an
hour. Davis-Bacon rates for carpenters in Spartanburg are even worse--
the federal minimum wage of $7.25 an hour.
Nationwide the Wage and Hour Division reports Davis-Bacon wages
that average 22 percent above actual market pay. These inaccurate rates
inflate the cost of federal construction projects by 9.9 percent.\27\
DAVIS-BACON AND MARKET RATES FOR VARIOUS CITIES
------------------------------------------------------------------------
%
Market Davis-Bacon Difference
------------------------------------------------------------------------
Jackson County, MI:
Carpenters................... $20.98 $23.89 13.90%
Electricians................. $27.14 $38.57 42.10%
Plumbers/Pipe-fitters........ $28.23 $32.79 16.20%
Minneapolis-St. Paul, MN:
Carpenters................... $23.92 $31.77 32.80%
Electricians................. $29.44 $34.56 17.40%
Plumbers/Pipe-fitters........ $33.06 $36.62 10.80%
Sioux Falls, SD:
Carpenters................... $15.57 $12.17 -21.8%
Electricians................. $19.38 $23.61 21.80%
Plumbers/Pipe-fitters........ $17.56 $14.57 -17.0%
Erie County, PA:
Carpenters................... $16.89 $26.23 55.30%
Electricians................. $23.72 $26.40 11.30%
Plumbers/Pipe-fitters........ $22.54 $33.38 48.10%
Sonoma County, CA:
Carpenters................... $26.88 $37.65 40.10%
Electricians................. $28.55 $44.00 54.10%
Plumbers/Pipe-fitters........ $29.71 $55.25 86.00%
Lafayette, IN:
Carpenters................... $18.46 $25.32 37.20%
Electricians................. $24.84 $30.83 24.10%
Plumbers/Pipe-fitters........ $21.23 $33.91 59.70%
Terre Haute, IN:
Carpenters................... $19.75 $26.16 32.50%
Electricians................. $27.20 $32.95 21.10%
Plumbers/Pipe-fitters........ $26.81 $33.91 26.50%
Spartanburg County, SC:
Carpenters................... $15.40 $7.25 -52.9%
Electricians................. $17.47 $7.85 -55.1%
Plumbers/Pipe-fitters........ $20.48 $7.36 -64.1%
Polk County, FL:
Carpenters................... $15.37 $15.19 -1.2%
Electricians................. $17.62 $22.07 25.30%
Plumbers/Pipe-fitters........ $18.31 $17.00 -7.2%
Contra Costa and Alameda
Counties:
Carpenters................... $28.96 $37.65 30.00%
Electricians................. $35.46 $45.20 27.50%
Plumbers/Pipe-fitters........ $32.85 $50.81 54.70%
Newark and Union, NJ:
Carpenters................... $26.57 $39.07 47.00%
Electricians................. $33.57 $46.63 38.90%
Plumbers/Pipe-fitters........ $29.54 $45.04 52.50%
Cleveland-Elyria-Mentor, OH:
Carpenters................... $20.89 $28.37 35.80%
Electricians................. $26.01 $33.91 30.40%
Plumbers/Pipe-fitters........ $27.73 $31.43 13.30%
Nassau-Suffolk, NY:
Carpenters................... $28.62 $37.21 30.00%
Electricians................. $30.76 $44.75 45.50%
Plumbers/Pipe-fitters........ $31.49 $49.98 58.70%
Honolulu County, HI:
Carpenters................... $31.61 $36.20 14.50%
Electricians................. $32.86 $39.75 21.00%
Plumbers/Pipe-fitters........ $26.95 $35.60 32.10%
------------------------------------------------------------------------
Source: Heritage Foundation calculations using data from the Department
of Labor, Bureau of Labor Statistics and Wage and Hour Division, as
explained in the appendix.
Harmful Consequences
These inaccurate Davis-Bacon rates harm both workers and taxpayers.
In most cities Davis-Bacon rates unnecessarily raise construction
costs. In essence the government hires four construction workers for
the price of five. The construction workers fortunate enough to work on
a federal project no doubt appreciate this premium. However, these
inaccuracies will inflate the cost of federally funded construction
projects by $10.9 billion this year.\28\
In other cities the Davis-Bacon inaccuracies depress market pay.
Davis-Bacon rates are minimum wages, so below-market determinations do
not force contractors to pay substandard wages. They do, however,
encourage contractors to reduce their bids--putting downward pressure
on wages.
If the Department of Labor used accurate wage determinations,
Congress could build the same amount of infrastructure at substantially
lower cost. The savings from paying market wages would reduce the
deficit.
Alternatively, accurate wage determinations would allow Congress to
build more infrastructure at no extra cost to taxpayers. This would
enable the government to provide more public services and employ an
additional 155,000 construction workers in 2011.\29\ This is not a
minor consideration when unemployment in the construction industry is
above 20 percent. If Congress is going to keep the Davis-Bacon Act on
the books it should require the Department of Labor to estimate
prevailing wages scientifically. Taxpayers receive no value from
overpaying some workers and underpaying others.
Bureau of Labor Statistics
The Wage and Hour Division estimates prevailing wages so poorly
because it is not a professional statistical agency. The Wage and Hour
Division is an enforcement agency. WHD enforces federal laws regulating
wages and many working conditions, such as minimum wages, prevailing
wages, child labor, overtime, and the Family and Medical Leave Act. WHD
has no expertise in conducting scientific wage surveys.
The Bureau of Labor Statistics does. The BLS has extensive
experience in conducting scientific wage surveys. Bureau of Labor
Statistics methodology, accuracy, and data quality are internationally
respected. They have the expertise in scientifically estimating wages
that the Wage and Hour Division lacks.
The Bureau of Labor Statistics already conducts two nationwide wage
surveys that scientifically estimate occupational wages: the National
Compensation Survey (NCS) and the Occupational Employment Statistics.
Unlike the WHD survey, these surveys have high response rates and BLS
corrects for non-response with weighting and imputation. Both surveys
have large sample sizes, are conducted in a timely manner, and are
updated annually. The Department of Labor uses OES data to enforce
prevailing wages for the Foreign Labor Certification program and the
Service Contract Act. If Congress wants accurate Davis-Bacon rates it
should require the Department of Labor to use BLS data.
Better Geographic Coverage
The Department of Labor previously rejected the idea of using BLS
data. One of the reasons they gave for doing so was concerns about
BLS's geographic coverage. While the Wage and Hour Division issues
Davis-Bacon rates for individual counties, the Bureau of Labor
Statistics reports wages for Metropolitan Statistical Areas (MSAs).
Some large counties are their own MSA, but most MSAs are agglomerations
of multiple economically linked counties.
The Davis-Bacon Act states: ``The minimum wages shall be based on
the wages the Secretary of Labor determines to be prevailing for the
corresponding classes of laborers and mechanics employed on projects of
a character similar to the contract work in the civil subdivision of
the State in which the work is to be performed, or in the District of
Columbia if the work is to be performed there.'' \30\
The GAO argues that this provision prevents the Department of Labor
from estimating prevailing wages at the MSA level. The Wage and Hour
Division disagrees with this legal analysis. In response to a 2004
Inspector General report, the Wage and Hour Division stated that ``the
Davis-Bacon Act does not prohibit issuing wage determinations for
broader geographic areas such as an MSA, and we routinely issue such
wage determinations when sufficient data are not available on a county
basis.'' \31\
The GAO report reveals just how routine those broader geographic
determinations are. Only 11 percent of Davis-Bacon rates are based on
data from a single county. Forty-two percent of Davis-Bacon rates are
based on groupings of counties analogous to an MSA, while 40 percent of
job classifications are based on statewide data.\32\
Switching to BLS data at the MSA level would eliminate wage
determinations based on statewide data. This would much more closely
approximate prevailing local wages than the WHD currently does.
Steps Forward
Congress should transfer responsibility for collecting Davis-Bacon
prevailing wage data to the Bureau of Labor Statistics. The OES already
provides annual wage data for most construction jobs across the
country. WHD could currently use OES wage data to set Davis-Bacon wage
rates. The chief obstacle to using OES data is calculating hourly
fringe benefit rates as required by the Davis-Bacon Act--the OES does
not cover employee benefits.
The National Compensation Survey covers benefits and the WHD
determined that the NCS provides the information necessary to enforce
the Davis-Bacon Act in the areas that it surveys.\33\ However, the NCS
provides local wage information for only 154 metropolitan and non-
metropolitan statistical areas. These MSAs cover just half of the U.S.
population. Consequently, neither the OES nor the NCS directly provides
all of the information necessary to enforce the Davis-Bacon Act.
These problems are solvable. To calculate prevailing construction
benefits the Bureau of Labor Statistics could:
Expand the National Compensation Survey. The BLS could
expand the construction portion of the NCS to provide nationwide
coverage of construction workers. The Inspector General suggested this
approach in 2004.\34\
Collect Construction Benefits with the OES. The BLS could
collect benefits data from construction employers through the OES. This
would require overhauling the OES survey and would take some time to
set up and train staff to conduct properly.
Econometrically Model Benefits. A third approach involves
using NCS data to econometrically model the relationship between wages
and benefits in the construction industry. That model could be applied
to the existing OES data to estimate fringe benefits for different
construction occupations.
These solutions are not trivial undertakings. They would require
Congress to transfer the resources for conducting Davis-Bacon surveys
from WHD to the BLS. However, if Congress did so the BLS could do what
the WHD does not: scientifically and accurately estimate prevailing
construction wages.
Conclusion
The Department of Labor's methods for calculating prevailing
construction wages are scientifically unsound. The Government
Accountability Office report demonstrates that the Wage and Hour
Division calculates Davis-Bacon rates with a self-selected sample
instead of a representative sample. Non-representative samples do not
provide reliable information. WHD does not use basic statistical
techniques, such as measuring non-response and weighting their data to
mitigate this bias. Even if WHD did use a representative sample they
have too few responses to be accurate.
Unsurprisingly, Davis-Bacon rates bear little correlation to market
wages. In some cities they are below market rates, while in others they
are well above market rates. On average, Davis-Bacon rates are inflated
22 percent above market pay. These inaccuracies hurt both workers and
taxpayers.
Congress already spends $600 million a year on another agency with
professional expertise in calculating labor market statistics: the
Bureau of Labor Statistics. BLS surveys do not suffer from the
methodological shortfalls that plague WHD prevailing wage estimates.
The BLS is internationally respected for conducting scientific and
accurate surveys. If Congress wants accurate Davis-Bacon surveys it
should direct the Bureau of Labor Statistics to conduct them.
appendix
Bureau of Labor Statistics (BLS) and Wage and Hour Division (WHD)
wage estimates are not directly comparable. To report comparable wage
rates, The Heritage Foundation was guided by the methodology outlined
by the Beacon Hill Institute on their comprehensive report comparing
market and Davis-Bacon wages.\35\
Market wage data come from the Occupational Employment Statistics
program within the BLS. This data can be found online at http://
www.bls.gov/oes/. Data on Davis-Bacon wages came from the U.S.
Government Printing Office, ``Davis-Bacon Wage Determinations,'' at
http://www.gpo.gov/davisbacon.
Three job categories were selected for comparison: carpenters,
electricians, and plumbers/pipefitters. The Davis-Bacon rate for each
category was determined as follows. The Davis-Bacon rates for
``Building'' construction were identified from the online postings.
Davis-Bacon rates often specify wages for general and specific tasks
within an occupation. There may be wages for general ``electricians,''
but also separate rates for electricians who perform specialized tasks.
In these cases, the wages of the most general category was selected.
The BLS and WHD estimate wages for different geographic areas. The
WHD issues wage rates at the county level, while the OES estimates
wages for metropolitan statistical areas. The Heritage Foundation used
county-level Davis-Bacon wages to create MSA-level Davis-Bacon wage
rates. In MSAs with only one county, Davis-Bacon rates were calculated
as explained above and directly compared to BLS data. In MSAs with
multiple counties, Davis-Bacon rates were calculated separately for
each county. A weighted average of Davis-Bacon rates was constructed,
using as weights the relative population of each county according to
Census Bureau estimates from the year 2009, which can be found online
at http://quickfacts.census.gov/qfd/index.html. This weighted average
was the final Davis-Bacon rate compared to BLS data.
In a few cases, the Davis Bacon rate is not the same for the entire
county--for example, a certain occupation's wage rate may vary for
different geographic regions within a single county. In these cases,
The Heritage Foundation used the rate from the most populous part of
the county.
MSAs examined and their constituent counties:
MSA: Jackson, MI MSA
Counties: Jackson County
MSA: Minneapolis--St. Paul-Bloomington, MN--WI MSA
Counties: Anoka County, MN; Carver County, MN; Chisago County, MN;
Dakota County, MN; Hennepin County, MN; Isanti County, MN; Ramsey
County, MN; Scott County, MN; Sherburne County, MN; Washington County,
MN; Wright County, MN; Pierce County, WI; St. Croix County, WI
MSA: Sioux Falls, SD MSA
Counties: Lincoln County, McCook County, Minnehaha County, Turner
County
MSA: Erie, PA MSA
County: Erie County
MSA: Santa Rosa--Petaluma, CA MSA
County: Sonoma County
MSA: Lafayette, IN MSA
Counties: Benton County, Carroll County, Tippecanoe County
MSA: Terre Haute, IN MSA
Counties: Clay County, Sullivan County, Vermillion County, Vigo
County
MSA: Spartanburg, SC MSA
County: Spartanburg County
MSA: Lakeland--Winter Haven, FL MSA
County: Polk County
MSA: Oakland--Fremont--Hayward, CA MSA
Counties: Alameda County, Contra Costa County
MSA: Newark--Union, NJ--PA MSA
Counties: Essex County, NJ; Hunterdon County, NJ; Morris County,
NJ; Sussex County, NJ; Union County, NJ; Pike County, PA
MSA: Cleveland--Elyria--Mentor, OH MSA
Counties: Cuyahoga County, Geauga County, Lake County, Lorain
County, Medina County
MSA: Nassau--Suffolk, NY MSA
Counties: Nassau County, Suffolk County
MSA: Honolulu, HI MSA
County: Honolulu County
endnotes
\1\ See, for example, statements made during the Congressional
debate. ``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.'' Rep. John Cochran,
Employment of Labor on Federal Construction Work, Hearings on H.R. 7995
and H.R. 9232 Before the House Committee on Labor, 71st Congress, 2nd
Session, March 6, 1930, p. 26--27. See also Rep. Clayton Allgood:
``Reference has been made to a contractor from Alabama who went to New
York with bootleg labor. This is a fact. 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.'' Legal compilation; ``Statutes and Legislative History,
Executive Orders, Regulations, Guidelines and Reports,'' Part 1,
Volumes 3-4, U.S. Environmental Protection Agency, 1973, p. 1688.
\2\ It still has this effect. States that repeal their own
prevailing wage laws see the the earnings of African-American
construction workers rise and the earnings of unionized white
construction workers fall. See Daniel Kessler and Lawrence Katz,
``Prevailing wage laws and construction labor markets,'' Industrial and
Labor Relations Review, vol. 54(2), pages 259-274, January 2001.
\3\ U.S. Department of Labor, Office of Inspector General,
``Concerns Persist with the Integrity of Davis-Bacon Act Prevailing
Wage Determinations,'' Report No. 04-04-003-04-420, March 30, 2004, pp.
12--13, at http://www.oig.dol.gov/public/reports/oa/2004/04-04-003-04-
420.pdf (April 13, 2011); U.S. Department of Labor, Office of Inspector
General, ``Inaccurate Data Were Frequently Used in Wage Determinations
Made Under the Davis-Bacon Act,'' Report No. 04-97-013-04-420, March
10, 1997, at http://www.oig.dol.gov/public/reports/oa/pre--1998/04-97-
013-04-420s.htm (April 13, 2011); and U.S. General Accounting Office,
Davis-Bacon Act: Labor Now Verifies Wage Data, but Verification Process
Needs Improvement, HEHS-99-21, January 1999, at http://www.gao.gov/
archive/1999/he99021.pdf (April 13, 2011).
\4\ Government Accountability Office, ``Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey,'' Report No. GAO-
11-152, March 2011, at http://www.gao.gov/new.items/d11152.pdf (April
13, 2011).
\5\ Ibid., p. 19.
\6\ James Heckman, ``Sample Selection Bias As a Specification
Error,'' Econometrica, Vol. 47, No. 1 (January 1979), pp. 153--154.
\7\ See, for example, James McClave, Frank Dietrich, and Terry
Sincich, Statistics, Seventh Ed., (Upper Saddle Hill, NJ: Prentice
Hall, Inc.: 1997), pp. 11--15, 131--136.
\8\ Government Accountability Office, ``Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey,'' pp. 57--58.
\9\ Ibid., pp. 24--26.
\10\ For example, asking for wage rates using union job
classifications that do not reflect the practices of nonunion
construction contractors.
\11\ Government Accountability Office, ``Davis-Bacon Act,'' p. 8.
\12\ Ibid., p. 19.
\13\ Ibid., p. 26.
\14\ Department of Labor, Bureau of Labor Statistics, ``Union
Members--2010,'' Table 3, at http://www.bls.gov/news.release/pdf/
union2.pdf (April 13, 2011).
\15\ Government Accountability Office, ``Davis-Bacon Act,'' p. 20.
\16\ Ibid., p. 27.
\17\ Polly A. Phipps and Carrie K. Jones, ``Factors Affecting
Response to the Occupational Employment Statistics,'' Bureau of Labor
Statistics, Office of Survey Methods Research, 2007, at http://
www.bls.gov/osmr/abstract/st/st070170.htm (April 13, 2011).
\18\ U.S. Department of Labor, Bureau of Labor Statistics, ``BLS
Handbook of Methods,'' Chapter 3, at http://www.bls.gov/opub/hom/pdf/
homch3.pdf (April 13, 2011).
\19\ Ibid.
\20\ Ibid.
\21\ Government Accountability Office, ``Davis-Bacon Act,'' p. 19.
\22\ These error margins are at the 95 percent level, so the polls
will be within that margin of the true value 19 times out of 20.
\23\ The central limit theorem (CLT) states that for a sufficiently
large sample the sample mean is normally distributed around the true
population mean. Knowing that the sample mean follows the normal
distribution allows statisticians to estimate how far off it is likely
to be from the population mean.
\24\ James McClave, Frank Dietrich, and Terry Sincich, Statistics,
pp. 240--241.
\25\ Government Accountability Office, ``Davis-Bacon Act,'' p. 23.
\26\ The author thanks Heritage Foundation intern Thomas Capone for
his invaluable help in compiling this data.
\27\ Sarah Glassman, Michael Head, David G. Tuerck, and Paul
Bachman, ``The Federal Davis-Bacon Act: The Prevailing Mismeasure of
Wages,'' Suffolk University, Beacon Hill Institute, February 2008, at
http://www.beaconhill.org/BHIStudies/PrevWage08/
DavisBaconPrevWage080207Final.pdf (April 13, 2011).
\28\ James Sherk, ``Repealing the Davis-Bacon Act would Save
Taxpayers $10.9 Billion,'' Heritage Foundation WebMemo No. 3145,
February 14, 2011, at http://www.heritage.org/Research/Reports/2011/02/
Repealing-the-Davis-Bacon-Act-Would-Save-Taxpayers-$10-9-Billion.
\29\ Ibid.
\30\ U.S. Code Title 40, Sec. 3142(b)
\31\ U.S. Department of Labor, Office of the Inspector General,
Concerns Persist with the Integrity of Davis-Bacon Prevailing Wage
Determinations, Audit Report No. 04-04-003-04-420, 2004, p. 2 of
Appendix B, at http://www.oig.dol.gov/public/reports/oa/2004/04-04-003-
04-420.pdf (April 13, 2011).
\32\ Government Accountability Office, ``Davis-Bacon Act,'' pp.
20--22. Note that the GAO was unable to determine the geographic level
for 7 percent of job classifications.
\33\ Bernard Anderson, Assistant Secretary of Labor for the
Employment Standards Administration, letter to Congress, attachment,
``Evaluation of the Reinvention vs. Reengineering Alternatives for
Improving the Davis-Bacon Wage Survey/Determination Process,'' January
17, 2001, p. 1.
\34\ U.S. Department of Labor, ``Concerns Persist with the
Integrity of Davis-Bacon Act Prevailing Wage Determinations,'' p. 17.
\35\ Sarah Glassman, Michael Head, David G. Tuerck, and Paul
Bachman, ``The Federal Davis-Bacon Act: The Prevailing Mismeasure of
Wages,'' Suffolk University, Beacon Hill Institute, February 2008, at
http://www.beaconhill.org/BHIStudies/PrevWage08/
DavisBaconPrevWage080207Final.pdf (April 13, 2011).
______
Chairman Walberg. Thank you Mr. Sherk.
Mr. Mistick?
STATEMENT OF D. TOM MISTICK, PRINCIPAL, CHURCH RESTORATION
GROUP, ON BEHALF OF THE ASSOCIATED BUILDERS AND CONTRACTORS,
INC.
Mr. Mistick. Chairman Walberg, thank you.
Member Woolsey, members of committee. Good morning and
thank you for the opportunity to testify before you today. In
the interest of time I request that my full written testimony
be included in the record. My name is Tom Mistick. I am the
owner of the Church Restoration Group based in Pittsburgh,
Pennsylvania, and during my 35-year career, I have completed
hundreds of projects under the Davis-Bacon Act as a general
contractor and a subcontractor.
I also appear before you today on behalf of Associated
Builders and Contractors. ABC represents 23,000 merit shop
construction contractors that employ nearly 2 million workers.
ABC's membership is bound by a shared commitment to the merit
shop philosophy based on principles of non-discrimination due
to labor affiliation and the awarding of construction contracts
through competitive bidding.
Repeated criticisms of the Government Accountability Office
over many years have highlighted significant problems with the
administration of the Davis-Bacon Act. The GAO report published
last week again makes clear that the U.S. Department of Labor
is incapable of setting fair or accurate federal construction
wages.
ABC and others have proposed numerous recommendations for
common sense reforms for several decades, and unfortunately
DOL's inability to implement meaningful changes illustrates
that the process cannot be fixed and that the act should
therefore be repealed. Davis-Bacon hinders economic growth,
increases the federal deficit and imposes significant burdens
on the contractors and taxpayers.
These burdens both increase costs and make it nearly
impossible for small merit shop firms to competitively bid on
federal projects, raising costs by eliminating competition. A
recent CBO estimate found that Davis-Bacon raises federal
construction costs by $15.7 billion annually. For years
contractors and experts have voiced serious concern about the
waste and abuse of taxpayer dollars associated with Davis-
Bacon, yet nothing has really been done to fix the obvious
defects in the law.
I would like to highlight in some ways in which the DOL has
failed to carry out its statutory mandates and contributes to
construction industry unemployment rate of 20 percent by
imposing inaccurate and artificially inflated wages. Instead of
using sound statistical analysis, as Mr. Sherk mentioned, DOL
sets Davis-Bacon wage rates by relying upon voluntary wage
surveys with extraordinarily low response rates. The new GAO
report finds the Davis-Bacon wage survey lacks transparency and
most often does not reflect true prevailing wages.
Furthermore, the GAO found that most survey forms verified
against payroll data were in error. The report also stated that
almost one-quarter of the final wages for key job
classifications were based on wages for six or fewer workers. I
have personal knowledge of the dysfunctional DOL wage survey
process, having formally challenged Davis-Bacon wage rates set
for residential construction in Western Pennsylvania. They
dramatically and inaccurately increased project costs.
Unions represent less than 10 percent of residential
construction workers in Western Pennsylvania, yet DOL found
that union wage rates prevailed for most of the public job
classifications, although they couldn't produce enough job
classifications to provide enough people to build a house.
There were--the plumber was missing and the plasterer was
missing, you couldn't even get accurate wage rates for the
small subset that was there. This problem isn't unique for
Pennsylvania.
The--again, the BLS has reported 13 percent of the
construction workers are unionized, yet only--yet 63 percent of
the GAO finds that the DOL reported union wage rates. Now after
a 3 year legal battle and costs of--considerable costs, we
received a favorable union ruling from DOL's Administrative
Review Board. It found that DOL had indeed violated its own
rules in conducting wage surveys.
But rather than demand any revision in the survey process
or order a new survey, the board only required the agency to
recalculate a few wages that it determined to be in error and
left in place all the systemic failures of the DOL's wage
survey process, which the GAO report has again highlighted in
the last week's report.
Like many other non-partisan government surveys before it,
the GAO report illustrates a long-term systematic failure to
achieve true reform of the survey process across several
administrations.
It is clear to us that DOL will never accept meaningful
reform and repeal is now the only solution. At a time of
shrinking construction budgets, Davis-Bacon's fundamentally
flawed system is arbitrarily limiting the amount of
construction that could be built by needlessly increasing
project costs. The taxpayers are getting six buildings for the
price of seven because of this broken process. The clear answer
to the problems created by the fatally flawed, and unfixable
system is to repeal Davis-Bacon.
Let the market set acceptable wage rates through open and
competitive bidding, just as it successfully does in the
private industry and private construction market. The act needs
to return to the neutrality that was once its original instance
and its goal.
Mr. Chairman that concludes my formal remarks and I am
prepared to answer any questions you may have. Thank you.
[The statement of Mr. Mistick follows:]
Prepared Statement of D. Thomas Mistick, on Behalf of
Associated Builders and Contractors
Chairman Walberg, Ranking Member Woolsey and members of the
Subcommittee on Workforce Protections: Good morning and thank you for
the opportunity to testify before you today on ``Examining the
Department of Labor's Implementation of the Davis-Bacon Act.''
My name is Tom Mistick. I am the owner of Church Restoration Group,
based in Pittsburgh, Pennsylvania. My company restores historic and
sacred spaces across the United States, and offers a broad range of
emergency and consulting services. For 35 years, I have directed the
activities of two general contracting companies, a disaster recovery
firm, a real estate management office and a millwork company. Much of
the work performed by my companies has been performed under the Davis-
Bacon Act.
I also appear before you today on behalf of Associated Builders and
Contractors (ABC). ABC is a national trade association representing
23,000 merit shop contractors, employing nearly 2 million workers,
whose training and experience span all of the 20-plus skilled trades
that comprise the construction industry. ABC's membership is bound by a
shared commitment to the merit shop philosophy. This philosophy is
based on the principles of nondiscrimination due to labor affiliation
and the awarding of construction contracts through competitive bidding
based on safety, quality and value.
The Davis-Bacon Act
The Davis-Bacon Act is an 80-year-old wage subsidy law administered
by the U.S. Department of Labor (DOL) that mandates so-called
``prevailing'' wages for employees of contractors and subcontractors
performing work on federally financed construction projects. ABC has
long advocated for the full repeal of the Davis-Bacon Act, though we
also have recommended numerous reforms over the years that could have
mitigated some of the Act's damage to our economy through fairer
implementation of its provisions by DOL. However, despite repeated
criticisms from the Government Accountability Office (GAO) and DOL's
own Office of Inspector General (OIG),\1\ the agency has implemented
few if any meaningful reforms in its administration of the Act since
the early years of the Reagan administration. The latest GAO report
published last week\2\ makes clear that DOL is simply incapable of
implementing the Davis-Bacon Act's provisions in a fair and common-
sense manner. Therefore, ABC sees no alternative to repealing the Act
entirely.
The Davis-Bacon Act, as administered by DOL, unnecessarily hinders
economic growth, increases the federal deficit, and imposes an enormous
paperwork burden on both contractors and the federal government. It
stifles contractor productivity by raising costs, ignores skill
differences for different jobs, and imposes rigid craft work rules. In
addition, Davis-Bacon fails to provide equal access to work
opportunities because the complexities and inefficiencies in the Act's
implementation make it nearly impossible for many qualified, small
merit shop firms to competitively bid on publicly funded projects.
These businesses--and the construction industry in general--are at an
even greater disadvantage due to our current unemployment rate of 20
percent,\3\ and the traditionally low net profit margins on which we
operate.\4\
From a fiscal standpoint, a recent Congressional Budget Office
(CBO) estimate found the Davis-Bacon Act raises federal construction
costs by $15.7 billion annually, which ABC believes may be a
conservative estimate.\5\ Numerous academic studies have shown that
repeal of the Act would create real and substantial savings to the
government without affecting workplace productivity, safety or market
wages.
The main reason the Davis-Bacon Act causes so many problems is that
DOL has failed to achieve the Act's stated objective of determining
true ``prevailing'' wages and instead has repeatedly issued wage
determinations that are vastly inflated above the true market rates
seen on private sector construction projects. The evidence of DOL's
failed wage survey method is easily shown by comparing two numbers:
According to the Bureau of Labor Statistics (BLS), only 13 percent of
construction workers in the United States are covered by any union
agreement;\6\ yet, according to the latest GAO Report, 63 percent of
all DOL wage determinations report that wages set by union agreements
are ``prevailing.'' \7\
Despite these facts and findings, Davis-Bacon remains in effect and
continues to inflate the cost of federal construction by as much as 22
percent.\8\ For years, economists, legal and policy experts, and merit
shop contractors across the country have voiced serious concerns about
the waste and abuse of taxpayer dollars associated with Davis-Bacon--
yet nothing has been done to fix the obvious defects in the law.
DOL's unwillingness to engage in meaningful corrective actions and
reforms, along with the process' continuing burden on taxpayers and
contractors, illustrate that the Act cannot be fixed, and must instead
be repealed. In the remainder of my testimony, I would like to
highlight some of the specific ways in which DOL is failing to properly
carry out its statutory mandate, leading us to conclude that the Act
must be repealed.
Wage Rates and Surveys
The methodology by which DOL determines Davis-Bacon Act wage rates
is inaccurate and unscientific. It relies on voluntary wage surveys--
often with an extremely low response rate--instead of using sound
statistical samples already made available through other government
data collections. The resulting wage rates are usually poor reflections
of actual local wages. The problems associated with Davis-Bacon wage
calculations have been well documented in previous Congressional
testimony from ABC and, more importantly, reports by GAO and OIG.\9\
In addition, due to the systematic delays associated with the final
publication of many Davis-Bacon rates, ABC is concerned that wage
determinations made during an economic ``boom'' in construction are now
being applied to a ``bust'' economy. In the case of government-backed
loans and other projects that are subsidized by the government, these
inaccurate determinations have resulted in projects being scrapped
because of cost.
The new GAO report shows that the current Davis-Bacon wage survey
process lacks transparency and does not reflect true prevailing wages.
The report concludes that efforts to improve the Davis-Bacon wage
survey process--both with respect to data collection and internal
processing--have not addressed key issues with wage rate accuracy,
timeliness and overall quality.\10\
GAO identifies ``persisting shortcomings in the representativeness
of survey results and the sufficiency of data gathered for Labor's
county-focused wage determinations,'' notwithstanding cosmetic changes
in DOL's survey collection and processing procedures. In addition, GAO
points out that many of the agency's surveys are still years behind
schedule.
The GAO report also finds that DOL ``cannot determine whether its
wage determinations accurately reflect prevailing wages,'' and ``does
not currently have a program to systematically follow up with or
analyze all non-respondents.'' DOL procedure identifies nonresponse as
a ``potential source of survey bias and indicates there is a higher
risk non-respondents will be nonunion contractors because they may have
greater difficulty in compiling wage information or be more cautious
about reporting wage data.''
Just as the 2004 DOL-OIG report revealed that nearly 100 percent of
published wage determinations contained errors, the GAO report found
that ``most survey forms verified against payroll data had errors.'' In
addition, the report stated that more than ``one-quarter of the final
wage rates for key job classifications were based on wages reported for
six or fewer workers.''
Reaffirming yet another longtime ABC concern, GAO found that
``contractors have little or no incentive to participate in the Davis-
Bacon wage survey'' as it is currently administered. The report cited
insufficient resources with which to complete the surveys, the
inability to provide all information requested and a justifiable lack
of confidence in DOL's process as contributing factors.
GAO also recommended ``technical guidance from experts is
considered critical to ensure the validity and reliability of survey
results,'' remarking that better survey response prediction models
``such as statistical sampling rather than the current census survey''
could be aided by collaboration with survey experts. However, instead
of obtaining an evaluation of its wage survey process from experts in
survey design and methodology, DOL informed GAO that it prefers to
institute such changes based mainly on staff experience.\11\
I have personal knowledge of the dysfunctional DOL wage survey
process, having witnessed and challenged the 2000 wage survey in
Western Pennsylvania, which dramatically increased Davis-Bacon wage
rates on residential construction in the Pittsburgh metropolitan area
when its results were published in 2003.\12\ Keep in mind that during
this time, the union market share of residential construction in
Western Pennsylvania was (and still is) in the single digits. Yet as a
result of the wage survey, DOL found that union wage rates
``prevailed'' in a great majority of the wage classifications for which
survey results could be determined, while many of the most common
classifications had no determined wage rates at all. After reviewing
the data DOL collected to issue its new wage determination, and
checking the math, it was clear to me that the results occurred because
DOL relied on a totally inadequate number of responses (as few as a
half-dozen wage reports setting the wage rates for thousands of
workers), and that DOL had violated its own rules for calculating which
rates prevailed in the region. One obvious reason why the responses
were inadequate was because DOL failed to properly notify the largest
nonunion construction trade groups.\13\ The calculations were also
wrong because DOL improperly counted union workers who were paid
different wage rates as if they were all paid the same wages. There
were many other flaws in the survey process as well.\14\
Along with ABC's Western Pennsylvania Chapter, I filed a legal
challenge at DOL against the results of the flawed wage survey. Three
years later, and at considerable cost, we received a favorable ruling
from DOL's own Administrative Review Board, which found that the Wage
and Hour Division (WHD) had indeed violated DOL's rules on conducting
wage surveys. But the Board did not order a new survey with
instructions to obtain more meaningful responses from the nonunion
contractors that comprised the vast majority of the residential
contractors. Instead, the Board simply told the WHD Administrator to
recalculate the wages that we had shown to be in error, leaving in
place all of the other systemic failures of the wage survey process.
More recently, ABC learned DOL issued wage determinations that
repeat the same errors identified in 2003. In addition, DOL has
committed new errors, leading to newly inflated wage determinations in
other parts of the country. One of the errors, confirmed by the GAO
report, is that DOL has greatly expanded its issuance of ``statewide''
wage determinations which combine wage surveys from large and small
metropolitan areas hundreds of miles apart into single wage
determination rates. This practice plainly violates the language of the
Act, and is currently the subject of a legal challenge.
At a time of shrinking public construction budgets, these inflated
wage determinations arbitrarily limit the amount of construction that
can be built by increasing the projected costs. Jobs have been lost and
businesses have closed because of DOL's bizarre implementation of the
wage survey process, and because of the Davis-Bacon Act itself.
For years, ABC and other government studies and reports have
pointed out these problems. We believe the GAO report illustrates a
long-term systematic failure to achieve true reform of the survey
process across several administrations. It is clear to us that DOL will
never accept meaningful reform, and that repeal is now the only
solution.
Job Classifications
Another key concern pertaining to Davis-Bacon is DOL's lack of
clarity regarding the job duties that apply to a particular job
classification, which are determined by local practice. When DOL
determines the prevailing wage rate for a classification is based on a
union collective bargaining agreement, the job duties for that
classification also likely will be governed by the union's work rules
in that agreement. Generally, union work rules require that only a
certain job classification perform certain work. For example, the work
rules may require a carpenter to perform a certain task in one
location, but sheet rock hangers or perhaps even laborers are the only
workers allowed to perform that work in another jurisdiction.
While each DOL wage determination lists several different
classifications of workers (painters, carpenters, laborers, etc.),
limited information is available on the actual job duties that apply to
the classifications. Although the published wage determinations may
identify the relevant local union for each of the listed job
classifications (where the rate is based on the union's collective
bargaining agreement), DOL does not provide detailed information as to
whether there are any work rule restrictions attached to those wage
rates and, if so, what those restrictions are. DOL's failure to provide
such information makes it almost impossible for merit shop contractors
to figure out the correct wage rate for many construction-related jobs.
Not surprisingly, GAO's report agreed, finding DOL's current method of
handling job classifications ``confusing'' and ``challenging'' for
contractors.
Certified Payrolls and Fringe Benefits
Another burden on small business compliance with the Davis-Bacon
Act--and also the Copeland Act--is the requirement that contractors
submit weekly certified payroll reports to the government. This is a
paperwork nightmare for many contractors and a significant
administrative cost factor for every contractor. Recent upgrades of the
system by DOL to include electronic filing are a small step in the
right direction, but do nothing to solve the complexities of the
certified payroll form itself, and in particular the confusion
surrounding the proper credits allowed to nonunion contractors for
their bona fide fringe benefit costs.
Repeated Failure to Implement Reforms
ABC has repeatedly called on DOL to follow the findings of past
independent government studies, some dating back more than 10 years, to
explore using alternative data to determine wage rates--such as data
collected through the BLS Occupational Employment Statistics (OES)
program. To date, DOL has not given serious consideration to utilizing
these, or any other alternatives to its traditional survey method. ABC
also has requested that DOL provide better clarity about job duties
that correspond to each wage rate. Many states that have adopted
prevailing wage laws similar to Davis-Bacon have at least published the
job duties that are to be performed by each wage classification. DOL,
however, has repeatedly refused to give contractors fair notice of what
the job assignment rules are on the published wage determinations. A
2009 WHD All Agency Memorandum offered no relief to contractors lacking
access to unpublished union work rules.\15\ ABC has received reports
from its members that the current DOL is misdirecting contractors
seeking guidance on the job classification issue. For example, DOL has
told some contractors to contact a project contracting officer, even
though the law is clear that only DOL officials are authorized to make
final rulings on worker classification issues. Instead of fixing these
problems with Davis-Bacon, the last Congress and this administration
only made matters worse by expanding the Act's coverage in
unprecedented ways under last term's stimulus bill.\16\
Conclusion
The clear answer to the problems created by the present system is
to let the market set the acceptable wage rate through open and
competitive bidding, as we see in the private sector. Multiple bills to
repeal the Davis-Bacon Act have been introduced during this
Congressional session alone, indicating that the time is right for
Members of Congress to act.
ABC is pleased to see the Education and the Workforce Committee
take a renewed interest in the problems associated with Davis-Bacon
Act. We look forward to working with the Subcommittee on Workforce
Protections on this issue. Mr. Chairman, this concludes my formal
remarks--I am prepared to answer any questions that you may have.
endnotes
\1\ U.S. Department of Labor, Office of the Inspector General,
Concerns Persist with the Integrity of Davis-Bacon Prevailing Wage
Determinations, Audit Report No. 04-04-003-04-420, 2004, at http://
www.oig.dol.gov/public/reports/oa/2004/04-04-003-04-420.pdf. See also,
Government Accountability Office, Davis-Bacon Act: Process Changes
Could Raise Confidence That Wage Rates Are Based on Accurate Data, May
1996, at http://www.gao.gov/archive/1996/he96130.pdf.
\2\ Government Accountability Office, Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey, April 6, 2011, at
http://www.gao.gov/new.items/d11152.pdf.
\3\ Bureau of Labor Statistics, Construction Sector at a Glance:
Employment, Unemployment, Layoffs, and Openings, Hires, and
Separations, March 2011. See http://www.bls.gov/iag/tgs/iag23.htm.
\4\ Construction firms often operate on extremely low net margins.
According to the 2009 Construction Industry Annual Financial Survey,
published by the Construction Financial Management Association (CFMA),
an average construction firm's operating margin was only 3.4 percent,
with many firms operating at even lower margins. Contract retainage
further exacerbates this cash flow issue.
\5\ Office of Rep. Steve King, King's Davis-Bacon Repeal Bill Saves
Taxpayers $15.7 Billion, April 4, 2011, at http://1.usa.gov/f0ioXw.
\6\ U.S. Department of Labor, Bureau of Labor Statistics, Economic
News Release: Union Members Summary, January 2011, at http://
www.bls.gov/news.release/union2.nr0.htm.
\7\ Government Accountability Office, Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey, April 6, 2011, at
http://www.gao.gov/new.items/d11152.pdf.
\8\ The Beacon Hill Institute at Suffolk University, The Federal
Davis-Bacon Act: The Prevailing Mismeasure of Wages, February 2008, at
http://www.beaconhill.org/bhistudies/prevwage08/
davisbaconprevwage080207final.pdf.
\9\ U.S. Department of Labor, Office of the Inspector General,
Concerns Persist with the Integrity of Davis-Bacon Prevailing Wage
Determinations, Audit Report No. 04-04-003-04-420, 2004, at http://
www.oig.dol.gov/public/reports/oa/2004/04-04-003-04-420.pdf. See also,
Government Accountability Office, Davis-Bacon Act: Process Changes
Could Raise Confidence That Wage Rates Are Based on Accurate Data, May
1996, at http://www.gao.gov/archive/1996/he96130.pdf.
\10\ Government Accountability Office, Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey, April 6, 2011, at
http://www.gao.gov/new.items/d11152.pdf.
\11\ ABC takes issue with only one aspect of the GAO report, namely
the report's recommendation that the Act be amended to allow DOL to
expand the geographic scope of wage surveys beyond the civil
subdivision of the state in which the work is to be performed. See,
General Accountability Office, Davis-Bacon Act: Methodological Changes
Needed to Improve Wage Survey, April 6, 2011, at http://www.gao.gov/
new.items/d11152.pdf (page 35). Such an amendment would not ``improve
the quality'' of DOL's wage determinations but would instead encourage
DOL to combine wage data from totally separate wage markets, thereby
undermining any prospect of determining the true prevailing wage in the
smaller market. Indeed, as GAO confirmed, DOL is already conducting
statewide surveys that violate the plain language of the Act, because
such surveys do not determine the prevailing wage for a ``civil
subdivision of the state.'' A legal challenge is pending against DOL's
unlawful wage survey practice.
\12\ A more detailed summary of this case is contained in the
decision of DOL's Administrative Review Board, which considered ABC's
challenge to DOL's wage determination and overturned it after three
years of litigation. See Mistick Construction, Inc., No. 04-051 (ARB
2006) (attached hereto)
\13\ DOL later admitted it had obsolete addresses for the two
largest residential construction trade associations in Western
Pennsylvania. Mistick Construction, supra, at p. 6
\14\ An independent study of DOL's Western Pennsylvania wage
determination found more than a dozen systemic flaws in the wage survey
process, which virtually guaranteed an inflated and inaccurate result.
See Thieblot, Armand, The Twenty-Percent Majority: Pro-Union Bias in
Prevailing Rate Determinations, 26 J. Lab. Research 99 (2005).
\15\ U.S. Department of Labor, Job Duties of Employee
Classifications in Davis-Bacon Wage Determinations (All Agency
Memorandum 205), January 16, 2009. The current administration has
failed even to make public the limited guidance contained in this AAM.
\16\ Under the American Recovery and Reinvestment Act (ARRA), 40
federal programs (33 existing, seven newly created) became subject to
Davis-Bacon, several of which found the wage requirements to have a
``moderate to large'' negative impact on program costs and efficiency.
See, Government Accountability Office, Recovery Act: Views Vary on
Impacts of Davis-Bacon Act Prevailing Wage Provision, February 2010, at
http://www.gao.gov/new.items/d10421.pdf. One such program, the U.S.
Department of Energy's (DOE) Weatherization Assistance Program,
received $5 billion under ARRA. However, delays stemming from the
Davis-Bacon wage survey process resulted in fewer projects undertaken
(including some ``shovel-ready'' projects) and fewer jobs created under
this program. See DOE's Progress in Implementing the Department of
Energy's Weatherization Assistance Program under the American Recovery
and Reinvestment Act, February 2010, at http://ww.ig.energy.gov/
documents/OAS-RA-10-04.pdf.
______
Chairman Walberg. Thank you, Mr. Mistick, and all the
members of the panel. I appreciate that. Pretty good use of the
time as well.
Mr. Sherk, I think I can safely say not only myself, but
all of us here in the room and at this panel, are fully
supportive of a fair day's pay for an honest day's work.
However I see some very interesting facts in your testimony
that you have given this morning.
And in my own district, you mentioned, in Jackson,
Michigan, the Davis-Bacon prevailing wage calculations paying
electricians roughly 40 percent more than the market wage while
in one of our committee member's, Congressman Noem's, home
state in Sioux Falls, South Dakota, plumbers and carpenters are
being paid between 17 and 20 percent below market wages. We
know that the GAO has found some serious flaws in the
calculations of this.
How do you believe we can smooth out these inaccuracies and
bring Davis-Bacon wage calculations back into line with what
the market demands?
Mr. Sherk. The only way you are going to actually--or
accurately survey wages is using a scientific methodology. When
you have got such implausibly small sample sizes and when you
have got an unrepresentative sample, you are simply not going
to get accurate rates out of the existing survey, it is just
not possible.
You can do the--you can turn the results, you know,
overnight, you would have no errors, no return forms, but with
these fundamental methodological flaws, you wouldn't get any
accuracy.
I think what you want to do is move to the BLS, which has
expertise in conducting these surveys. There are two surveys
that they do right now, one is the Occupational Employment
Statistics Survey. That covers nationwide every metropolitan
statistical area. It gives you the wage data.
What it doesn't give you is the hourly fringe benefits
data. Another survey is the National Compensation Survey, which
the Wage and Hour Division has previously determined provides
all the information they need, wage and--information for
intricate levels of work.
The problem is it, doesn't have nationwide coverage. It
only covers about half the population, and so you wouldn't be
able to go into every, you know, metropolitan statistical area
and get estimates.
So either expanding the Occupational Employment Survey to
cover fringe benefits or expanding the geographic scope of the
construction portion of the NCS survey, both of you--would give
you accurate, timely and scientific wage estimates. You
simply--you can't improve the existing methodology, it is too
deeply flawed.
Chairman Walberg. Okay, thank you.
I have another question and we can come to that but let me
get a few of the questions I want to ask first. I am sure we
can get back those.
Mr. Mistick?
Mr. Mistick. Yes, sir?
Chairman Walberg. You are a brave man in suing the
Department. We will leave it at that.
Mr. Mistick. Thank you, sir.
Chairman Walberg. But in your 35 years of doing business,
could you give a rough estimate of how much more your company
has paid above market demand as a result of Davis-Bacon?
Mr. Mistick. I could. I can actually give you a specific
example of how Davis-Bacon was applied by the Pittsburgh
Redevelopment Authority. They had a program that fixed
commercial facades in elderly neighborhood commercial districts
and commercial Davis-Bacon wages applied. You couldn't get
commercial contractors to bid these $5, $10, $15,000 jobs, so
they did the work without Davis-Bacon.
And at the end of the job, which was completed on time, on
budget and of sufficient quality, the contractors simply turned
in his payroll data to the Authority and the Authority wrote
checks to the employees and that was generally----
Chairman Walberg. That is not a normal occurrence you
would----
Mr. Mistick. That is not the normal occurrence, and I doubt
that anybody in D.C. would approve that process, but it is what
they did to get the work done. And generally you paid 15 to a
30 percent premium on the contract cost to satisfy the
commercial wage rates that were required to be paid by Davis-
Bacon. Instead of commercial contractors, you had remodeling
contractors that did $5 to $25,000 projects, and that was the
differential or premium that the government was paying on that
work.
Chairman Walberg. And so you would--I would assume that you
believe that this has hurt your productivity and the ability to
hire employees and create jobs? Is that an accurate statement?
Mr. Mistick. It certainly reduces the amount of federal
construction and thereby limits the amount of work that the--a
contractor can get and the opportunities for additional
employment for his workers.
Chairman Walberg. Okay. Okay, thank you.
In the remaining minute or so, Mr. Markey, I will give
latitude for you to answer.
Mr. Markey. Mr. Sherk talks about using BLS data----
Chairman Walberg. Turn your mic on, please. The time is
running out.
Mr. Markey. He talks about using BLS data. The statute
talks about prevailing, the regulations, which happen to have
been amended in 1985, defines prevailing as more than 50
percent. All BLS data is averaged, you will never get
prevailing rate if you use BLS data.
If more than 50 percent earn $35, and the remainder earned
somewhere between $25 and $30, the average BLS data that would
come back would be like 33 or something like that. That is not
prevailing, according to the statute in the current
regulations.
Chairman Walberg. Thank you. I am sure that there will be
follow up questions to that and the opportunity to answer from
the other side as well.
And I now turn to our ranking member, a gentlelady from
California, Ms. Woolsey.
Ms. Woolsey. Mr. Chairman, I want to go on record for this
hearing and all hearings in the future that any of our
witnesses who bring testimony using the logo and the label of
their organization when they present their testimony and refer
to their organization cannot argue that they are not
representing that organization when they provide their
testimony.
We, as members of Congress, if we write a letter on our
letterhead, we are congress people when we talk about that and
the same thing goes for our witnesses. I really want you to
know I discount testimony that would use that double standard.
Chairman Walberg [continuing]. I just know that it is a
fairly normal process for a number of entities that----
Ms. Woolsey. [Off mike.]
Chairman Walberg [continuing]. Represent----
Ms. Woolsey. I mean if they don't use the logo, don't say
this is who sent me, this is who I am--I work for. That is an
entire different thing than to--use the heft of the
organization and then deny that they are part of it.
Chairman Walberg. Duly noted, your time is running.
Ms. Woolsey. Okay, I would like to ask you Mr. Eisenberg
(sic) about in your testimony you state that a great deal of
empirical research refutes the claim that prevailing wage
inflates construction costs, so could you tell us how that can
be? I mean if prevailing wage requirements lifts workers'
wages, how does it not increase the overall cost, and how do we
calculate how--the benefits of that overall cost to the
community?
Mr. Eisenbrey. Well the, you know, at first glance, it is
true. You think that having a higher wage will necessarily lead
to higher cost in construction. But it turns out that if you
are paying a higher wage to a more skilled worker, someone, you
know, a journeyman who has had a 5 year apprentice program and
a lot of experience as opposed to, you know, someone with much
less experience, you get a higher quality work, you get the
work done more efficiently.
And these productivity improvements more than make up for
or can more than make up for the costs. After all, the wages
are only 30 percent, 25 to 30 percent of the cost of
construction. So that when Mr. Sherk for example says that 22
percent higher pay leads to 10 percent higher costs, that
almost can't be because the percent of the construction costs
that is attributed to wages is only 25 to 30 percent and the
math just doesn't work out.
But, you know, on the one hand you have the theory on the
other hand we have actual experience. We have states, we had in
the middle and late 1990s Michigan suspended its state
prevailing wage law because of a judicial decision. Kentucky
passed a prevailing wage law for school construction and Ohio
repealed it.
So various researchers studied what happened following
that, the expectation was some people claim that construction
costs would rise 22 percent or 25 percent. In fact, at the end
of the day, school construction costs were unchanged. There was
no significance statistically significant difference. And the
reason was----
Ms. Woolsey. That was in Kentucky?
Mr. Eisenbrey. That was in Kentucky, Michigan and Ohio.
Ms. Woolsey. Oh.
Mr. Eisenbrey. Going back farther, the same thing in
Kansas. Kansas repealed its state prevailing wage law in 1987
and the results were no higher--the construction costs didn't
fall, there was no statistical difference in construction costs
before and after.
Apprenticeship training however, fell off almost, you know,
just fell off the table--38 percent drop in apprenticeships, 54
percent drop in minority apprenticeships and safety and health
suffered as well. By bringing in younger, less experienced,
less skilled workers, it raised the serious injury rate by 21
percent. So all of these things, you know, come along with the
notion of doing away with prevailing wages.
Ms. Woolsey. So, Mr. Mistick, it seems like you said that
you think federal construction is limited because of prevailing
wage. But it seems like you said that you didn't have any
problem with hiring and quality even though you were--had to--
--
Mr. Mistick. You know there are other ways besides a simple
wage rate to drive up the cost of federal construction. When a
collective bargaining rate is determined to prevail, it imports
into the process all of the work practices that are covered by
that collective bargaining process.
Western Pennsylvania for example on jobs that--on Davis-
Bacon jobs that are subject to the collective bargaining
agreement, carpenters have to unload the trucks and distribute
the material on site, and electrician unloads the truck and
distributes the materials on site rather than a laborer.
Now the laborer can make a Davis-Bacon wage that is quite
comfortable, but he is not allowed by the enforcement division
to cost effectively prosecute the federal construction.
Ms. Woolsey. Okay, thank you.
Mr. Mistick. Thank you.
Chairman Walberg. I recognize now the full committee
chairman, Chairman Kline.
Mr. Kline. Thank you Mr. Chairman.
I thank the witnesses for being here today. I have got a
couple of questions, and I am going to of course abide by the 5
minute rule. I was just struck by the ranking member's
assertion that when we have witnesses who appear and have a
logo on their letterhead that they have to agree that they are
speaking for the entire organization.
And Mr. Sherk, I think you recognize that you are indeed an
employee of the Heritage Foundation and appropriately use the
letterhead, but your position would be that you haven't got an
agreement from the Heritage Foundation board and the 700,000 or
so members that you are indeed representing the entire Heritage
Foundation, is that correct?
Mr. Sherk. That would be exactly correct.
Mr. Kline. Thank you. And the ranking member then asserts
that because she is a member of Congress, and has the
congressional seal at the top of her letter, that she is of
course speaking for herself, but I doubt if the ranking member
really believes that she is speaking for all 435 members of
Congress. Let us see----
Ms. Woolsey. Oh, wait a minute----
Mr. Kline. I think----
Ms. Woolsey. Will you yield----
Mr. Kline. I am happy to yield.
Ms. Woolsey. Yes, I actually am on record speaking to and
representing my entire constituency. If they don't like it then
they have to--they will dis-elect me.
Mr. Kline. Thank you and now reclaiming my time, I am no
doubt that you are representing your position of your
constituents, but the congressional seal doesn't mean you are
representing all 435 members of Congress.
I think that all of us would agree that shortchanging
workers and overcharging taxpayers is unacceptable and it looks
like that may be what we are getting in many cases according to
the GAO report.
Dr. Sherrill, it is nice to have you back again. It seems
like only a week or so, you were here with a controller
general.
For this report, the GAO interviewed contractors who
stated, quoting that ``DOL's current method of handling job
classifications was confusing and challenging''. Can you help
us with any further detail about the issues raised by these
stakeholders, the confusing and challenging?
Mr. Sherrill. Yes, one of the key issues that were raised
is, especially I think by some of the smaller contractors is
that they would in some cases have a worker doing a certain
type of job activity part of the time and a different job
activity another part of the time so they were confused about
how they ought to be classifying that worker with regard to
which specific job classification.
So there were issues like that where some of the smaller
employers really needed more guidance and instruction about,
you know, you know how to fill out the survey form properly.
Mr. Kline. And so this would be information presumably
coming from Wage and Hour that they need or?
Mr. Sherrill. I mean this would be the kind of thing that
could be done in better--the Department of Labor hasn't
pretested the survey. I mean we have--one of the themes that
GAO--the I.G. has noted is that there is a fairly high level of
errors that are identified in the way survey data reported.
And I think part of the issue is that the labor survey form
has never really been pretested to get a better idea of, you
know, what, where, what could have been made more
comprehensible, where are the issues.
Labor is planning to do that to revise the survey, but we
think it is critical that they really incorporate sort of
methodological expertise as they revise the survey to help
avoid some of those kinds of errors and confusion.
Mr. Kline. Thank you. It appears that there have been
studies going back for years and decades complaining about this
process and the many inaccuracies and the current GAO report
was again, pretty negative about the Department of Labor's
attempts to change the current practices.
But I am--we have heard from the Department of Labor that
it has made improvements to the process. Could--do you agree
that these improvements are significant? It is really going to
improve things? Can you address that?
Mr. Sherrill. The Department of Labor has taken a number of
steps to make improvements. In recent years they have really
focused on different strategies to increase the timeliness of
conducting the surveys. They have taken efforts to better
verify the data.
But one of our key findings was they haven't sufficiently
addressed some of the fundamental issues with the survey
dealing with the quality of the survey, how representative is
it. Do you have sufficient data to make a representative
judgment? Those kind of sort of more fundamental issues. So
they made progress in some areas, but in others haven't gone
far enough.
Mr. Kline. Okay, thank you.
And Mr. Markey, the Wage and Hour division has previously
used McGraw-Hill Construction Analytics and there is a study I
think came from 2005. Could you produce that for us for the
record please?
Mr. Markey. Yes I can.
Mr. Kline. Thank you.
I yield back Mr. Chairman.
Mr. Bucshon [presiding]. The chair now recognizes the
gentleman from New Jersey, Mr. Payne.
Mr. Miller?
Mr. Miller. Just quickly, on the question--Mr. Kline just
raised a question about the McGraw-Hill. From the GAO's point
of view, is that a legitimate undertaking by Department of
Labor?
Mr. Sherrill. The McGraw-Hill review was conducted in 2004.
It was really a view of Department of Labor's processes for
doing the----
Mr. Miller. But are they not now using them on an ongoing
basis?
Mr. Sherrill. I think you would have to ask the Department
of Labor, sir what they are doing here. They are----
Mr. Miller. Well, let me ask the Department of Labor then
quickly.
Mr. Markey. As my testimony indicated, it had several
recommendations and we acted on all of those. And, you know,
where it went through the IT personnel training, and we are
seeing real progress. With the new surveys, we are receiving a
much greater response rate that we had in the past. These are
the surveys we initiated in 2009 and 2010.
Mr. Miller. But that--the McGraw-Hill is not an ongoing
process it was used and you are responding to the
recommendations that McGraw-Hill made, is that correct?
Mr. Sherrill. That is correct.
Mr. Miller. Let me just say, I have--I guess I have seen
this process sort of both ways. I am fortunate to represent an
area that over the last 20 years has had billions of dollars of
heavy construction in the refining, chemical industries, steel
mills, and I have seen when these private contracts were left a
number of years ago, over the last 10 years, the influx of
people from all over the country coming and sleeping in their
cars, camping in the parks, bunking up five, six, seven people
to a motel room, using county facilities, law enforcement
facilities, county hospital, health care clinics, using all of
those facilities and then leaving the minute the job was over.
Today, all of those fields, the major oil companies, the
chemical companies, that work is now done under project labor
agreements. It is entirely different situation. For the
residents of that area who are employed in those jobs, who get
the benefits, who return the revenues to the, if you will,
their pay to the community and it is a much different
proposition.
And it took time to evolve over to that process, but I
think it is clear that Davis-Bacon provides much of that same
benefit to communities. I mean I--actually when I was a young
man working my way through college, I worked alongside people,
and everybody I worked alongside of came from long distances to
work in those refineries and turnaround times or refurbishing
or modernization in those trades. But they put nothing back
into the community.
And that is the world of difference. Today, that is the
case and I think that we are all better off for that reason.
And obviously those negotiations are carried on with some of
the largest entities in the world. They are mature negotiators
they have made that determination to go in that direction.
So I would hope that we wouldn't be considering the repeal
here. I do think that the GAO report--I get a little sense here
that we have got sort of two different photographs and there is
the number of things that have been going on to improve this,
if I look at Mr. Markey's testimony, to improve the timeliness
and the responses to the surveys. But some of the GAO work was
on previous work to that.
I think we need somehow to reconcile both of your
testimonies to see if we get an accurate picture of where it
yet needs to be to be done. And then to the question of whether
or not the response rate is sufficient or not, and accurate
enough I think is an issue that we should continue to look at.
But I would like to get some, maybe I can formally ask the
GAO if you would look at--if the testimony of DOL, I don't know
if you have prior to this hearing because it appears that there
is a little bit of mismatch in sequencing if you will.
I am not putting intent anywhere here, I just--the question
of sequencing. Some things that have been done subsequent to
the surveys that you may have been looking at that were an
earlier iteration. That is--does that make any sense to you?
Mr. Sherrill. That is fair because we did our analysis
based on the data, the surveys that were available at the time
for us look at that.
Mr. Miller. Okay.
Mr. Sherrill. So some of it was a snapshot of where they
were at that time.
Mr. Miller. I think that would be helpful to us.
Finally I just want to say I think Mr. Mistick, the $15.7
billion is not annually, it is over 10 years. And it is a
result of a CBO--informal CBO estimate. It is not a formal
finding of CBO, just to clarify the record. It is--there is a
little bit of difference between us two as you might imagine.
Mr. Mistick. It is still on the plus side.
Mr. Miller. No I understand, I understand. But you could
also argue, I think, that the issue of the timeliness drags the
wages back in time as opposed to being current, but more to be
said later.
Mr. Mistick. I agree with that observation, Mr. Miller.
Mr. Bucshon. The chair yields 5 minutes to himself for a
few questions. Mr. Mistick, you have a lot of experience as a
stakeholder in all of this and trying to understand how to
comply with the Davis-Bacon, and in your opinion, what is
really the most troubling that you find with the findings of
the GAO report?
Mr. Mistick. It is--part of it consistent series over
literally decades in which the department fails to produce
accurate numbers. And we can talk about--computers and doing
things faster, but all we are going to do is produce wrong
numbers more quickly. What it has produced most generally by
the Department of Labor's survey are numbers that are wrong.
We have to be able to say out loud that if 13 percent of
the workforce belongs to a union and 65 percent of our data
points are union rate, prima facie, that is wrong. And that is
what we need to address. We already pay to collect a great deal
of data, as Mr. Sherk has mentioned, in the occupational waste
surveys.
Advantages of which are that it is done on a county by
county basis so that we can get to that fine granularity that
is important in doing these surveys, plus the occupational
waste survey has written classifications for the job.
That doesn't exist and it is part of the problems that Dr.
Sherrill mentioned with people participating in the survey
because there is no written description of what a carpenter, or
painter, or plasterer does and that can vary from locality to
locality. That is the biggest problem in my mind. And I don't
see any impetus after 80 years of trying to really get it right
at the Department.
Mr. Bucshon. If a contractor has a question regarding a job
classification issue, what type of guidance does DOL offer?
Mr. Mistick. Well, you can certainly call DOL and ask them
and you might get a piece of oral tradition. For example, if I
say, what is carpentry work to the DOL? They say well, what is
ever done with the tools of the trade. Well that is not really
an answer, is it?
There have been instances more recently where the DOL has
referred contractors to the contracting officer, who is the
last person in the world to decide what job classifications
are, this is a procurement specialist that has no background in
the labor issues. So it is very difficult. It is not written
down. It is also true in many state prevailing wage situations
where there are no written guidelines for what the
classifications are.
Mr. Bucshon. Mr. Eisenbrey, I am a physician. I found it
interesting that you were trying to correlate the incidence of
workplace accidents and that type of safety issues related to
how much people are paid on the job.
And how that--I am trying to find out how that--make that
mental leap why, I mean this is a traditionally held view I
think about labor, that if a union isn't involved in a project
that people are going to be more--are more going to be, are
more likely to be injured and hurt on the job which is a view,
by the way, that I don't hold.
So I want to know, what specific data do you have, you
know, that related to David-Bacon Act that there is any
correlation at all with workplace accidents and injuries that
just doesn't seem to apply to me.
Mr. Mistick. What I cited was a study by Professor Peter
Phillips from the University of Utah of what happened in Kansas
after the repealed their state prevailing wage law. And I am
not saying that there is a direct cause, but I am just
reporting what happened afterward and----
Mr. Bucshon. But I mean--I think--can interrupt for just a
second. I think you wanted to get across to the committee that,
like I said, a typical labor opinion that if labor isn't
involved that there will be injuries on the job to try to muddy
the water about the whole issue.
Mr. Mistick. No, no, no, no.
Mr. Bucshon. But the intent of this is not to say that
people shouldn't have a prevailing wage, but the question in
mind is, what are the statistics behind it?
Mr. Mistick. Well actually what I said was, that there is a
rationale for why that would happen, which is it--I didn't say
anything about unions, what I said was, if you pay less, you
are going to get less experienced workers who will be more
likely to get hurt on the job. That if you pay--and take
physicians. If you paid physicians half as much, would you get
as high quality physicians? I mean I think the answer----
Mr. Bucshon. Actually you would because they are all
trained the same and my time has expired. Mr. Bishop?
Mr. Bishop. Thank you. Thank you Mr. Chairman and thank you
for having this hearing. You know, I am having a hard time
believing that this hearing is about a survey methodology or
survey quality. I think it is important for us to note that in
the debate on H.R.1 there was an amendment offered by Mr. King
of Iowa to repeal Davis-Bacon.
Thankfully that amendment failed 189 to 233 but with one
exception, every member of this sub-committee including the
chairman of the full committee, voted for that amendment. So
this hearing is much, much, more than about survey methodology.
I would also note for the record that Congressman Bacon
preceded me as the representative of New York One and he was a
Republican I should point out, and I will also point out that
Mr. Shrek (sic) you use--Sherk, pardon me, you use a lot of
data from Long Island. I represent about half of Suffolk
County, so chances are the carpenters and the electricians and
the sheet metal workers you are referring to are people that I
represent.
And in preparing for this I read a document that you wrote
Mr. Sherk, and I will just read the opening sentence of the
last paragraph which says, ``Repeal Davis Bacon. America can no
longer afford such special interest handouts''. Do you recall
writing that?
Mr. Sherk. I have written words to that affect many times.
Mr. Bishop. Okay, well so am I to understand that a
carpenter making $77,000 a year constitutes a special interest?
Mr. Sherk. The special interest that I was particularly
referring to is unions. So there have been studies of what
happens when you repeal prevailing wage law.
Mr. Bishop. All right, let us go to that. The difference
between the prevailing wage and the market rate for Long
Island, carpenter who is, if he is fortunate enough to work 40
hours a week for 52 weeks a year would make approximately
$77,000. The market rate, person would make about $59,000 a
year.
Now these $77,000 a year guy, remember, he is the guy I
represent, okay. Now, if we were to impose a tax rate on that
person, that reduced his take home pay by 30 percent, is it
fair to say--I know you don't speak for the Heritage
Foundation, but is it fair to say that the Heritage Foundation
would refer to that tax rate as confiscatory?
Mr. Sherk. We would oppose certainly any such taxes. But if
you had say a subsidy, basically we believe people should keep
what they earn.
Mr. Bishop. Okay.
Mr. Sherk. But----
Mr. Bishop. But, but, but in order to keep what you earn
you first have to earn it, correct?
Mr. Sherk. If you are earning it----
Mr. Bishop. But you are asking a person to take a 40
percent reduction in pay to do the same job, is that not
correct?
Mr. Sherk. What you are basically requiring them to do is
work on the open competitive market and not have, basically
government----
Mr. Bishop. But the fact is that if your construct were to
take place. If we were to repeal Davis Bacon, that laborer or
that carpenter now making 77 grand a year, would be making 59
grand a year, right?
Mr. Sherk. [Off mike.]
Mr. Bishop. And so let us stay with that for a second. So
he now has $18,000 less per year to spend. Now if we were to
tax everyone, so that such that they had $18,000 a year less to
spend, would there not be some enormous human cry that that is
a job killing tax rate because we would be taking money out of
the economy and out of circulation. Isn't that how that tax
rate would be dealt with, perhaps reasonably?
Mr. Sherk. Well effectively, what you are having is not a
tax but a subsidy. So again, there are----
Mr. Bishop. This is the individual who now has $18,000 less
per year to spend, call it a subsidy call it a tax. He has got
18 grand less per year to support his family. And he has 18
grand less per year to buy goods and services which have a
ripple effect through the economy. Is that not correct?
Mr. Sherk. No, I don't believe that is correct.
Mr. Bishop. Why is it not correct? If we were to tax that
person $18,000 you would claim that we were taking money out of
the economy. And that is the best thing for us to do is leave
the money in the hands of the people because they know how to
spend it better than the federal government. Is that not the
case?
Mr. Sherk. But what you have essentially got a law that
requires--is your hiring of four construction workers for the
price of five. If you paid the individuals market rates and
assume that----
Mr. Bishop. I am trying to deal with the people I
represent. And if your recommendation were to ever take on the
force of law, those people would be very, very adversely
impacted.
Mr. Sherk. Those fortunate enough to work on the federal
construction jobs, some of them would see lower pay. Those who
are unemployed right now might benefit from----
Mr. Bishop. All right, let us try this. The prevailing
wage, not the union wage, the prevailing wage for all counties
in Virginia for a backhoe operator, which I guess would be
called a laborer, is $11.28 an hour. That is around $450 a
week, so roughly 23 grand a year. Is that what we have come to?
We have come to arguing about whether or not we can afford to
pay somebody 23 grand a year?
Mr. Sherk. We did a study actually on Davis-Bacon rates in
Virginia a couple years back. I haven't updated it since then,
it was 2008. But what we found was actually that the Davis-
Bacon rates in Virginia, because of the inaccuracies,were about
5 percent lower than the market rates and that you had inflated
rates in northern Virginia, in the rest of Virginia they are
substantially below the market rates. So it is--if you have got
the--survey, I----
Mr. Bishop. It increased it--let us say that it is--let us
say you are right. I am sorry, my time----
Chairman Walberg [presiding]. The gentleman's time is
expired.
Mr. Bishop. Thank you.
Chairman Walberg. We will now go to the gentlelady from
Hawaii, Ms. Hirono.
Ms. Hirono. Thank you Mr. Chairman. I would like to insert
into the record of this hearing a letter that was sent to the
chairman of the full committee and the ranking member of the
full committee from the Congressional Black Caucus, the
Congressional Hispanic Caucus, Congressional Asian--Pacific
American Caucus in response to the fact that we are having this
subcommittee hearing wherein they say prior to the enactment of
Davis-Bacon in 1931, there were many shocking examples of
abusive labor practices and wholesale exploitation of female
workers and workers of color.
That is just part of what was in the letter to the full
committee chairs and a ranking member. I would like to insert
the rest of that letter for the record of this hearing.
[The information follows:]
------
Chairman Walberg. Without objection. So ordered.
Ms. Hirono. Thank you. I found the exchange that we just
heard very interesting, and, Mr. Sherk, I am curious to know is
the position of the Heritage Foundation, which does advocate
market rates in this arena, whether or not the position of the
Heritage Foundation or your own position for that matter, is
that government not set minimum wage either?
Mr. Sherk. Certainly my personal position would be that the
minimum wage is destructive to those it tries to help, that it
produces employment opportunities and the ability of people to
get a start on the job ladder and move up. So generally
speaking, I would be against that. But, in this case, it means
that the David-Bacon rates--they even--the market rates. They
are so far above and beyond even the minimum wage that they--it
is apples and oranges.
Ms. Hirono. So, the answer is that you would rather that--
you don't think that the government should set minimum wages
either?
Mr. Sherk. I, generally believe--speaking--I believe that
minimum wage laws hurt those they are trying to help.
Ms. Hirono. Thank you very much. We obviously have a
disagreement on that.
Mr. Eisenbrey, I don't think that you were able to complete
your testimony, and it is very clear from this hearing that
apart from the survey design and methodology, which we hope
will be, you know, appropriate, that we don't have enough
people participating in the survey, and I don't think you had a
chance to finish your thoughts on some of the ideas that you
would have to ensure a higher and more representational
participation.
Mr. Eisenbrey. Well, thank you. Can I make one other point
before I answer your question?
Ms. Hirono. Please.
Mr. Eisenbrey. I just like the record to be, clear that
when Mr. Sherk talks about the market rate, you shouldn't take
that as a fact that he is asserting that the occupational
employment statistics rate is the market rate, and he compares
it to I think the building rate under Davis-Bacon, which is
actually an unfair comparison because the OES includes
residential construction where the rates can be half as much as
the building rate.
So, he is lumping in a lot of very low wage people and
comparing them to people with higher skills in a narrower
segment of the market, and it really isn't a fair comparison,
and I would say everything that he said based on that has to be
therefore taken with a grain of salt.
Ms. Hirono. Thank you for that clarification.
Mr. Eisenbrey. But in answer to your question, I think that
the Department should be doing everything it can and it is
making new efforts--you have heard from Mr. Markey--to get
better responses to the surveys. I think that there are tools
that the department hasn't looked at that they should.
In Michigan one of the world's greatest survey institutions
is at the University of Michigan, and they will pay people to
complete surveys. That is an incentive that ought to be looked
at.
But, the more obvious one is to say that anyone--any
subcontractor, anybody who is doing federal construction work
and being paid by the government should complete these surveys.
They should be required to complete the surveys as a condition
of working on federal projects and getting federal taxpayer
dollars. That would do a lot to increase the response rate.
Ms. Hirono. Mr. Markey, would you like to respond to these
two suggestions to improve your return rate?
Mr. Markey. Well, we are taking----
Chairman Walberg. Microphone, please.
Mr. Markey [continuing]. We are taking efforts to improve
the response rate. As I indicated it has usually been a series
of mailings and with the low response rate in residential
construction we have changed that methodology. We are
supplementing mailings with telephone calls and visits to
contractors and contractor associations. We have started that
in--2010, and we have several surveys ongoing regarding that.
After we cleaned up all the old surveys, as I talked about,
we started piloting surveys under this new methodology where we
don't have a one size fits all, and we don't survey every type
of construction at the same time.
If we look at the response rate in Georgia that we
published in 2009, I think the survey was 2003 or 2004--and we
look at the response rate in Georgia which we are currently
surveying now, I think we have, just for a building in heavy,
over 7,000 responses, for Georgia. We didn't have anywhere near
that back in 2003 when we did this survey.
Chairman Walberg. Thank you, the gentlelady's time has
expired.
Ms. Hirono. Thank you.
Chairman Walberg. Move on to the gentleman from New Jersey,
Mr. Payne.
Mr. Payne. Thank you very much. It is a very interesting
discussion, and it has been around for a long time. I,
unfortunately, had to run to another committee so I know that
many of the questions were asked and answered although I do
have a question of Mr. Markey.
You know, today's statement, and this is what the
discussion even to the previous member had made claims that the
Department of Labor survey is difficult to complete and
presents a major problem.
The GAO study found that 19 of 27 contractors and
interested parties, 70 percent are interviewed, said that the
survey was generally easy to understand though some identified
challenges with completing specific sections such as how to
apply the correct job classifications. Does the Department
frequently receive complaints about the form, and what support
do you provide to contractors completing this form?
Mr. Markey. Well, when we do a survey, we conduct extensive
pre-survey briefings. That includes all stakeholders. It--the
building trades. It is contractors' associations. It is small
contractors.
Besides stressing the importance of responding to the
survey, we go through the data collection form block by block.
We send out to everybody who we determine has been involved
with construction activity a letter requesting a response. With
that is a two page instruction sheet that indicates how you
complete the form.
We have a--on our Web site we have our phone number that--
if they have any problems. And probably, most importantly, we
get in a form and it indicates that--there are questions as to
something on the survey, and I will direct one of Mr. Mistick's
concerns about area practice.
We immediately called that respondent and we say, did you
mean this? Okay, you have put a question mark next to the
classification as to whether it is really a carpenter or an
electrician or whether they do a subspecialty of hanging
sheetrock or pulling low voltage wiring. And we question them
regarding that. So, I think there is a lot of technical
assistance going on in the survey process.
GAO in its report said that 70 percent of the respondents
indicated they had no problems with the form. It was rather
simple. We do on site verification through a private accounting
firm, and one of the things they always ask is, did you have
any problems with the form? What do you think about this? What
do you think about that? And the response is, it is not
particularly difficult or time consuming to fill out.
Mr. Payne. Thank you. Also, you know, the whole question
about prevailing wages and so forth, I--of course if, you know,
I was the builder, I certainly would want to have wages as low
as possible. I mean, I wish I can dictate the rate that my
doctor charges. But, that is just not the way it happens. I
mean, it would be great to have you know, what needs to be
supplied as inexpensive as it can be, therefore the profit
would be much greater.
So, I, you know, I think in some of these instances, we
have to look at the value of work done. What is the--how do we
determine that? You know, someone comes in and just say the
prevailing wage is just too high, and that is what many of the
entrepreneurs say. The workers say that what they are doing,
they think that what they are providing is equal to what they
are paid.
So, I guess this is an argument that, you know, we are
going to see, you know, on and on according to what side of the
shovel you are on. So, you know, I think it is driving down
wages. I am not so sure, as have been indicated, to get more
productivity. That is a new concept.
We really have to, I think, make sure that we have
qualified people. I am glad that the letter from the minority
caucuses was introduced because there is a misconception that
people feel that minority workers don't support Davis-Bacon,
and we have our labor task force members who signed the letter
just to the contrary.
And so, I certainly think that this discussion is
important, and hopefully we can improve it. But, I think to try
to eliminate the Davis-Bacon Act would be a step in the wrong
direction.
Chairman Walberg. I thank you, gentlemen. And now turn to
the gentleman from Ohio, Mr. Kucinich.
Mr. Kucinich. Thank you very much Mr. Chairman, and I am
going to ask some questions of the--for Mr. Markey from The
Department of Labor. You know, in reading over the GAO report
and you may have answered this already, so excuse me for asking
it if you have, is it your position that if you had more people
who were able to inspect, you could keep up with the flow of
the work and therefore ensure better enforcement?
Mr. Markey. Well, no, agencies are always looking----
Mr. Kucinich. Could you speak into the mic?
Mr. Markey. Agencies are always looking for more people but
this is more related to the wage determination process. I
indicated we have added people. As we continue to re-engineer
the processes, we are timing each segment of how long it takes
and we will add staff in the field as necessary.
Mr. Kucinich. What can you see are the major challenges
that you face with respect to having staff in the field to make
sure that you keep up with the workflow? Are you facing budget
cuts in terms of cutting back staff that would be able to seek
proper enforcement?
Mr. Markey. The Department has received a budget cut in
wage now, and we are sharing it.
Mr. Kucinich. How will that affect the work?
Mr. Markey. With regard to this particular function of wage
determinations, at this point in time we consider it critical
enough that it is not affecting the work.
Mr. Kucinich. You consider it what, please?
Mr. Markey. We consider the wage determination process in
our efforts to improve it and to shorten the timeframes of the
age of wage rates, important enough that any cuts will not be
absorbed in that portion of our operations.
Mr. Kucinich. I am glad to hear you say that because in
looking at your testimony you point out the historical
importance of the Davis-Bacon Act, and I think that in this
debate over Davis-Bacon wages that it is important that we talk
about the construction benefits to the taxpayers, quality of
work, workplace safety issues that may not be easily monetized,
but once they are, actually indicate that the taxpayers overall
are not just getting quality but they are getting value. Would
you agree with that?
Mr. Markey. Yes, I would.
Mr. Kucinich. I would like to ask Mr. Sherk--I read your
report repealing Davis-Bacon, which you advocate, and I heard
you answer one of my colleagues. What do you--I am going to
pick up on your comments about minimum wage. Do you think there
should be a minimum wage?
Mr. Sherk. Well, again, it is--the minimum wage only--you
are talking basically 3 percent or so of workers. The--it
doesn't--construction workers----
Mr. Kucinich. Philosophically though.
Mr. Sherk. But, generally speaking I think it hurts those
it is intended to help that it prices low skilled--very low
skilled--workers out of the labor market.
Mr. Kucinich. So, right now the minimum wage is about
$7.25.
Mr. Sherk. Yes.
Mr. Kucinich. Would you say that maybe more people would
work if the minimum wage was like, say, $5?
Mr. Sherk. Certainly you would have--right now if you are
among skilled workers--say you are a high school dropout and
you can only provide $6 an hour worth of value to the company.
Well then nobody is going to pay you $7.25 an hour and benefits
to bring you on. But, what you find is that when workers--they
starve on minimum wage. It is an entry level wage. The two-
thirds of minimum wage workers get a raise within a year.
It is the bottom rung of a career ladder, and you work your
way up. Cut off that bottom rung, don't give them the
opportunity to develop skills, and you wind up hurting them and
preventing them from, you know, working their way up and
earning higher pay.
Mr. Kucinich. I am just doing some off the cuff math on
minimum wage 15--the minimum wage at a yearly rate would be
$15,080. That is at the $7.25 an hour. Let us say we made it $5
an hour, it would be, I don't know, over $10,000, I guess. When
you look at the federal poverty numbers, because you have to
put this in a broader perspective, people would actually have a
job and be driven into poverty.
This is a conflict that we have here. So, what I would
suggest to you, respectfully, is that the philosophy that
brings any of us to these tables, on this side and on your
side, have to meet some real world realities about, you know,
what people need to make a living.
And I know that in your testimony you sketch out--actually
with respect to the minimum wage--with respect to Davis-Bacon
wages, I know you try to establish the difference between the
Davis-Bacon Act and the market wages in various communities. I
looked at that. But the question is though, if you monetize all
the value----
Chairman Walberg. I thank the gentleman for his philosophy
and appreciate that----
Mr. Sherk. Thank you for that, Mr. Chairman.
Chairman Walberg [continuing]. Yes. I thank you for that
and----
Mr. Kucinich. So is my time expired?
Chairman Walberg. Your time has expired----
Mr. Kucinich. I thought you were just thanking----
Chairman Walberg [continuing]. Significantly. [Laughter.]
Philosophy, philosophy, we all have it, and I thank you for
yours whether I agree or disagree. I also thank the members of
the panel for being here today to provide checks and balances
to each other, to provide philosophy in the process and provide
more information as we go forward in our committee
deliberations.
And now I turn to the gentlelady from California, ranking
member Woolsey for closing comments.
Ms. Woolsey. Thank you, Mr. Chairman, and I also thank the
witnesses today and would like to ask the Department of Labor
if they have items that they would like to submit for the
record?
Mr. Markey. Yes, we would.
Ms. Woolsey. Mr. Chairman, would that be acceptable to you?
Chairman Walberg. Without objection.
Ms. Woolsey. Thank you. It is clear from today's testimony
that the Department of Labor is taking steps to improve its
prevailing wage survey process. They have instituted several
reforms aimed at producing more timely, more accurate wage
rates, and they continue to look at ways to advance the survey
procedures.
We have also learned of the problems with using Bureau of
Labor statistics data in place of a true prevailing wage
survey, which amounts actually to an imprecise wage rate and a
wage cut for construction workers.
So, as I said before, Mr. Chairman, the last thing
construction workers need in this economy is to have their
wages cut. We need to ensure that prevailing wage protections
exist so that the federal government does not subsidize a race
to the bottom with our nation's construction investments.
Instead, we must continue to encourage competition, contribute
to the development of a skilled workforce for the future and
pay livable wages.
I yield back.
Chairman Walberg. I thank the gentlelady and would concur.
We certainly want to see jobs, efficiency, all of that expand.
We also want to make sure that there are no unnecessary
hindrances to hiring and completing jobs.
I have had the benefit of having a youngest son who is
working in jobs probably as we speak. Today he will work for
prevailing wage and he will work for non prevailing wage. He
will do the same process at each site and will do the same
quality work.
But there will be significant difference in the wages that
he receives. He understands that. He doesn't complain about the
bottom line of the check at the end of the month.
But he does complain about the fact that he knows there are
jobs that he will not be on and there will be additional
employees that will not assist him on some of those jobs in
construction because of additional costs that to him, seem
unnecessary.
Now we know that it goes the other way as well, according
to the GAO report. And I think that is the purpose of this
hearing, this subcommittee and our deliberations, to find what
moves this nation, its workforce, its economy forwards. I love
Michigan. It is a state of my choosing.
But I also know that state led the nation in an unrivaled
unemployment recession, depression as it were, for too long and
sadly, a couple other states have now joined it at the bottom
of the pile.
And regulations, cost structures, prevailing wages,
requirements by the government in Davis-Bacon--whatever it
might be that destroys the opportunity to move forward must be
dealt with.
And so we will continue looking at these issues and
hopefully come to a conclusion that will benefit the worker,
the employer, the regulator--I noticed I put regulator third,
though I appreciate the work that is done, what you are asked
to do, but nonetheless, ultimately it benefits the economy and
moving forward in this great nation. It is too great to hold it
back.
So having said that, there being no further business, the
subcommittee stands adjourned.
[Additional submissions of Mr. Walberg follow:]
Prepared Statement of Women Construction Owners & Executives, USA
Women Construction Owners & Executives, USA (WCOE) is pleased to
submit testimony before the Subcommittee to share our views about
prevailing wages rates under the Davis-Bacon Act. WCOE is a national
association representing women owners and executives in the
construction industry. Members of WCOE include general contractors,
architects, engineers, manufacturers, construction project managers,
and trade subcontractors.
Women represent a small, but growing, segment of the construction
industry. According to the most recent U.S. Census Bureau Survey of
Business Owners from 2007, 10% of construction firms nationwide are
women-owned businesses. The Center for Women's Business Research 2008
Biennial Update reported that there were nearly 500,000 women-owned
construction firms nationwide. American Express OPEN's 2011 ``State of
Women-Owned Businesses Report'' highlighted the recent growth for
women-owned businesses in the construction industry. Between 2002 and
2010, there has been a 41% growth in the number of women-owned
construction firms. Furthermore, construction is one of only two
industries in which the growth of women-owned businesses regarding
number of firms, employment and revenues has outpaced industry-level
growth.
The issue of prevailing wage rates determined by the Department of
Labor (DOL) under the Davis-Bacon Act is critical to women construction
company owners. WCOE's membership includes both union signatory and
non-union companies and they mirror the overall industry statistics
(2010 Bureau of Labor Statistics) with nine out of ten companies
operating under ``open shop'' guidelines.
The majority of our members are classified as small businesses
according to SBA criteria and since 87+% are non-union or ``open
shop'', they are at a significant disadvantage when federal, state and
local construction contracts require union wages and benefits. In
addition, the March 2011 Government Accountability Office (GAO) report
``Davis-Bacon Act: Methodological Changes Needed to Improve Wage
Survey'' findings that DOL does not provide a fair determination of
local prevailing wages comes as no surprise to us. The 50 percent rule
under Davis-Bacon requires DOL to collect wage data on at least three
workers from two different employers. This calculation is not likely to
be representative of the actual wages paid to construction workers
especially when both of the employers surveyed are paying union rates.
Union signatory construction companies (13%), which tend to pay higher
total compensation (wages and benefits) than non-union companies (87%),
are not representative of the entire industry.
We understand the repeal of Davis-Bacon is nearly impossible in the
current climate, however we urge the Subcommittee to focus on
redirecting the wage and benefit research to the states and localities
who have a better understanding of local dynamics within the
construction industry. At a minimum, DOL should be mandated to include
non-union wages and benefits when deciding the prevailing wage for any
area. After all, these wages do represent 87% of the construction
industry work force.
Recently, the Small Business Administration (SBA) implemented its
women owned small business procurement program to provide women-owned
businesses greater access to federal contracting. The Women Owned Small
Business Federal Contract Program (WOSB-8m), which has taken eleven
years to enact, permits contracting officers, for the first time, to
restrict competition for federal contracts to women-owned businesses in
83 industries where women-owned firms were determined to be
underrepresented. Twelve of these broad 4-digit NAICS industry codes
(which encompass 60 six-digit specific NAICS codes) are in the
construction industry. The Davis-Bacon requirements are a barrier to
women-owned construction companies securing government contracts.
Implementation of the WOSB-8m Program in these 60 construction NAICS
codes may not do much to help open the doors to federal construction
projects unless the Davis-Bacon requirements are revised. If the WOSB-
8m program is about providing parity, then we submit the prevailing
wage methodology and requirements currently utilized will severely
limit women-owned construction companies' ability to compete for
government contracts.
In summary, we believe Congress should re-examine the industry
standards for determining prevailing wage rates and take into
consideration the established fact that 87% of construction companies
in this country are non-union. WCOE would like to thank the
Subcommittee for giving us the opportunity to share our views.
______
------
[Additional submission of Mr. Eisenbrey follows:]
May 4, 2011.
Hon. Timothy Walberg, Chairman,
Subcommittee on Workforce Protections, U.S. House of Representatives,
Washington, DC 20515.
Dear Chairman Walberg: The Economic Policy Institute submits this
supplemental statement to correct the hearing record and respond to
serious errors in testimony submitted by James Sherk of the Heritage
Foundation. Dr. Sherk's testimony grossly misrepresents the
relationship between wages paid under the Davis-Bacon Act and what Dr.
Sherk misleadingly calls ``the market wage''--local construction wage
rates published by the Bureau of Labor Statistics in its Occupational
Employment Statistics (OES). In his written testimony, Dr. Sherk, a
Senior Policy Analyst in Labor Economics at the Heritage Foundation,
claimed that Davis-Bacon rates are generally set ``well above market
wages,'' so high that they will increase the government's construction
costs by more than $10 billion this year.\1\ As we will show, this
claim is false.
---------------------------------------------------------------------------
\1\ James Sherk, ``Examining the Department of Labor's
Implementation of the Davis-Bacon Act,'' Testimony before the Education
and Workforce Committee, U.S. House of Representatives, April 14, 2011,
page 1.
---------------------------------------------------------------------------
Dr. Sherk contends that, ``The Wage and Hour Division uses
unscientific methods and unrepresentative data to estimate prevailing
wages. Unsurprising, Davis-Bacon rates typically bear little relation
to actual prevailing wages. * * * Davis-Bacon rates vary wildly from
actual market pay.'' \2\
---------------------------------------------------------------------------
\2\ Sherk testimony, page 7.
---------------------------------------------------------------------------
To support his contention, Dr. Sherk's testimony includes a table
which compares, for selected cities and counties, the wage obtained
from the OES with what Sherk labels the ``Davis-Bacon'' rate. The
``Davis-Bacon'' rates in his table are usually considerably different
from the OES rate, and are more often above the OES rate than below the
OES rate.
In fact, there is no reason to expect the rates to be the same
because they measure different things. The Davis-Bacon rates are
segmented among four types of construction and construction labor
markets, they are collected from different geographic areas than the
OES and at different times, and they typically collect information on
much more detailed occupational breakdowns than the OES. As currently
constructed, the OES is both significantly different and quite
incapable of meeting the statutory requirements that the Davis-Bacon
surveys have been designed to meet. The OES is not an appropriate
benchmark for comparison and should not be idealized as the true
``market rate.''
In any event, the wild variation and the upward bias Dr. Sherk
found in his Davis-Bacon rates are the product of Sherk's own invention
and do not accurately represent the relationship between either the
``market rate'' or the OES and wage determinations under the Act. In
truth, they are caricatures that result from misues of the data:
selecting only the Davis-Bacon rates for building construction while
excluding the typically lower rates for residential construction, using
different time periods for the Davis-Bacon and OES rates, and
misunderstanding the difference between an occupational survey and a
wage determination.
Failure to Include Residential Rates
To support his claim that Davis-Bacon rates are generally too high,
Sherk reports an hourly Davis-Bacon rate for electricians in Jackson,
MI of $38.57. This is the published Davis-Bacon rate for building and
heavy construction in Jackson County and is far above the OES estimate
of the hourly rate for electricians of $27.14. However, the Davis-Bacon
residential construction rate for Jackson County is only $22.79. If we
take as a rule of thumb that about half of construction workers are
employed in residential work, the average hourly wage of electricians
is $30.68, about 13% above the OES hourly wage, rather than the 42%
Sherk reports. Inclusion of residential rates for the other trades
Sherk sampled--carpenters and plumbers--actually eliminates the upward
bias Sherk identified. The estimated difference between the Davis-Bacon
and OES hourly wage changes from one in which the Davis-Bacon rate is
substantially above to one in which it is somewhat below the OES rate.
Reviewing Sherk's table of ``Davis-Bacon and Market Determined
Rates for various cities,'' \3\ we added information on the residential
rate by trade for the county, averaged this rate with the building rate
provided in Sherk's testimony, and calculated the difference between
the OES and the more appropriately averaged building and residential
rates. The differences between the OES and Davis-Bacon rates are
generally smaller than those reported by Sherk, and we find that the
OES rate is above the averaged Davis-Bacon rate more often than not.
---------------------------------------------------------------------------
\3\ Sherk, testimony, page 8.
---------------------------------------------------------------------------
Comparing Davis-Bacon Rates from 2010 and 2011 to OES Rates from May
2009
Dr. Sherk's second mistake is in comparing Davis-Bacon wage
determinations which were in effect in 2011 with OES data from May
2009. When Davis-Bacon rates which were in effect in May 2009 are used,
the apparent differences between the Davis-Bacon and OES rates are
substantially narrower.
The Davis-Bacon wage determinations for Alameda and Contra-Costa
Counties cited in the Heritage study went into effect between June 2010
and January 2011, between a year and a year and a half after the OES
rates. The determinations for Sonoma County used in the Heritage study
were closer in time to the OES rates for electricians (June 2009) and
plumbers (August 2009) but the carpenter rate dated from July 2010,
more than a year after the period covered by the OES data. Using this
non-comparable data, and neglecting to adjust for residential rates,
the Heritage study reported differences between Davis-Bacon rates and
OES rates of between 27.5% and 86%.
The difference between the Davis-Bacon determination and the OES
rate is considerably smaller when the Davis-Bacon rate which was in
effect in May 2009 is used. As shown in Table 2, the second set of
columns, the comparable rate for carpenters in all three counties was
$34.75, not $37.75 as reported in the Heritage report. The rates for
electricians in Sonoma County were $42.33 for non-residential and
$33.25 for residential electricians, rather than $44.00 and $36.11 as
reported by Heritage. The correct rates for plumbers in Sonoma were
$45.90 and $40.80 rather than $55.25 and $51.11. Parallel reductions
occur for electricians and plumbers in Contra Costa and Alameda
counties.
Using the appropriate Davis-Bacon rates considerably narrows the
difference between the OES and Davis-Bacon. For example, Heritage
reports that the Davis-Bacon rate was 40.1% above OES hourly wages for
Sonoma carpenters, 54.1% for electricians and a remarkable 86% for
plumbers. Averaging in the lower residential rates, and using the
Davis-Bacon rates which were in effect in May 2009, the differences
were a far more modest 29.3% for carpenters, 16.5% for electricians and
45.9% for plumbers.
We have not checked to see whether the rest of the time periods
used in Dr. Sherk's comparisons are equally inappropriate, but we
suggest that the committee do so before citing any of Dr. Sherk's
calculations.
Failure to Adjust Davis-Bacon Rates for the Use of Apprentices
To put Dr. Sherk's third mistake into the simplest terms, he does
not take into account that the surveyed Davis Bacon rate does not
include apprentice rates and will therefore be higher than the average
rates actually paid on a project.
Davis-Bacon rates are determinations of the hourly rate paid to
journey level trades workers. They differ from wage survey data in that
lower legally permissible rates, such as those paid to workers in
certified apprenticeship programs, are not incorporated into the
determinations. For example, under the apprenticeship adjustment
allowed by the Davis-Bacon Act, apprentices in certified four-year
carpentry apprenticeship programs will typically be paid 60% of the
journey rate in their first year, 70% in their second year, 80% in
their third year, and 90% in their fourth year in their program. While
these lower rates are captured by OES data, Davis-Bacon wage
determinations do not reflect the lower rates of apprentices.
How would adjusting the Davis-Bacon wage determinations for the
presence of apprentices affect the apparent differential between the
Davis-Bacon and OES rates? This will vary with the number of
apprentices in the construction labor force in an area and the length
of the apprenticeship program, and the reduction in journey level
wages. Carpentry apprenticeship programs usually take four years,
plumbers' and electricians' take at least five years. We examined the
effect of allowing for apprenticeship rates in Sonoma, Alameda and
Contra Costa counties assuming that programs take four years and that
wages start at 60% of the journey wage in the first year of the program
and rise by ten percentage points annually.\4\ If 10% of the workers in
a trade are enrolled in four-year apprenticeship programs, the adjusted
Davis-Bacon wage would be 97.5% of the Davis-Bacon journey level
determination.
---------------------------------------------------------------------------
\4\ These are conservative assumptions as the apprenticeship
programs for electricians and carpenters last at least five years.
Further, the proportion of apprentices in the labor force may well be
greater than 10%: the Northern California Brotherhood of Carpenters
reports that apprentices comprise 20% of the workforce in their region.
---------------------------------------------------------------------------
Adjusting for the lower rates paid apprentices reduces the Davis-
Bacon rate by between 83 cents and $1.10 per hour. As a result, the
Davis-Bacon rate for carpenters is between 17 and 26% above the OES
rate, the electrician rate is between 14 and 21 percent above the OES
rate, and the plumbing rate is between 21 and 42% above the OES rate.
These differences are far smaller than the 27.5% to 86% differences
reported by Dr. Sherk.\5\
---------------------------------------------------------------------------
\5\ Another issue, one which is more difficult to examine, is
whether the definition of an occupation used in Davis-Bacon surveys is
comparable to that used in OES surveys. The Davis-Bacon rate is the
rate paid to a journey level worker, a worker who is broadly trained in
an occupation. OES definitions of construction occupations are broader,
and may include less skilled workers, than the standards used for
Davis-Bacon definitions. For example, the OES definition of a
carpenter's work--``Construct, erect, install, or repair structures and
fixtures made of wood, such as concrete forms; building frameworks,
including partitions, joists, studding, and rafters; and wood
stairways, window and door frames, and hardwood floors. May also
install cabinets, siding, drywall and batt or roll insulation. Includes
brattice builders who build doors or brattices (ventilation walls or
partitions) in underground passageways.''--would allow a worker who was
trained in a relatively narrow set of skills, such as installation of
concrete forms, to be classified as a carpenter. In contrast, such a
narrowly trained worker is less likely to be classified as a carpenter
under the Davis-Bacon definition.
---------------------------------------------------------------------------
Looking again at Sherk's first example, and taking into account the
lower wage rates for apprentices, the OES-Davis-Bacon comparison for
Jackson County is vastly different from how it was portrayed in the
Heritage Foundation testimony. Rather than the Davis-Bacon rate for
carpenters being 13.9% more than the OES rate, it is 3% less ($20.39
vs. $20.98). Rather than being 42% higher than the OES rate, the Davis-
Bacon rate for electricians is only 10% more ($29.91 vs. $27.14). And
rather than the plumbers/pipefitters rate being 16.2% higher than the
OES rate, as Dr. Sherk claimed, it is actually 4% lower ($27.17 vs.
$28.23).
Conclusion
After correcting for Dr. Sherk's many errors, and in particular for
his failure to include the Davis-Bacon residential rate in his
comparison, it becomes evident that Davis-Bacon rates are not
remarkably different from the OES rates, let alone an idealized market
rate. There are significant differences in a few areas, but overall the
Davis-Bacon wage determinations Dr. Sherk selected tend to be lower
than the OES rates once the appropriate corrections are made. The
savings Dr. Sherk purports to estimate from more accurate Davis-Bacon
wage determinations are fictitious.
Please let us know if you have any questions about this analysis.
And thank you again for the opportunity to testify before the
subcommittee on this important matter.
Sincerely,
Ross Eisenbrey, Vice President,
Economic Policy institute.
Dale Belman, Professor,
School of Labor and Industrial Relations, Michigan State
University.
______
[Questions submitted for the record and their responses
follow:]
Questions for the Record Submitted by Ms. Woolsey
question for dr. andrew sherrill, director, education, workforce, and
income security issues, u.s. government accountability office
Critics of the Davis-Bacon prevailing wage survey process rely a
statement on page 20 of GAO Report 11-152 that ``about 63 percent [of
the Davis-Bacon prevailing wage rates published by the Department of
Labor as of November 12, 2010] were union-prevailing, in contrast,
about 14 percent of construction workers nationwide were represented by
unions in 2010, according to BLS figures, as support for their
contention that it is ``far from representative'' (written testimony of
James Sherk, Senior Policy Analyst in Labor Economics with the Heritage
Foundation) and fails to determine ``true `prevailing' wages and
instead has repeatedly issued wage determinations that are vastly
inflated above true market rates seen on private sector construction
projects'' (written testimony of D. Thomas Mistick appearing on behalf
of the Associated Builders and Contractors, Inc.), accordingly please
describe in sufficient detail so that it can easily and promptly be
retrieved the source of information that supports the above-referenced
statement on page 20 of GAO Report 11-152; and explain in detail how
GAO determined that ``about 63 percent [of DOL's published Davis-Bacon
prevailing wage rates] were union-prevailing?''
question for mr. thomas m. markey, deputy administrator, office of
program operations, wage and hour division, u.s. department of labor
Mr. John Fraser, Acting Administrator, Wage and Hour Division of
the Department of Labor testified in a hearing on July 30, 1997 held
jointly by the Subcommittee on Workforce Protections and the
Subcommittee on Oversight and Investigations of the House Education and
the Workforce Committee that only about 29 percent of the Davis-Bacon
prevailing wage determinations issued by DOL were based on
collectively-bargained ``union'' wage rates while 48 percent were based
on ``non-union'' wage rates (weighted averages), and 23 percent
included a mixture of ``union'' wage rates and ``non-union'' wage
rates; (1) please state whether the relative percentage of ``union,''
non-union,'' and ``mixed'' Davis-Bacon prevailing wage determinations
has changed since Mr. Fraser testified in 1997 and, if so, please
describe the current portion of Davis-Bacon prevailing wage
determinations that are ``union,'' non-union,'' and ``mixed;'' (2)
please describe in sufficient detail so that it can easily and promptly
be retrieved the source of information that supports your answer to the
prior request; and (3) please explain in detail how you determined the
answer to question (1).
______
Response From Mr. Markey to Questions Submitted for the Record
Question: Mr. John Fraser, Acting Administrator, Wage and Hour
Division of the Department of Labor, testified in a hearing on July 30,
1997, held jointly by the Subcommittee on Workforce Protections and the
Subcommittee on Oversight and Investigations of the House Education and
the Workforce Committee that only about 29 percent of the Davis-Bacon
prevailing wage determinations issued by DOL were based on
collectively-bargained ``union'' wage rates wile 48 percent were based
on ``non-union'' wage rates (weighted averages), and 23 percent
included a mixture of ``union'' wage rates and ``non-union'' wage
rates; (1) please state whether the relative percentage of ``union'',
``non-union,'' and ``mixed'' Davis-Bacon prevailing wage determinations
has changed since Mr. Fraser testified in 1997, and if so, please
describe the current portion of Davis-Bacon prevailing wage
determinations that are ``union,'' ``non-union'' and ``mixed;'' (2)
please describe in sufficient detail so that it can easily and promptly
be retrieved the source of information that supports your answer to the
prior request; and (3) please explain in detail how you determined the
answer to question (1).
Response: The relative percentage of union, non-union, and mixed
Davis-Bacon prevailing wage determinations has changed since 1997.
Union vs. non-union rates vary considerably based on the type of
construction, and new wage determinations often reflect a different
distribution of union, non-union, and mixed wage classifications than
was reflected on the wage determinations they replace.
A breakdown by wage determination shows a different picture in 2011
than in 1997. Only 5% of the total building wage determinations are
100% union wage determinations, 4% are 100% non-union, and 91% are
mixed (union and non-union) wage determinations. For residential
construction, 3% are union, 50% are non-union, and 47% are mixed wage
determinations. For highway construction, 17% are union, 44% are non-
union, and 39% are mixed wage determinations. Lastly, for heavy
construction, 12% are union, 20% are non-union, and 68% are mixed wage
determinations.
At the hearing it was stated that the Government Accountability
Office's report indicated that 63% of all Davis-Bacon and Related Act
wage rates were the collective bargaining agreement (CBA) rate. It
appears that the 63% figure was derived by counting every wage rate for
each different classification (occupation) for each type of
construction (building, heavy, highway, and residential). As explained
below, this methodology results in a somewhat misleading statistic.
A predominantly union wage determination will contain many more
classifications and rates than a non-union wage determination because
CBA classifications are more narrowly defined, with work performed
broken down into finer categories and each with a separate rate. There
may be as many as 6 to 8 different rates for a union crane operator and
the same could apply to other classifications, particularly the heavy
equipment operator and truck driver classifications. For example, the
Hawaii wage determination is a CBA/union wage determination that
applies to building, heavy, highway, and residential construction.
There are 120 union classifications and rates on the Hawaii wage
determination, and each rate is counted separately for each
construction type and for each county covered by the wage
determination.
Conversely, for predominantly non-union wage determinations such as
those applicable to Crenshaw County, Alabama, there are 23 non-union
rates and 6 union rates for building construction, for heavy
construction there are 12 non-union and 5 union rates (all 5 rates are
for varying sizes of a crane), for highway construction there are 45
non-union rates, and for residential construction there are 17 non-
union rates.
Additionally it is noted that the surveys for building construction
usually result in considerably more classifications than the other
types of construction. This is probably due to the required number of
crafts necessary on a building construction site. Even though 91% of
building wage determinations are mixed, mostly union rates are more
likely to prevail in building construction as opposed to the other
three construction types, each of which requires considerably fewer
classifications.
The Wage Determination Generation System (WDGS) enables the
generation of publishable wage determinations and generates reports and
details of wage determinations. The Wage Determinations OnLine (WDOL)
website (www.wdol.gov) provides a single location for the public to
view and obtain appropriate Davis-Bacon wage determinations. Both WDGS
and WDOL were used to view and calculate the percentage distribution of
union, non-union, and mixed wage determinations provided in this
response.
______
Response From Mr. Sherrill to Questions Submitted for the Record
Question for the Record: Critics of the Davis-Bacon prevailing wage
survey process rely on a statement on page 20 of GAO report 11-152 that
``about 63 percent [of the Davis-Bacon prevailing wage rates published
by the Department of Labor as of November 12, 2010] were union-
prevailing; in contrast, about 14 percent of construction workers
nationwide were represented by unions in 2010, according to BLS
figures,'' as support for their contention that it is ``far from
representative'' (written testimony of James Sherk, Senior Policy
Analyst in Labor Economics with the Heritage Foundation) and fails to
determine ``true `prevailing' wages and instead has repeatedly issued
wage determinations that are vastly inflated above true market rates
seen on private sector construction projects'' (written testimony of D.
Thomas Mistik appearing on behalf of the Associated Builders and
Contractors, Inc.). Accordingly, please describe in sufficient detail
so that it can easily and promptly be retrieved, the source of
information that supports the above-referenced statement on page 20 of
GAO Report 11-152, and explain in detail how GAO determined that
``about 63 percent [of DOL's published Davis-Bacon prevailing wage
rates] were union-prevailing?''
GAO Response: To analyze the percentage of union-and nonunion-
prevailing Davis-Bacon wage rates we used data from Labor's Wage
Determination Generation System (WDGS). Labor uses the WDGS to create,
modify, and issue wage determinations based on data collected through
the WD-10 survey forms. The dataset we received, which included
separate files for union-prevailing and nonunion-prevailing wage rates,
represented published prevailing wage rates as of November 12, 2010. We
combined the files and then calculated the percentage each type of rate
represented of published rates. Our results showed that 63 percent of
the published wage rates were union-prevailing while 37 percent were
nonunion-prevailing. To verify our findings, we shared the results of
our analysis with Labor officials, who conducted the same analysis with
similar results.
The source of the 14 percent figure we cited is Bureau of Labor
Statistics, Economic News Release: Union Members--2010, ``Table 3.
Union affiliation of employed wage and salary workers by occupation and
industry'' (Jan. 21, 2011).
______
[Additional submission of Mr. Sherk follows:]
Washington, DC.
Hon. Timothy Walberg, Chairman,
Subcommittee on Workforce Protections, Room 418 Cannon House Office
Building, U.S. House of Representatives, Washington, DC 20515.
Dear Chairman Walberg: The Davis-Bacon Act (DBA) requires
contractors on federally financed construction projects to pay at least
the locally prevailing wage to their employees. These minimum Davis-
Bacon rates are calculated by the Wage and Hour Division of the
Department of Labor. The Government Accountability Office (GAO) has
identified serious flaws in how the Department of Labor calculates
Davis-Bacon rates. The GAO report shows that the Labor Department does
not use a scientifically representative sample and bases wage rates on
very few observations--in some cases, as few as three workers.\1\
Last month, your committee held a hearing to examine this report.
At that time, I testified that these errors render DBA wage estimates
inaccurate and scientifically meaningless.\2\ I compared Davis-Bacon
wage determinations with estimates of market pay calculated by the
Bureau of Labor Statistics' Occupational Employment Statistics (OES)
survey. I explained that Davis-Bacon rates typically exceed market pay
and that correcting the flaws in the DBA determinations would result in
considerable savings for taxpayers.
Writing for the Economic Policy Institute (EPI), Ross Eisenbrey and
Dr. Dale Belman responded to this testimony with a supplemental
statement submitted to your office.\3\ They argued that I made
``serious errors'' and that my testimony ``grossly misrepresents'' the
relationship between DBA and market wages. In particular, the EPI
strongly objects to comparing DBA rates and OES construction wages.
I am submitting this letter as supplemental testimony to respond to
the EPI's accusations and correct the record. The EPI makes four
principal arguments: (1) OES data are incapable of meeting the
statutory requirements for DBA prevailing wages and are not an
appropriate benchmark for market wages; (2) my analysis fails to
include DBA residential rates; (3) my analysis compares more recent DBA
rates to older OES rates; and (4) I fail to adjust for the use of
apprentices on the job. Adjusting for these factors, EPI contends that
DBA rates are similar to OES figures.
These arguments are either completely inaccurate or highly
misleading. As I will show, Davis-Bacon rates do in fact considerably
exceed market pay. Congress could achieve considerable savings by
either repealing the act or requiring the Department of Labor to use
scientific methods to calculate DBA rates.
Appropriateness of OES Figures for Prevailing Wage Determinations
The EPI objects to comparing DBA rates with OES wage estimates.
They write that:
As currently constructed, the OES is both significantly different
and quite incapable of meeting the statutory requirements that the
Davis-Bacon surveys have been designed to meet. The OES is not an
appropriate benchmark for comparison and should not be idealized as the
true ``market rate.'' \4\
The Department of Labor disagrees. The Bureau of Labor Statistics
conducts the OES survey primarily so that Labor can enforce prevailing
wage statutes. The Service Contract Act requires federal service
contractors to pay their workers existing market wages. The Foreign
Labor Certification program requires employers of high-skill immigrants
to pay at least market wages. The Labor Department uses OES figures to
enforce these programs.
This is because the OES survey contains none of the flaws the GAO
identified in DBA determinations. Unlike DBA determinations, the OES
uses scientific representative sampling techniques and makes
appropriate adjustments for non-response. The survey has a very large
sample size, and the BLS updates it annually. The OES is the most
reliable occupational wage data that the federal government produces.
As I acknowledged in my testimony, the OES cannot--by itself--meet
the statutory requirements for DBA enforcement. The DBA covers both
wages and benefits, but OES does not include data on employee benefits.
However, OES figures meet the statutory requirements for setting DBA
wages and serve as an appropriate benchmark for market wages. In a
letter to Congress explaining its decision not to use OES figures, the
Clinton Administration nonetheless expressly acknowledged this fact.\5\
Davis-Bacon Act Covers Little Residential Housing
The EPI also objects to the specific comparisons between Davis-
Bacon and OES/market wages that I made in my testimony. Their main
objection is that I compared DBA ``building'' rates with OES figures
that include both nonresidential and residential workers. They argue
that an average of DBA ``building'' and ``residential'' rates is much
closer to OES wages than the ``building'' wages are.\6\ They argue that
improving the accuracy of DBA determinations would therefore result in
relatively little saving for taxpayers.
This argument is highly misleading. The EPI correctly points out
that DBA residential wage rates can be significantly lower than
building or heavy construction rates. These residential determinations
are riddled with the same inaccuracies and methodological flaws the GAO
identified in the building determinations. That they differ markedly
from each other is not surprising.
However, the Davis-Bacon Act covers little residential housing.
Less than 8 percent of direct federal construction spending goes to
residential projects.\7\ An even smaller portion of state and local
government construction spending--government some of which the federal
subsidizes and is covered by the DBA--goes to residential projects.\8\
Most federally funded construction projects build government buildings
or infrastructure. Lower DBA residential rates do little to reduce
federal costs.\9\ The relevant comparison is the difference between
market wages and DBA rates on projects the government actually pays
for.
Cross Industry and Nonresidential Building Rates Similar
Contrary to the EPI's assertions, nonresidential building rates do
not differ significantly from the overall construction rates. Looking
only at them would not change the finding that DBA rates substantially
exceed market wages.
The OES survey collects wage rates by occupation and by detailed
industry. These detailed industries include residential building,
nonresidential building, heavy civil and engineering construction, and
specialty trade contractors. Unfortunately, the OES does not publicly
release these industry-level wages for Metropolitan Statistical Areas.
The MSA-level data only report occupational wages across all
industries.
I used cross-industry MSA data in my testimony to compare local
Davis-Bacon and OES rates. Although national OES rates for just
nonresidential building construction do differ from the cross-industry
figures, they do not differ greatly. For example, nationwide, plumbers
and pipefitters earn an average hourly wage of $24.10. In the
nonresidential building sector, they earn $25.42 an hour.
Table 1 shows national hourly wages for several construction
occupations. The first line reports the overall cross-industry wage--
the local-level figures I reported in my testimony. The next two lines
report the wages for residential and nonresidential building
construction. Nonresidential building wages are usually somewhat higher
than the cross-industry construction wages. However, the difference is
modest: only about 5 percent.\10\
The flawed DBA methodology significantly inflates the cost of
taxpayer-funded construction projects. Using nonresidential building
rates instead of the cross-industry figures does not change this
finding.
TABLE 1.--HOURLY WAGES BY CONSTRUCTION SECTOR
------------------------------------------------------------------------
Average Hourly
Occupation/Industry Wage
------------------------------------------------------------------------
Carpenters:
All Construction Industries........................ $21.19
Residential Building Construction.................. $19.72
Nonresidential Building Construction............... $23.19
Cement masons and concrete finishers:
All Construction Industries........................ $19.00
Residential Building Construction.................. $19.47
Nonresidential Building Construction............... $20.08
Drywall and ceiling tile installers:
All Construction Industries........................ $19.79
Residential Building Construction.................. $19.12
Nonresidential Building Construction............... $20.73
Electricians:
All Construction Industries........................ $24.25
Residential Building Construction.................. $21.65
Nonresidential Building Construction............... $24.07
Plumbers, pipefitters, and steamfitters:
All Construction Industries........................ $24.10
Residential Building Construction.................. $22.66
Nonresidential Building Construction............... $25.42
------------------------------------------------------------------------
Source: Department of Labor, Bureau of Labor Statistics, Occupational
Employment Statistics, ``May 2010 National Industry-Specific
Occupational Employment and Wage Estimates'' at http://www.bls.gov/oes/
current/oessrci.htm#23
Timeliness of Comparisons
The EPI further objects to ``comparing Davis-Bacon wage
determinations which were in effect in 2011 with OES data from May
2009.'' They argue that ``[w]hen Davis-Bacon rates which were in effect
in May 2009 are used, the apparent differences between the Davis-Bacon
rates and OES rates are substantially lower.'' \11\
This argument is completely mistaken. I reported the most recent
Davis-Bacon and OES rates at the time of the hearing.\12\ This is the
appropriate comparison. Neither survey is, of course, immediately up-
to-date. No agency can conduct a survey instantaneously. However, OES
survey data are processed more rapidly and updated more frequently than
Davis-Bacon determinations. This--along with its scientifically valid
methodology--is one of the principal reasons to prefer OES figures.
The Bureau of Labor Statistics updates OES figures each May with
data from the previous year. Consequently, the OES always reports
figures from the previous 12 to 24 months. DBA surveys are much less
current. The Labor Department currently takes three years to process
DBA survey results. The Labor Department wants to reduce that time to
17 months, but--as the GAO reported--it is not close to meeting this
goal.\13\
Once it releases determinations, the Labor Department can take
years, even decades, to update them.\14\ For example, the Davis-Bacon
building rates in Kent County, Michigan, date to 1987.\15\ The
residential survey for Hillsdale, Michigan, has not been updated since
1979.\16\
The EPI suggests comparing OES surveys conducted in 2009 and
released in May 2010 with Davis-Bacon surveys primarily conducted
before 2006 and released by May 2009. This comparison makes little
sense and reveals nothing about the accuracy of either survey.
The EPI's suggested comparison also reveals nothing about taxpayer
savings from using BLS data. If Labor used OES figures, it would use
the most recent data available. These are the correct figures to
compare to current Davis-Bacon rates.
Helpers and Apprentices
The EPI finally complains that I do ``not take into account that
the surveyed Davis Bacon rate does not include apprentice rates and
will therefore be higher than the average rates actually paid on a
project.'' \17\ This charge reflects a misunderstanding of how the OES
classifies low-skill construction workers.
OES occupation categories follow the Standard Occupational
Classification (SOC) system. As the EPI explains, construction unions
use a formal apprenticeship system, and apprentices earn lower wages as
they develop their skills. Merit shop (non-union) construction firms
typically use craft training programs and also pay entry-level
construction workers lower wages.
The SOC classifies these less-skilled workers separately. The OES
reports the wages of ``helper'' workers separately from the rates for
fully experienced employees. Table 2 displays the difference in these
wages for several occupations. Helpers typically earn about 40 percent
less than experienced workers.
TABLE 2.--WAGES FOR HELPER AND REGULAR CONSTRUCTION WORKERS
------------------------------------------------------------------------
Hourly Wage Rates
---------------------------
Helpers Regular
------------------------------------------------------------------------
Carpenters.................................. $12.93 $21.19
Electricians................................ $13.23 $24.25
Pipelayers, plumbers, pipefitters, and $13.18 $24.10
steamfitters...............................
------------------------------------------------------------------------
Source: Department of Labor, Bureau of Labor Statistics, Occupational
Employment Statistics, ``May 2010 National Industry-Specific
Occupational Employment and Wage Estimates'' at http://www.bls.gov/oes/
current/oessrci.htm#23
In my testimony, I compared the journey-level DBA rates with the
OES rates for fully experienced employees. The EPI objects that this
does not include apprentices' lower wages. My figures do not include
helpers' lower wages either. I reported an apples-to-apples comparison
of the rates paid to fully experienced employees using Davis-Bacon
rates and OES data.
The EPI suggests comparing the OES rate for experienced workers to
a weighted average of apprentice and journey-level DBA rates. This
would deflate DBA rates to account for low-skill workers without
similarly adjusting OES figures. This would present an inaccurate and
misleading comparison.
Conclusion
The flawed Davis-Bacon determination methodology reports wage rates
that differ significantly from those actually paid to construction
workers. The EPI's arguments to the contrary do not withstand scrutiny.
The Occupational Employment Statistics survey uses a scientifically
representative sample, is updated far more frequently than Davis-Bacon
rates, and is an appropriate benchmark for market wages. Looking at
non-residential building wages instead of the cross-industry wages only
slightly changes the national averages. Comparing an average of
apprentice and journey-level wages to the rates paid to experienced
non-union construction workers would be misleading.
The committee should also note what the Economic Policy Institute
did not say. Not once did Mr. Eisenbrey and Dr. Belman defend the
existing Davis-Bacon methodology as scientific or accurate. They kept
silent because the methodology is indefensible. No professional
economist could suggest using a self-selected sample to estimate wages
or drawing statistical inference from a sample of five workers. They
did not dispute the main point I made to the committee: The Labor
Department uses a deeply flawed methodology to determine Davis-Bacon
rates.
This flawed methodology leads to Davis-Bacon rates that
significantly exceed market pay. The savings from more accurate DBA
wage determinations are real and substantial. Congress should seriously
examine requiring the Labor Department to use scientific methods to
estimate Davis-Bacon wages.
Thank you again for the opportunity to testify about this important
matter.
James Sherk,
Senior Policy Analyst in Labor Economics, the Heritage Foundation.
endnotes
\1\ U.S. Government Accountability Office, Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey, GAO-11-152, March
2011, at http://www.gao.gov/new.items/d11152.pdf.
\2\ James Sherk, ``Examining the Department of Labor's
Implementation of the Davis-Bacon Act,'' testimony before the Committee
on Education and the Workforce, United States House of Representatives,
April 14, 2011, at http://www.heritage.org/research/testimony/2011/04/
examining-the-department-of-labors-implementation-of-the-davis-bacon-
act.
\3\ Ross Eisenbrey and Dale Belman, ``Supplemental Testimony: The
Department of Labor's Implementation of the Davis-Bacon Act,'' Economic
Policy Institute, May 4, 2011, at http://www.epi.org/analysis--and--
opinion/entry/supplemental--testimony--the--department--of--labors--
implementation--of--the--davis/. Ross Eisenbrey is Vice President of
the Economic Policy Institute; Dr. Belman teaches at Michigan State
University.
\4\ Ibid., p. 2.
\5\ ``BLS's Occupational Employment Statistics (OES) survey is a
feasible/viable approach for wage rates in that it produces: wage rate
estimates by occupation for individual Metropolitan Statistical Areas
(MSAs) and for nonmetropolitan areas; and, data by SIC code which can
be differentiated between building, residential, and heavy/highway
general contractors.'' Letter from Bernard Anderson, Assistant
Secretary for Employment Standards, to Senator Arlen Specter and
Senator Tom Harkin, January 17, 2001.
\6\ Eisenbrey and Belman, ``Supplemental Testimony: The Department
of Labor's Implementation of the Davis-Bacon Act,'' p. 2.
\7\ U.S. Census Bureau, ``Federal Construction,'' at http://
www.census.gov/const/www/fedpage.html. Figures seasonally adjusted.
\8\ U.S. Census Bureau, ``State and Local Construction,'' at http:/
/www.census.gov/const/www/statepage.html. Figures seasonally adjusted.
Just 2.7 percent of state and local construction spending in 2010 was
on residential projects.
\9\ Additionally, since DBA determinations are minimum rates, lower
rates do not necessarily imply lower construction costs. The government
would need enough market power in a locality to drive wages below
market rates for an inaccurately low DBA determination to reduce costs.
\10\ The results in particular localities will differ--above and
below--from this national figure. By definition, this does not affect
the average national Davis-Bacon premium.
\11\ Eisenbrey and Belman, ``Supplemental Testimony: The Department
of Labor's Implementation of the Davis-Bacon Act,'' p. 2.
\12\ Since then, the BLS released the May 2010 occupational wage
estimates.
\13\ U.S. Government Accountability Office, Davis-Bacon Act:
Methodological Changes Needed to Improve Wage Survey, pp. 12--18.
\14\ One component of DBA surveys is regularly kept up-to-date:
union wage determinations. The Labor Department updates union-
prevailing DBA rates without conducting a new survey when unions
negotiate a new collective bargaining agreement. Since union wages are
typically higher than non-union wages, this raises DBA rates. However,
the flawed DBA survey reports that union wages prevail in almost two-
thirds of sampled jurisdictions. Actual union density stands at 13
percent in the construction industry, and union wages prevail in only a
handful of urban areas. This misreporting of the prevalence of union
wages introduces a further inaccuracy into the flawed Davis-Bacon
determinations.
\15\ U.S. Government Printing Office, Davis-Bacon Wage
Determinations by State, General Decision MI20100006, at http://
frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=Davis-
Bacon&docid=MI20100006.
\16\ U.S. Government Printing Office, Davis-Bacon Wage
Determinations by State, General Decision MI20100043, at http://
frwebgate.access.gpo.gov/cgi-bin/getdoc.cgi?dbname=Davis-
Bacon&docid=MI20100043.
\17\ Eisenbrey and Belman, ``Supplemental Testimony: The Department
of Labor's Implementation of the Davis-Bacon Act,'' p. 3.
______
[Whereupon, at 11:42 p.m., the subcommittee was adjourned.]