To prevent the exploitation of local labor markets by itinerant contractors during the Great Depression, in 1931 the United States Congress passed the Davis-Bacon Act. This legislation requires contractors who bid on federally financed building projects to pay construction workers the locally prevailing rates in wages and benefits.
In An Evaluation of the Impact of the Davis-Bacon Act, government economists John T. Berg and Ralph C. Erickson review the historic impetus which gave birth to the Act, offer a critical analysis of the arguments propounded by its modern apologists and examine the reasons behind the growing support for its reform or outright repeal. The authors found that forced compliance with the Act annually raises public construction costs between $1 to $2 billion and of the federal-aid highway program, of which they are most familiar, $284 million in 1984.
Public sector unions favor retention of the Act since it has an inflationary effect upon their members' wages. Even though the last year has witnessed repeal of "little Davis-Bacon Acts" in Arizona, Idaho, New Hampshire and Colorado, unions continue to lobby against its repeal on both the state and federal levels. During the last session of Congress, they successfully opposed efforts on Capitol Hill to reduce defense expenditures by exempting contractors from the prevailing wage statute on military projects of less than $1 million.