EMPLOYMENT EFFECTS OF THE DAVIS-BACON ACT by Farrell Bloch, Ph.D.

at $130 per hour is now cheaper than the $140 one plumber-three helper combination. This same reversal results even if the plumber wage is raised to $55: the two plumber-one helper combination now costs $140 per hour, and the one plumber-three helper combination costs $145. In the last example, the relatively greater wage increase for helpers reduced their employment as compared with that of plumbers. Under either minimum wage scenario, the employment of plumbers has increased at the expense of the employment of helpers.

Because minorities are disproportionately represented among the relatively unskilled laborers, this shift to higher skilled labor accompanying increased wage rates should adversely affect the employment of minority construction workers. In 1990, 32.0 percent of the 1.26 million construction laborers (including helpers and apprentices), but only 22.2 percent of all 5.71 million nonsupervisory construction workers, were minorities. Blacks constituted 13.0 percent of laborers and 8.5 percent of all construction workers; Hispanics, 16.7 percent of laborers and 11.7 percent of all construction workers.

Minority employment may also be affected by unionization, apart from union-based higher wages. Minorities were traditionally viewed as less likely than whites to be union members because of: (1) less access to information about vacancies in unions in part because of fewer friends, relatives, and neighbors with union experience; (2) poorer training as youngsters and therefore lower qualifications to enter union apprenticeship programs; and (3) active discrimination on the part of union officials. Recent affirmative action efforts on the part of unions have countered these tendencies.

Indeed, aggregated data for the years 1986-1994 reveal that 23.8 percent of all, 24.0 percent of white, and 21.8 percent of minority nonsupervisory construction workers in the construction industry were union members. Part of this mild racial disparity results from the lower unionization rate for laborers, who, as noted above, have a relatively high representation of minorities. The unionization rate was 20.3 percent for laborers (19.9 percent white; 22.1 percent minority), but 25.0 percent for the remainder of nonsupervisory construction workers (25.3 percent, white; 21.7 percent, minority). In contrast, Ashenfelter (1972, p. 451) notes that, in 1967, more than half of white and about a quarter of black skilled construction workers, plus 28 percent of white and 35 percent of black laborers, were unionized. These data illustrate that the pronounced narrowing of the racial gap in construction unionization rates in the 1970s and 1980s was produced mainly by a sharp reduction in the union membership rate of skilled whites.

If individuals interested in the relatively well-paying construction jobs but not employed in construction—those employed in lower-paying jobs, the unemployed, and nonparticipants in the labor force—are disproportionately minority, then these measured unionization rates understate the racial unionization gaps based on this expanded supply of potential construction labor. Also, given the many allegations of hiring hall discrimination in referred hours of work, construction union members not employed in the building trades may be disproportionately minority (unions typically allow their nonworking members to take jobs in other industries). In any event, because only one of four construction workers is a union member, much of the potential employment effects of higher wage rates are likely to occur in the nonunion sector.

The scale and substitution effects discussed above also apply to the skill mix of construction workers. Thus, higher wages should be negatively correlated with the relative employment of laborers as opposed to skilled workers. Furthermore, increased wage rates likely reduce total employment in the construction industry. Unionization and construction employment are negatively correlated across metropolitan areas, in part because of the very strong positive correlation between unionization and wage rates. Non-wage effects of unions on construction employment may be either positive (if, for example, unions increase construction activity by lobbying successfully to replace publicly-owned structures that could have lasted years more) or negative (if the presence or growth of unions discourages construction activity).

Empirical Results

My primary regression model implies that a $1 increase in construction hourly wage rates would induce a 146,000 nationwide job loss in construction occupations—39,000 laborers and 107,000 skilled workers. This reduction in jobs represents 110,000 lost jobs for minorities (28,500 laborers; 81,500 skilled) and 36,000 lost jobs for whites (10,500 laborers; 25,500 skilled).

These empirical results, in conjunction with a conservative estimate that the impact of Davis-Bacon is equivalent to a 25 cent increase in the overall construction mean hourly wage, imply that elimination of the Davis-Bacon Act would increase the total number of construction jobs nationally by more than 36,000. This increase would reflect a disproportionate gain of 27,000 jobs for minorities (7,000 laborers; 20,000 skilled), plus a gain of 9,000 jobs for whites (3,000 laborers; 6,000 skilled). Economy-wide employment increases are lower than those for the construction trades because some additional construction jobs would represent shifts from other occupations.

Because skilled workers outnumber laborers by more than 3.5:1, laborers would benefit disproportionately from repeal. Thus, in addition to removing the inefficiencies induced by wage floors, repealing Davis-Bacon would increase the relative construction employment of minorities and laborers. The disproportionate gains for minorities and laborers reflect the considerable positive equity impact of Davis-Bacon repeal. A complete equity analysis must also take into account the wage increases enjoyed by minorities and laborers employed on Davis-Bacon projects. Repeal of state prevailing wage laws would be expected to produce similar effects.

These employment estimates somewhat understate the expected increase in construction jobs resulting from Davis-Bacon repeal. First, I have used a conservative estimate of the wage effect. Second, the Davis-Bacon Act affects employment in Census occupational classifications other than construction. Third, repeal of Davis-Bacon could considerably weaken unions and induce a further reduction of construction wage rates.

IV. Conclusions

Higher wage markets are associated with lower construction employment and, most striking, substantial reallocations of employment across race and skill groups, to the detriment of minorities and laborers. These wage effects imply that repealing Davis-Bacon and state prevailing wage laws would have particularly salutary effects on construction employment opportunities for minorities and laborers.

Research on this issue can be continued along at least two avenues: study of the employment effects of state prevailing wage laws, and replication of my study with the soon-to-be-forthcoming Census 2000 data. Differential effects across time and space might be correlated with the extent of discrimination, suggesting a decline in racial redistributive effects as discrimination diminishes over time, and as opportunities increase for both full-time construction employment and secondary occupations for construction workers.

 

REFERENCES

 

Allen, Steven G. “Much Ado About Davis-Bacon: A Critical Review.” Journal of Law and Economics, October 1983, 26(3), pp. 707-36.

________. “Can Union Labor Ever Cost Less?” Quarterly Journal of Economics, May 1987, 102(2), pp. 347-73.

Ashenfelter, Orley. “Racial Discrimination and Trade Unions.” Journal of Political Economy, May-June 1972, 80(3), pp. 435-64.

Bloch, Farrell. “Minority Employment in the Construction Trades.” Journal of Labor Research, Spring 2003, 24(3), pp. 271-91.

Goldfarb, Robert S. and Morrall, John F. III. “The Davis-Bacon Act: An Appraisal of Recent Studies.” Industrial and Labor Relations Review, January 1981, 34(2), pp. 191-206.

Marshall, F. Ray, Cartter, Allan M., and King, Allan G. Labor Economics: Wages, Employment, and Trade Unionism (3rd ed.). Homewood, Ill: Richard D. Irwin, 1976.

Metzger, Michael R. and Goldfarb, Robert S. “Do Davis-Bacon Minimum Wages Raise Product Quality?” Journal of Labor Research, Summer 1983, 4(3), pp. 265-72.

Thieblot, Armand J., Jr. The Davis-Bacon Act. Philadelphia: University of Pennsylvania Press, 1975.

U.S. General Accounting Office. The Davis-Bacon Act Should Be Repealed. Washington: U.S. General Accounting Office, April 27, 1979.