Leef examines a federally mandated price-fixing conspiracy

George Leef shares with Forbes readers interesting insights about the Davis-Bacon Act.

In 1931, Republican Congressman Robert Bacon (NY) teamed up with Republican Senator James Davis (PA) to push through a bill to rectify an egregious wrong (at least as they and some of their constituents saw things) – that construction contractors were choosing to employ lower-wage non-union black workers on federal projects rather than employing higher-wage and mostly unionized white workers.

The Horror — allowing some workers to compete by accepting lower compensation! Bacon and Davis had been trying to enact their anticompetitive bill since 1927. It was finally passed and was signed into law by President Hoover on March 31, 1931.

In order to “protect” against the employment of lower-cost construction workers on federal projects, the law declares that on all such projects, laborers must be paid at “the prevailing wage.” So instead of simply allowing competition on that aspect of federal contracting, we have to pay bureaucrats in the Department of Labor to find out what the “prevailing wage” is for all the different kinds of construction labor. What they find to be the prevailing wage is almost always the union-scale wage in the nearest locale where there are union contracts.

“Prevailing wage” law sounds so much nicer than calling it a “price fixing” law, but that is exactly what Davis-Bacon and its many state copy-cats do. Going back to the beginning of the labor movement in the U.S., the stated goal was to take labor out of competition. By making it illegal for contractors on federal projects to pay less, even if there are competent workers willing to work at wages below the “prevailing” ones, the government is acting to enforce the unions’ wish to suppress competition.

In free markets, conspiracies to fix prices rarely last long before someone tries to get more business by undercutting the established price. The only way to ensure that cartel prices aren’t eroded by competition is to use political clout to get the government to prevent competition. Big Labor and Big Business often try to use government for that purpose.

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