Prevailing Wage Laws: Public Interest or Special Interest Legislation?

18 Pages Posted: 27 Apr 2013

See all articles by George C. Leef

George C. Leef

Pope Center for Higher Education Policy

Date Written: January 25, 2010

Abstract

The public policy of the United States is broadly in favor of competition. Our antitrust laws are premised on the idea that in the absence of such legislation private interests would seek to create monopolies, fix prices, restrain trade, and stifle competition. Moreover, the federal government, as well as the states and municipalities, has laws mandating competitive bidding on government contracts to guard the public against “sweetheart deals” that squander tax dollars. Open competition, in fact, is usually the undoing of those conspiracies against the public that Adam Smith saw as so prevalent.

One glaring exception to the general rule favoring competition is “prevailing wage” laws. Those laws mandate that on government construction projects, the labor component will not be subject to competitive bidding; rather, the wages paid to the various classes of construction labor are set by government officials at rates determined to prevail in the job site’s locality — typically, prevailing union wages. Labor wages and benefits are thus removed from competition by operation of law.

Are prevailing wage laws a reasonable deviation from our general rule in favor of competition? Do they actually reflect the public interest, with benefits that outweigh the costs? Or are they merely an instance of rent seeking by a politically potent interest group, using its influence to use the law to enforce a price fixing scheme? This article concludes that the latter of those questions captures the truth. Prevailing wage laws favor special interests by concentrating benefits and dispersing costs. They ought to be repealed.

Keywords: prevailing wages, prevailing wage rates, Davis-Bacon Act, state wage laws, economic efficiency, competition

JEL Classification: E24, J08, J30, J38

Suggested Citation

Leef, George C., Prevailing Wage Laws: Public Interest or Special Interest Legislation? (January 25, 2010). Cato Journal, Vol. 30, No. 1, 2010, Available at SSRN: https://ssrn.com/abstract=2256465

George C. Leef (Contact Author)

Pope Center for Higher Education Policy ( email )

353 E. Six Forks Road
Suite 200
Raleigh, NC NC 27609
United States

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