Prevailing Wage

In government contracting, a prevailing wage is defined as the hourly wage, usual benefits and overtime, paid to the majority of workers, laborers, and mechanics within a particular area. Prevailing wages are established by regulatory agencies for each trade and occupation employed in the performance of public work, as well as by State Departments of Labor or their equivalents. Prevailing wage laws seek to prevent public construction projects from destabilizing a local construction industry and to advance other priorities such as workforce development, green building, and greenhouse gas reduction. But, many people also believe that prevailing wage is a product of a bygone era that inhibits competition and artificially inflates the cost of public projects.

Some believe that the need for prevailing wages is to prevent the public sector’s large expenditures and strict competitive bidding requirements from destabilizing local and regional construction markets. By taking wages out of the equation, prevailing wages organize competition around quality, productivity, and efficiency without touching off a “race to the bottom” as contractors underbid one another by lowering the rate of pay earned by their workers. The goal is that, with everyone playing on a level field, contractors seek to maximize their workers' output and their own ability to manage work better than their competition. In practice, a construction project will have most of the same workers on the job whether it is a "prevailing wage" job or not. The employees will be paid at a higher wage scale if the project has been deemed "prevailing wage" either by law or choice. Prevailing wage is the government removal of wage competition and of setting a firm wage schedule. Many believe that this sort of government involvement in private industry is inappropriate and inefficient.

More recently, "prevailing wage" has come to be known as a code word for "union wages", as the modern interpretation tends to identify union wages and benefits as the benchmark in a given community. In the United States, 86% of construction labor is non-union, and it is very difficult for such workers to join unions to work on government jobs (because of entrenched seniority rules), this has been alleged as political patronage to unions.

"Prevailing wages" were first established shortly after the Civil War when Congress passed the National Eight Hour Day law. Although the Congress had not yet established its authority to regulate private economic matters because of prevailing legal doctrines, it could regulate its own contracts and the targeted public works as a means to indirectly influence other labor markets. Because construction workers at the time were paid on a daily rather than hourly basis, the establishment of an eight hour day without a reduction of the daily wage rate formally incentivized public works contractors to improve the efficiency and productivity of their workforce rather than the length of their day in order to complete their projects on time.

In 1891 Kansas was the first state to pass a "prevailing wage" for its own public works projects, and over the next thirty years was followed by seven other states (New York 1894, Oklahoma 1909, Idaho 1911, Arizona 1912, New Jersey 1913, Massachusetts 1914, and Nebraska 1923) in establishing minimum labor standards for public works construction. In the midst of the Great Depression, beginning in 1931 and prior to the end of World War II, twenty additional states passed their own prevailing wage laws. In 1931 Congress passed the Davis Bacon Act after 14 earlier attempts, the Federal Prevailing Wage law that remains in force, bar a few suspensions, to this day.