Prevailing Wages and Government Contracting Costs – A review of the research

Source: Nooshin Mahalia, Economic Policy Institute, Briefing Paper #215, July 8, 2008

From the press release:
Many state and local governments, for more than a century, have required private contractors on public works projects to pay wages and benefits on par with what is commonly paid to construction workers in the area. The federal government followed suit in 1931 with passage of the Davis-Bacon Act. The Act requires contractors to pay the prevailing wage, defined as the wage rate paid to at least 50% of workers in the industry in that area or, if no wage rate reaches the 50% mark, the industry average for the area.

The EPI report, “Prevailing Wages and Government Contracting Costs” by economic analyst Nooshin Mahalia, finds that the studies that prevailing wage opponents cite contain a critical flaw that makes their findings unreliable. They are based on hypothetical models which assume as a starting point that higher wages will necessarily raise contract costs, rather than testing whether, in practice, there is a relationship between wages and contract costs. Mahalia’s analysis shows that most researchers have found that prevailing wage regulations in practice do not increase government contracting costs.

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