NEED TO KNOW
COSTLY LABOR REQUIREMENTS:
DAVIS-BACON & PROJECT LABOR AGREEMENTS
Federal construction projects are subject to countless rules and
bureaucratic regulations – dictating everything from what types of
employees can be hired to what wages these employees must be
paid. This results in higher costs, missed deadlines, and “barriers
to entry” that limit the number of firms that can compete or bid
for government contracts.

WHAT IS THE DAVIS-BACON ACT?
The Davis-Bacon Act was enacted in 1931 during the Great Depression to
prevent non-unionized black and immigrant laborers from competing with
unionized white workers for scarce jobs. The discriminatory effects are still
lingering. It’s not uncommon for minorities to be dramatically
underrepresented in highly unionized skilled trades with less access to work
because of prevailing wage laws.
The Act requires that contractors working on federal construction projects
(i.e. building roads and bridges) pay their workers the so-called “prevailing
wage” rate. This creates an artificial price floor for wages – firms are forced
to pay salary and benefits in excess of the local average wage (a figure
calculated by the U.S. Department of Labor) – and undermines any incentive
to save taxpayers money by bringing in lower-cost labor.
The Mercatus Institute found that Davis-Bacon regulations increase the cost
of federally funded construction projects by 9.9%. Part of the reason is that
wages for federal projects are highly inflated by the regulations. Wages on
highway projects are inflated by Davis-Bacon.

WHAT IS A PROJECT LABOR AGREEMENT?
Project labor agreements (PLAs) allow construction unions to set a project’s
labor rules before any workers are actually hired for the project. This often
means including inefficient union work rules or fixing wage rates at inflated
union-worker levels. When a final contract bidder is picked and the contract
is actually awarded for the project, all workers musts be covered by the
pre-negotiated labor rules regardless of whether they are union or
non-union. This functionally prohibits contractors that use less expensive
non-union labor (which makes up over 86 percent of the construction
workforce in the U.S.) from working on federal projects, and it also prevents
non-union contractors rom underbidding union contractors – which would
help keep overall project costs under control.

QUICK FACTS
• The requirements imposed
by the Davis-Bacon Act and
Project Labor Agreements
unnecessarily inflate the cost
of federal construction
projects – a handout for
construction unions at the
expense of taxpayers.
Repealing Davis-Bacon laws
would save taxpayers $1.6
billion annually. Repealing
Project Labor Agreements
would save Americans $24
billion.

NOTABLE & QUOTABLE
“…[F]ederal contractors are
charged, on average, a 22
percent premium on their
labor costs above what
private companies pay for the
same project, which often
prevents low-skilled workers
from getting a fair shot.”
- Mike Lee, Senator (R-UT)
“Davis-Bacon is bad for
taxpayers and it is bad for
small businesses and bad for
workers needing a job.
Repealing this outdated law
would be a big step towards
ensuring taxpayer dollars are
being used wisely and
efficiently.”
- Steve King, Representative
(R-IA)

 The National University System Institute for Policy Research found that costs are 13 to 15 percent higher
when school districts construct a school under a PLA. In inflation adjusted dollars, they found that the
presence of a PLA is associated with costs that are $28.90 to $32.49 per square foot higher.
Americans for Tax Reform found that repealing Project Labor Agreements would save American
taxpayers $24
billion.

STATES ROLLING BACK COSTLY LABOR REQUIREMENTS
Unfortunately, the federal government wasn’t the only government that imposed these costly rules on
spending projects. But many states are taking action to roll back PLA mandates. In 2015, three states
took action to guarantee free and open competition on taxpayer-funded construction projects. West
Virginia banned PLA mandates when Gov. Earl Ray Tomblin became the first Democratic governor to
sign a bill prohibiting PLA mandates. Arkansas Gov. Asa Hutchinson signed into law a bipartisan bill
prohibiting PLA mandates that passed both the State Senate and House of Representatives in
unanimous votes. In Nevada, Gov. Brian Sandoval signed legislation to make Nevada the 23rd state to
restrict PLA mandates on state and state-assisted projects in some capacity, bringing the number of
states challenging PLA law to 22.

CONCLUSION
Passed during the Great Depression to inflate wages above the market rate, the Davis-Bacon Act places
needless restrictions on state and federal construction projects – unnecessarily driving up labor costs.
Similarly, project labor agreements discriminate against more than 86 percent of the construction
workforce by requiring union contracts and inefficient union work rules on construction projects. These
two rules cost federal taxpayers billions of dollars per year.

Americans for Prosperity Foundation’s “Need to Know” informational series explores current events
and recent scholarship on public policy isues from a free-market economics perspective. A full list of
“Need to Know” briefings is available at www.AmericansForProsperityFoundation.org/NeetToKnow.
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