Prevailing wages

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Prevailing Wages
The U.S. Congress passed the Davis-Bacon Act in 1931 during the Great Depression. According to this act, a law was implemented that required governmental contractors to pay ‘prevailing wages’ on projects that it took on behalf of the federal government. The effect of this legislation was that more than 40 states adopted the ‘little Davis-Bacon Acts’ or ‘prevailingwage’ laws. This was then, but later on, many states repealed these statutes. Still, many states today, including Michigan, carry on with such laws that seem to have become obsolete from those Depression-days (Vedder 1997). This paper shall attempt to take a closer look as to what the implications of implementing such laws are, with scrutiny of these laws as enacted in the state of Michigan.Various statistics shall be presented to highlight the advantages and disadvantages of using such laws in a state. The paper shall discuss the various issues that Michigan has faced in regards to these laws and will come up with some solutions and recommendations for the state of Michigan on whether it should continue to implement these rules or repeal from them.
Many jurisdictions, including thatof the federal government, set the prevailing wages exactly at or very near to those that are demanded by the laborers according to the union-scale. “Prevailing wage laws, then, force contractors on government construction or other projects to pay their employees at the same rate as unionized members of the relevant occupation—whether it be bricklayers, carpenters, electricians, or other categoriesof workers—even if non-union contractors could perform the same work less expensively by paying their workers lower but mutually agreed-upon wages” (Vedder 1997). The governments usually use a very complex and intricate method to set these prevailing wages, “but because of the large number of distinct geographic labor markets and numerous occupational categories, the tendency is for wages to beset equal or approximate to those determined in local collective bargaining agreements between unions and contractors” (Vedder 1997). This is not true for all the states as in many of the states, these prevailing wages are not so obviously connected to the pay scales provided by the unions. Michigan, however, is considered to be a ‘strong’ prevailing wage state and the formulation that is used toderive these wages consist of tying the rates very closely to the union pay scales.
After a lot of research and contention, it has been concluded that prevailing wage laws are in fact bad for the economy and are considered to be poor policy. The argument against these laws is presented in more details in the course of this paper, but to summarize, it is concluded that prevailing wages restrictpeople from operating in a free market to allocate resources and use factors of production in an efficient manner. This retards job creation and contributes to lower economic growth. In context of Michigan, it was found that many of the workers wanted to move out of Michigan (and other prevailing wage states) and go in states where they can earn incomes that are better suited to their skills. Thissuggests that it would be wise for the Michigan legislature to repeal the Prevailing Wage Act of 1965 (Vedder 1997)

Prevailing Wages and Michigan
A federal district court judge, in December 1994, ruled that Michigan’s prevailing wage law was preempted by ERISA, a federal pension law. In lieu of this judgment, the prevailing wage law was not enforced in the state of Michigan for the 30 monthsbetween 1994 and 1997. An appellate court reinstated the law in June of 1997. This allowed the economists to observe and analyze how the law (both its presence and its absence) was able to affect the economy of Michigan during these 30 months. This allowed the economists to determine the following:
· “Michigan’s prevailing wage law reduces employment in construction: During the 30 months...
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