Reducing Unemployment: A Case for Government Deregulation

By Garry K. Ottosen; Douglas N. Thompson | Go to book overview

cies, for a total cost of more than $700 million. The U.S. Chamber of Commerce, on the other hand, estimated the total cost of Davis-Bacon at $2.8 billion a year, including direct costs of $1 billion and indirect costs of $1.8 billion. 28

A 1984 paper by Martha Norby Fraundorf, John P Farrell, and Robert Mason found that Davis-Bacon increased total construction costs in rural areas by 26.1 percent. 29 The authors do not mention a percentage for urban areas, but it is presumably lower. We must keep in mind that 20 percent of all construction in the United States is regulated by Davis- Bacon. 30

A 1986 paper by John F. O'Connell found that Davis-Bacon increases average wages by between 13.13 percent and 32.5 percent. 31 O'Connell also found that Davis-Bacon raises average union wages within geographical areas by enhancing the unions' bargaining position. Thus, he argues that the effect of Davis-Bacon is twofold: nonunion workers are paid a wage higher than they would receive otherwise, and the union wage is higher because of the enhanced bargaining position of the union. The latter effect helps explain labor's adamant support of Davis-Bacon.

Originally, Congress passed the Davis-Bacon Act in response to complaints about the loss of federal construction contracts to itinerant, low- wage contractors. Supporters maintained that requiring all contractors to pay local wages would protect local living standards, provide equal opportunity for local contractors, and stabilize the construction industry. 32 Its effects have been to raise construction costs, enhance union power, keep minority-owned businesses out of federal construction (according to some), 33 and probably to contribute to a high NAIRU. It is past time to repeal this law.


NOTES
1.
George Johnson, as cited in Richard B. Freeman and James L. Medoff, What Do Unions Do? ( New York: Basic Books, 1984), p. 53.
2.
H. Gregg Lewis, Union Relative Wage Effects: A Survey ( Chicago: University of Chicago Press, 1986), p. 186, Table 9.7.
3.
Michael L. Wachter and William H. Carter, "Norm Shifts in Union Wages: Will 1989 Be a Replay of 1969?" Brookings Papers on Economic Activity 2 ( 1989), pp. 233-64.
4.
Michael L. Wachter and William H. Carter, "Evaluating the Evidence on Union Employment and Wages," Industrial and Labor Relations Review 44

-114-

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Reducing Unemployment: A Case for Government Deregulation
Table of contents

Table of contents

  • Title Page iii
  • Contents v
  • Chapter 1 - THE COSTS OF UNEMPLOYMENT 1
  • Notes 10
  • Chapter 2 - THE NAIRU 11
  • Notes 28
  • Chapter 3 - A FAULTY DIAGNOSIS OF UNEMPLOYMENT 30
  • Notes 48
  • Chapter 4 - BUSINESS COSTS, GOVERNMENT REGULATIONS, AND THE NAIRU 51
  • Notes 73
  • Chapter 5 - UNEMPLOYMENT INSURANCE, SOCIAL WELFARE, AND THE NAIRU 75
  • Notes 96
  • Chapter 6 - THE UNION WAGE PREMIUM AND THE NAIRU 98
  • Notes 114
  • Chapter 7 - UNION PRODUCTIVITY EFFECTS, LABOR LAW, AND THE NAIRU 117
  • Notes 133
  • Chapter 8 - PRODUCTIVITY AND THE NAIRU 136
  • Notes 143
  • Chapter 9 - SUMMARY 144
  • Notes 155
  • Bibliography 157
  • Index 165
  • About the Authors 173
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