Don’t abandon pragmatism for wage ‘fairness’

John Glenn was the first U.S. astronaut to orbit Earth. He did not lose his sense of humor in space.

When asked what it was like, sitting in the Mercury 7 cockpit, headed for the unknown, listening to the countdown, he replied, “I felt exactly how you would feel if you were getting ready to launch and knew you were sitting on top of two million parts — all built by the lowest bidder on a government contract.”

Quality, workmanship, skills, experience and safety are long-standing parts of the argument against changing the rules covering wages in government contracts. Most of these rules have been derived from the Davis-Bacon Act, a federal law adopted in 1931 to slow the decline in pay rates and avoid the exploitation of labor by employers.

The law applies only to federal contracts and subcontracts, but many states have adopted similar rules. While the Davis-Bacon Act was fairly straightforward in its intent and its goals, the rules and calculations spawned by the law have become incredibly complex and often unworkable — so much so that in 1979, the General Accounting Office (GAO) recommended that the law be repealed.

One of the perennial problem rules embedded in the Davis-Bacon Act of 1931 was the reliance on “prevailing wage” to determine the minimum acceptable rates for government contracts.

The law as originally drafted was a product of the Depression, and it was a time when the ranks of the unemployed included millions of desperate men and women who would take any job, at any pay, just to put some food on the table. This was a labor market made for exploitation, and Davis-Bacon was aimed at slowing the market momentum by blocking the path of any federal construction contractor who was tempted to use exploited labor as a means to become the successful low bidder.

Today’s labor market is different. It is less the product of a sudden crash than of steady downward pressures on wages, especially in the lower-skilled echelons. Over an extended time frame, then, the prevailing wage will decline. Perhaps recognizing the new economic environment, unions seem willing to drop the once-sacrosanct prevailing wage concept in favor of a mandated minimum wage for federal contracts.

This was evident in the support for President Obama’s Executive Order in 2014, which included a minimum wage of $10.10 — considerably higher than the federal minimum wage of $7.25. More recently unions, reflecting agenda more than economics, are trying to get President Obama to include a $15 minimum wage in the “Model Federal Contract” he is drafting.

At the state level there are enough differences and disarray to satisfy anyone’s need for diversity. Some states are trying to pry public contracts away from the Davis-Bacon model, which in many cases has morphed into a union model — and sometimes into an even worse model, crony socialism. Other states never had any such model, and one, Oklahoma, had its prevailing-wage law declared to be in violation of its state constitution.

When viewed from a national economy perspective the issue becomes simpler, but more intractable. What is involved is less a battle between taxpayers and unions than a head-on conflict of economic philosophy—capitalism vs. socialism; pragmatism vs. morality mandates.

At its heart, the Davis-Bacon law was not a challenge to the market system. It was simply a matter of practicality. Congress saw a market force driving down wages and for economic policy purposes wanted to slow it down — and federal construction contracts presented a practical way to do so.

This is a very different philosophy from mandating wage levels on the basis of fairness or need, which are defined outside the market system by our sense, or someone’s sense, of moral imperatives. Thus, grocery baggers’ pay would not be determined not by the market demand and supply of people meeting the skill requirements. Instead, it would be calculated by how many dependents they have and their other needs for a “living wage.”

This is straight out of Karl Marx, and others preceding him, who believed that socialism would free up an economy’s productive capacity to meet everyone’s needs. Dream on.

There has always been a strong force of pragmatism along with a not-so weak force in our sense of fairness, that have helped America through some rough patches and in its battles with competing theories of social organization and economics.

The persistence of painfully slow economic growth is tempting us to abandon pragmatism and try wishful thinking by commanding the economy to do our bidding. If we start issuing commands to the economy something definitely will happen. It just may not resemble what we intended. Economics is like that.

James McCusker is a Bothell economist, educator and consultant. He also writes a column for the monthly Herald Business Journal.