Prevailing wage
Encyclopedia
In government contracting, a prevailing wage is defined as the hourly wage, usual benefits and overtime, paid to the majority of workers, laborers, and mechanics within a particular area. Prevailing wages are established by regulatory agencies for each trade and occupation employed in the performance of public work, as well as by State Departments of Labor or their equivalents. Prevailing wage regulations are an important element in ensuring that public construction projects do not destabilize the local construction industry, in leveraging public works investments for supporting local economies and local governments, and to advance other priorities such as workforce development, green building, and greenhouse gas reduction.
The most well understood need for prevailing wages is to prevent the public sector’s large expenditures and strict competitive bidding requirements from destabilizing local and regional construction markets. By taking wages out of the equation, prevailing wages organize competition around quality, productivity, and efficiency without touching off a “race to the bottom
” as contractors underbid one another by lowering the rate of pay earned by their workers. The goal is that, with everyone playing on a level field, contractors seek to maximize their workers' output and their own ability to manage work better than their competition.
"Prevailing wages" were first established shortly after the Civil War when Congress passed the National Eight Hour Day law. Although the Congress had not yet established its authority to regulate private economic matters because of prevailing legal doctrines, it could regulate its own contracts and the targeted public works as a means to indirectly influence other labor markets. Because construction workers at the time were paid on a daily rather than hourly basis, the establishment of an eight hour day without a reduction of the daily wage rate formally incentivized public works contractors to improve the efficiency and productivity of their workforce rather than the length of their day in order to complete their projects on time.
In 1891 Kansas was the first state to pass a "prevailing wage" for its own public works projects, and over the next thirty years was followed by seven other states (New York 1894, Oklahoma 1909, Idaho 1911, Arizona 1912, New Jersey 1913, Massachusetts 1914, and Nebraska 1923) in establishing minimum labor standards for public works construction. In the midst of the Great Depression, beginning in 1931 and prior to the end of World War II, twenty additional states passed their own prevailing wage laws. In 1931 Congress passed the Davis Bacon Act after 14 earlier attempts, the Federal Prevailing Wage law that remains in force, bar a few suspensions, to this day.
The Federal Davis-Bacon Act and Related Amendments pertain to federally funded projects. There are also 32 states that have state prevailing wage laws, also known as "little Davis-Bacon Acts". The rules and regulations vary from state to state.
Federal rates are calculated based on regulations established by the Department of Labor. According to Code of Federal Regulations, "The prevailing wage shall be the wage paid to the majority (more than 50 percent) of the laborers or mechanics in the classification on similar projects in the area during the period in question. If the same wage is not paid to a majority of those employed in the classification, the prevailing wage shall be the average of the wages paid, weighted by the total employed in the classification." State level rates are calculated using various methods including an average of all wage rates paid, the mode, or based on collectively bargained rates.
construction contracts, and most contracts for federally assisted construction over $2,000, must include provisions for paying workers on-site no less than the locally prevailing wages and benefits
paid on similar projects.
In the Walsh-Healey Public Contracts Act
the federal government set the minimum wage
equal to the prevailing wage in an area.
The most well understood need for prevailing wages is to prevent the public sector’s large expenditures and strict competitive bidding requirements from destabilizing local and regional construction markets. By taking wages out of the equation, prevailing wages organize competition around quality, productivity, and efficiency without touching off a “race to the bottom
Race to the bottom
A race to the bottom is a socio-economic concept that is argued to occur between countries as an outcome of regulatory competition, progressive taxation policies and social welfare spending...
” as contractors underbid one another by lowering the rate of pay earned by their workers. The goal is that, with everyone playing on a level field, contractors seek to maximize their workers' output and their own ability to manage work better than their competition.
"Prevailing wages" were first established shortly after the Civil War when Congress passed the National Eight Hour Day law. Although the Congress had not yet established its authority to regulate private economic matters because of prevailing legal doctrines, it could regulate its own contracts and the targeted public works as a means to indirectly influence other labor markets. Because construction workers at the time were paid on a daily rather than hourly basis, the establishment of an eight hour day without a reduction of the daily wage rate formally incentivized public works contractors to improve the efficiency and productivity of their workforce rather than the length of their day in order to complete their projects on time.
In 1891 Kansas was the first state to pass a "prevailing wage" for its own public works projects, and over the next thirty years was followed by seven other states (New York 1894, Oklahoma 1909, Idaho 1911, Arizona 1912, New Jersey 1913, Massachusetts 1914, and Nebraska 1923) in establishing minimum labor standards for public works construction. In the midst of the Great Depression, beginning in 1931 and prior to the end of World War II, twenty additional states passed their own prevailing wage laws. In 1931 Congress passed the Davis Bacon Act after 14 earlier attempts, the Federal Prevailing Wage law that remains in force, bar a few suspensions, to this day.
Scope
Prevailing wage may include both wages, benefits, and other payments such as apprenticeship and industry promotion. It encompasses the compensation for a worker given for performed labor.The Federal Davis-Bacon Act and Related Amendments pertain to federally funded projects. There are also 32 states that have state prevailing wage laws, also known as "little Davis-Bacon Acts". The rules and regulations vary from state to state.
Federal rates are calculated based on regulations established by the Department of Labor. According to Code of Federal Regulations, "The prevailing wage shall be the wage paid to the majority (more than 50 percent) of the laborers or mechanics in the classification on similar projects in the area during the period in question. If the same wage is not paid to a majority of those employed in the classification, the prevailing wage shall be the average of the wages paid, weighted by the total employed in the classification." State level rates are calculated using various methods including an average of all wage rates paid, the mode, or based on collectively bargained rates.
United States
In the Davis-Bacon Act all federal governmentFederal government of the United States
The federal government of the United States is the national government of the constitutional republic of fifty states that is the United States of America. The federal government comprises three distinct branches of government: a legislative, an executive and a judiciary. These branches and...
construction contracts, and most contracts for federally assisted construction over $2,000, must include provisions for paying workers on-site no less than the locally prevailing wages and benefits
Employee benefit
Employee benefits and benefits in kind are various non-wage compensations provided to employees in addition to their normal wages or salaries...
paid on similar projects.
In the Walsh-Healey Public Contracts Act
Walsh-Healey Public Contracts Act
The Walsh-Healey Act or Walsh–Healey Public Contracts Act, passed in 1936 as part of the New Deal, is a United States federal law that applies to U.S. government contracts exceeding $10,000 for the manufacture or furnishing of goods...
the federal government set the minimum wage
Minimum wage
A minimum wage is the lowest hourly, daily or monthly remuneration that employers may legally pay to workers. Equivalently, it is the lowest wage at which workers may sell their labour. Although minimum wage laws are in effect in a great many jurisdictions, there are differences of opinion about...
equal to the prevailing wage in an area.
See also
- Compensation of employeesCompensation of employeesCompensation of employees is a statistical term used in national accounts, balance of payments statistics and sometimes in corporate accounts as well...
- EmploymentEmploymentEmployment is a contract between two parties, one being the employer and the other being the employee. An employee may be defined as:- Employee :...
- Labour in Economics
- Living wageLiving wageIn public policy, a living wage is the minimum hourly income necessary for a worker to meet basic needs . These needs include shelter and other incidentals such as clothing and nutrition...
- Labor powerLabor powerLabour power is a crucial concept used by Karl Marx in his critique of capitalist political economy. He regarded labour power as the most important of the productive forces of human beings. Labour power can be simply defined as work-capacity, the ability to do work...
- McNamara–O'Hara Service Contract Act
- WageWageA wage is a compensation, usually financial, received by workers in exchange for their labor.Compensation in terms of wages is given to workers and compensation in terms of salary is given to employees...
- Wage labourWage labourWage labour is the socioeconomic relationship between a worker and an employer, where the worker sells their labour under a formal or informal employment contract. These transactions usually occur in a labour market where wages are market determined...
- Wage shareWage shareThe wage share is the ratio between compensation of employees and one of the following variables:#gross domestic product at market prices#gross domestic product at factor cost....
- Wage slaveryWage slaveryWage slavery refers to a situation where a person's livelihood depends on wages, especially when the dependence is total and immediate. It is a negatively connoted term used to draw an analogy between slavery and wage labor, and to highlight similarities between owning and employing a person...
- Working classWorking classWorking class is a term used in the social sciences and in ordinary conversation to describe those employed in lower tier jobs , often extending to those in unemployment or otherwise possessing below-average incomes...