Free Raises for Everybody. Not.

Real wages remain well below where they were at the start of the Biden Presidency. Presto, the Labor Department is trying to conjure raises by rewriting the Davis-Bacon Act’s prevailing wage mandate. But there’s no such thing as a free government raise.

“We are updating this law and giving workers across the nation a raise,” Vice President Kamala Harris proclaimed last week. She cited a heavy-equipment operator on federally funded construction projects in Allegheny County in Pennsylvania who would see his pay increase to $28 an hour from $17.

Davis-Bacon requires contractors on federally funded public works to pay workers the “prevailing wage” in an area. Prior to 1982 this was defined as the highest wage paid to at least 30% of workers. A 1979 report from the Government Accountability Office noted the law “is inflationary and results in unnecessary construction and administrative costs.”

The Reagan Administration revised the definition to the wage paid to at least 50% of workers or the average. But labor unions say non-unionized workers depress the average. So the Biden Administration is reverting to the pre-1982 definition while making other technical tweaks to increase the wage floor.

The new rule lets DOL adopt prevailing wages determined by state and local governments rather than contractor surveys. That means Big Labor’s friends in Albany and Sacramento will be able to dictate wages on public works. Prevailing wages in metro areas will also cover nearby rural counties where wages are typically lower.

The new rule extends the mandate to broadband, solar panels, wind turbines and electric-vehicle charging stations that are financed in part by Washington. Semiconductor firms receiving federal grants for new factories will have to pay construction workers the new prevailing wage.

The Inflation Reduction Act includes “bonus” tax credits that are five times larger for renewable projects that pay the prevailing wage. Because most aren’t profitable without the bonus credits, nearly all green-energy developers could have to pay the prevailing wage. That means the law may cost even more than the $1.2 trillion that Goldman Sachs estimated.

Prevailing wages will also apply to private investments receiving federal loans and loan guarantees like Ford’s battery plants. With one hand the government subsidizes businesses and with the other it raises their costs.

One obvious result will be higher costs on public works and probably fewer of them since federal dollars won’t go as far. States and localities may have to borrow more and raise taxes to fund projects. Fewer semiconductor fabs and renewable projects will probably be built since private capital won’t go as far.

Another result will be less private investment, especially in housing, since contractors will have to increase wages to compete for workers with federally funded projects that must pay the prevailing wage. The rule will also reduce the competitive advantage of right-to-work states by raising the wages their contractors have to pay.

The Administration is suppressing the private investment the economy needs to grow while undercutting its own economic development goals. Does the Administration’s left hand know what its other left hand is doing?