How to Save $40 Billion
One suggestion for transcending 'worn-out dogmas.'

President Obama said in his Inaugural Address yesterday that government must spend to rebuild roads and bridges, but that those "who manage the public's dollars" must also "spend wisely" and "reform bad habits." With that ambition in mind, here's an idea to save tens of billions of taxpayer dollars in the months ahead: Repeal Davis-Bacon superminimum wage requirements for construction projects.

We're referring to the 1931 law that requires contractors on all federal projects to pay a "prevailing wage." In practice, this means paying the highest union wage in every part of the country. Over the years nearly every analysis -- by the Congressional Budget Office, the Government Accountability Office and Office of Management and Budget -- has concluded that Davis-Bacon tangles projects in red tape and inflates federal construction costs.
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A 2008 study by Suffolk University and the Beacon Hill Institute examined local wage data for construction workers and found that the Department of Labor estimates for the "prevailing wage" in cities are about 22% above the actual wages paid in these cities. It estimates that Davis-Bacon adds slightly less than 10% to federal building costs, or $8.4 billion a year.

Davis-Bacon was devised in part as a way to keep blacks and immigrants from federal construction projects during the Depression. Nowadays its impact is mainly to reward unions for political campaign support, though it still does have some racial implications. A 2001 study by labor economists Daniel Kessler and Lawrence Katz examined state Davis-Bacon-type laws for the National Bureau of Economic Research and concluded: "Repeal is associated with a sizeable reduction in the union wage premium and a significant narrowing of the black/nonblack wage differential for construction workers."
In Today's Opinion Journal

REVIEW & OUTLOOK

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* Declarations: Meet President Obama
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* Business World: Can Obama Make Government Solvent?
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* The Tilting Yard: George W. Is No Martyr
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COMMENTARY:

* Symposium: Hopes for the Obama Presidency
* Lincoln's Lessons for a New President
– Jay Winik
* Judge Obama on Performance Alone
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* Let's Stimulate Private Risk Taking
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George W. Bush briefly suspended Davis-Bacon during the Gulf Coast clean-up after Hurricane Katrina in 2005. But the unions howled that immigrant workers were filling the reconstruction jobs at lower wages. So under intense pressure from Members of Congress in both political parties, Mr. Bush backed down.

The savings for taxpayers from waiving Davis-Bacon would be even greater amid the staggering new spending contemplated for the stimulus bill. Let's say Congress spends $400 billion over the next two years on roads, mass transit or other construction. Assuming only a 10% cost savings -- the lower end of economic estimates -- would mean about $40 billion in lower spending for the same projects. Congress could either forego that spending, which would mean a smaller claim on future taxpayers, or it could spend that money to fund more projects that would hire more workers.

The draft stimulus bill we've seen explicitly mentions that Davis-Bacon rules must apply. But Jim DeMint (R., S.C.) says he'll offer an amendment on the Senate floor to suspend those rules for stimulus spending. This would seem to be exactly the kind of liberation from "worn out dogmas" that Mr. Obama called for yesterday. If he wants to send an early message that this really is a new era -- and save taxpayers a bundle too -- the new President need merely put in a good word for Mr. DeMint's effort.