The Biden Administration Is Ignoring How Its Policies Will Worsen Inflation. Again.

Despite inflation running at a 40-year high, the Biden administration is pushing ahead with plans to hike wages for federal contractors—effectively undoing a Reagan-era policy that was implemented to help curb inflation.

The Department of Labor published a March 18 notice stating that they would update their interpretation of Davis-Bacon Act (1931 federal law) requiring government contractors to pay “prevailing wages”. This law sets a price ceiling by prohibiting potential contractors from undercutting wages in order to compete for government contracts. The result is usually artificially high wages. Labor unions, in particular, are big fans of Davis-Bacon because it helps limit competition from non-union shops for public works projects—and has historically been used to disadvantage black and minority workers.

This will mark the 40th anniversary of Davis-Bacon’s last major revision, according to Labor Department. It also happens at a moment when federal funding is set to increase by more than $500Billion for public work projects following the passage of Biden’s bipartisan infrastructure bill last year.

However, Dan Bosch, Director of Regulation Policy at American Action Forum (a libertarian think tank), said that the Labor Department’s main change would increase inflation and decrease funding for infrastructure projects.

The reason is simple: In 1982 the Department of Labor modified the Davis-Bacon Regulations to repeal the so-called 30 percent rule that stated that the prevailing wages for an area were determined based upon the highest wage earned in the region, providing that at least 30% of those workers are employed.

A 1979 report by the Government Accountability Office or GAO, which called for full repealing the Davis-Bacon Act because it impeded government contracting costs, led to the repeal of 30 percent. “We are recommending that the Congress repeal the Davis-Bacon Act because…the Department of Labor has yet to develop an effective program to issue and maintain accurate wage determinations, and it may be impractical to ever do so, and the act is inflationary and results in unnecessary construction and administrative costs of several hundred million dollars annually,” the report concluded.

The prevailing wage was established in 1996 on the basis of a weighted average among all local wages. The Department of Labor proposes to partially reintroduce the 30% rule. This will prove costly. In its proposal, the department expects to spend $35 million implementing the change—a total that does not include the added costs likely to be created by artificially inflating the wages paid to government contractors. According to the department, more than 94,000 workers who are paid hourly under government contracts will be affected. The average hourly increase would be $3.65.

Bosch writes that the revisions are “ill-timed” given current inflation levels and recently passed infrastructure spending programs. The higher labor costs will lead to increased inflation, which in turn would reduce the amount of infrastructure projects possible.

These fears are dismissed by the department. It claims that the 1982 changes to the rule eliminating the 30% rule were partly based on criticisms of the [Davis-Bacon]Instead of worrying about inflation, act yourself. Even if inflationary concerns regarding government contract costs or speculation on the macroeconomy could be used as justification for removing the 30-percent rule from effect, the department believes that such reasoning does not provide a legal or factual basis to retain the majority rule.

It’s not the first time Biden has ignored possible inflation warnings to advance political ends. Labor unions may very well get their bigger payday—the rest of us will keep paying more and getting less.