The Economics & Politics of America’s Construction Labor Market

At the heart of what disquiets many who operate construction firms in America is a dearth of skilled workers. By now, the story is well known. A combination of cultural shifts, the deemphasis of vocational instruction in high school, the prevalence of remote and gig work, the departure of construction workers to other industries like energy production and logistics, and elevated levels of retirement among skilled construction workers have produced massive human capital shortfalls. Moreover, this has occurred just as America strives to rebuild its industrial base (e.g., computer chip manufacturing plants, electric vehicle production) while replenishing its infrastructure.

The U.S. construction industry averaged more than 390,000 jobs openings per month in 2022, the highest level on record. Meanwhile, the industry’s unemployment rate of 4.6 percent was the second lowest on record. Matters stand to get worse for this is the era of the megaproject. Tens of billions of dollars are set to be spent on augmenting America’s manufacturing capacity, transitioning toward alternative energy, paving roads, and restoring bridges, dams, water and sewer systems while large numbers of the nation’s most skilled construction workers head into retirement. Near one in four construction workers is older than 55.

In addition to the demographic challenges and large-scale demand for workers in the context of megaprojects, there exists an abundance of rules that shape how accessible and affordable construction workers are. Two policies play an especially central role in shaping labor market behavior. These are the Davis-Bacon Act, which President Herbert Hoover signed in 1931, and Project Labor Agreements or PLAs.

The Davis-Bacon Act of 1931

Though many tend to associate the Davis-Bacon Act with the Great Depression, its origins can be traced to 1927, a spirited year during the Roaring Twenties two years prior to economic collapse. An Alabama contractor had secured a bid to build a hospital for the Department of Veteran Affairs in New York. Concerns were brought up after the contractor hired an all African-American crew. As a result, Congressman Robert L. Bacon, who represented the district in which the hospital was built, introduced the bill’s initial version to keep constituents from being underbid.

It would require 13 more attempts, a partnership with Pennsylvania Senator James J. Davis, and a Great Depression before the bill finally passed. The bill mandated that any workers hired for a federally funded construction project must be paid the “prevailing wage” of the area in which the work is being performed. Its intent was to prevent contractors from importing workers from other communities and supplying them less compensation.

Unsurprisingly, the policy proved immensely controversial. Certain members of Congress opposed it on the basis that it would unnecessarily increase the cost of projects at a time when the economy was reeling. Supporters argued that the law would ensure that workers were paid a fair wage and that the overall quality of projects would correspondingly improve.

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About the Author

Anirban Basu

Anirban Basu is Chairman & CEO of Sage Policy Group, Inc., an economic and policy consulting firm in Baltimore, MD. He is one of the Mid-Atlantic region’s most recognizable economists in part because of his consulting work on behalf of such clients as prominent developers, bankers, brokerage houses, energy suppliers, and law firms.

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