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Monday, January 18, 2010 12:26 PM

Prevailing Wages - Your Stimulus Dollars At Work

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Here are a couple of interesting Emails from a senior vice president at a California bank about how your stimulus dollars are being wasted.

A California Business Banker "CBB" writes:

Hi Mish

I enjoyed your article “Measuring the effect of stimulus: If you don’t like the results, change the yardstick

As a commercial banker, I have a client who specializes in asphalt work, and most of his clients are cities, counties, and Cal Trans for road resurfacing work. He is benefiting significantly from all the stimulus money, as his gross revenues are up 40-45%. He has not hired one additional employee nor purchased additional equipment, so the real beneficiary is the owner of the business who I’ll keep anonymous.

Further more, when he and I discuss the stimulus money he laughs. He says, “The politicians love to throw the money into asphalt work because it’s quick and visual to the voter, and it makes them feel like something being down.

A California Business Banker
Here is a second Email on prevailing wages. "CBB" writes:
Hey Mish

I was talking with a business owner, client of mine. They are a contractor headquartered in ******. We had an interesting chat about the work he does work for the city of *****.

He currently has a new job with the city and has to hire some temporary employees to essential clean for this job. He said, “normally that type of job would normally pay $12-15 per hour, but since it’s a prevailing wage job, he’s forced to pay that same individual $40/hr under prevailing wage laws”.

I find it wildly interesting in this environment where municipalities are broke yet force a business owner to pay 2.5 to 3 times the normal wage and thereby increasing the overall bill from this contractor to the city for the work performed. It’s a direct taxpayer subsidy of someone else’s pay.

It gets even better. The same business owner just found out, that he’s in an enterprise zone, and if hires employees from within the local area of ****, he gets a credit, and essentially, the city ends up paying him back for 50% of that salary.

This is what happens when politicians and union leaders are left to make up the rules of the game.

The "prevailing wage" nonsense is a remnant from the Davis Bacon act, a real porker enacted in the great depression to force up the cost of wages. Its effects are still being felt and it is yet another reason cities are going bankrupt.

It is long, long overdue for this piece of pork to be tossed and I still do not understand how the Bush administration never got that done. Given that unions love that pork, it will be next to impossible to scrap Davis Bacon under Obama, no matter what it costs cities.

All politicians care about is gathering votes, they do not care what the real costs area. Please see Thoughts on the Davis Bacon Act for a history of the legislation and the ridiculous job classifications affected by it.

Mike "Mish" Shedlock
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