Nixon's Half Swing at Construction Costs

ALMOST to the last, Richard Nixon's lieutenants brandished his formidable power to freeze wages and prices. Last week, however, the President chose the mildest action open to him to restrain the public-be-damned surge of wages and prices in the nation's largest industry. Declaring that an inflationary "emergency" exists in construction, Nixon suspended the 40-year-old Davis-Bacon Act, which requires that locally "prevailing wages" be paid on federally aided building.

The law has generally meant that all workers on these projects draw top union scale for the area, even when workmen on most similar private jobs are earning less. "Wage rates on federal projects have been artificially set by this law rather than by customary market forces," complained Nixon. "Many of the most inflationary local wage settlements in construction have automatically been sanctioned and spread through Government contracts."

About $25 billion a year in construction, nearly a quarter of the national total, will be affected by the order, including Government-backed apartments (but not one-family homes). Yet the impact on wages and costs will be small, spotty and slow to appear. Compared with the alternatives of imposing wage-price controls or establishing a wage-review board, as some of the President's advisers had urged, the suspension of Davis-Bacon is an uncertain remedy for a virulent inflation that top businessmen consider to be the economy's No. 1 problem.

Foul Ball. By his action, Nixon sought to minimize the wrath of the nation's 3,500,000 unionized and politically potent hardhats. In January, he asked labor and management chiefs to devise a voluntary program to stabilize the industry's skyscraping costs (TIME, Feb. 15). Two weeks ago, he sent Labor Secretary James Hodgson and Harvard Economics Professor John Dunlop to negotiate with the building trades' executive council at Bal Harbour, Fla. Dunlop tried to win labor's tacit consent to a temporary wage-price freeze and creation of a voluntary labor-management-public wage board with power to lower wage increases and to impose settlements if necessary. If labor did not agree, Hodgson warned, the President might establish such a board by executive order. The emissaries cajoled in vain. "How can I go back to my members and tell them that I've agreed with a Republican President to decrease their raises?" asked one union boss. "They'd throw me out."

But the President had publicly committed himself to a meaningful blow against construction inflation. "There will be action," he promised. Baseball Fan Nixon added that if Hodgson "struck out, then we'll be up to bat." After the President took his swing last week, A.F.L.-C.l.O. President George Meany condemned the move as "punitive" and "unfair" because it did not restrain the rising price of land or materials, or limit profits. "Disappointing, inadequate and totally ineffective," said William E. Dunn, executive director of the Associated General Contractors of America. "The suspension may have some long-range results, but it will not help to stop the demands for huge wage increases in the 1,368 wage agreements set to expire this year."

Limited Savings. Indeed, in strongly unionized places like the Northeast, the Pacific Coast and most big cities, the suspension will have little if any effect. In rural areas and in cities of the South, Southwest and parts of the Midwest, where open-shop building is more common, some contractors may be able to cut their prices ever so slightly for future projects. Big nonunion contractors may now begin bidding on federal projects, but a complicating factor is the existence of "baby Davis-Bacon" laws in 37 states. Much Government-aided construction--schools, highways, hospitals--is partly state-financed, and unions will certainly try to use the state laws to preserve the status quo.

The suspension of the national law promises some savings in the construction of garden apartments and other low-rise rental units. In Atlanta, Louisville, Pittsburgh, Nashville, Cincinnati and other metropolitan areas where commercial construction is unionized but most housing projects are not, builders have been reluctant to erect even heavily subsidized apartments because of the prevailing-wage law. "I haven't been building any rental projects under the Federal Housing Administration," says Louisville Builder George Martin. "Now that Davis-Bacon is suspended, I'm going to start planning some."

Contractors have long complained that the Labor Department endorses union wage scales as "prevailing" in disregard of the facts. The Government's General Accounting Office found last year that Davis-Bacon wage fixing had boosted costs by 15% for public housing and military-family housing in New Jersey, Oklahoma, Pennsylvania and Virginia. All of the increase was unjustified, the agency charged, because lower wage rates prevailed for comparable private construction in the same areas. In two cases, said the GAO, the Labor Department flouted the law by prescribing commercial pay scales that it knew were higher than those prevailing at similar residential work near by. One reason that the law has been administered clumsily is that the Labor Department issues some 25,000 wage determinations a year but has only six employees to make field investigations of prevailing wages.

The inflationary effects of Davis-Bacon have been particularly painful to the housing industry, which is only 25% unionized because it consists largely of small firms. "Our people finally got desperate about the Davis-Bacon problem," says Herbert DeShong, executive vice president of the Dallas builders' association. After two years of collecting figures from payroll records, DeShong was able to convince the Labor Department that two wage patterns prevailed. Today, the Davis-Bacon rate for the mostly nonunion carpenters on residential projects in Dallas County is $4.50 an hour, while the generally unionized carpenters on big commercial projects get $6.17 1/2.

Dwindling Options. Nixon later may take still stronger steps against construction inflation. Last week he kept his options open by endorsing--through Treasury Secretary John Connally a bill to extend for two years his standby power to impose wage-price controls. Transportation Secretary John Volpe, a former Massachusetts highway contractor, warned that "the President hasn't ruled out wage-price controls" if unions and builders cannot agree to some voluntary program. The President hopes that the implied threat will bring about moderation of wage increases, but it is equally possible that his suspension of

Davis-Bacon will forge a stronger unity among the nation's 17 construction unions.

Angry but uncowed, the building unionists seem in no mood to stabilize wages unless the President freezes, or at least restricts, construction prices as well. Despite Nixon's aversion to such controls, he is being pushed toward them by the impatience and frustration of businessmen over wage inflation. About the only other quick way to hold the line on building wages is for the Government to use its enormous power over construction spending to break union manpower monopolies, for example by outlawing union hiring halls or limiting federal contracts in areas of fast-rising wages. Any moves toward this end are likely to provoke not only outrage but a wave of work stoppages.

This file is automatically generated by a robot program, so reader's discretion is required.