Statement on Suspending Davis-Bacon Act Provisions for Federal Construction Projects.

I AM today suspending the provisions of the Davis-Bacon Act which require contractors working on Federal construction projects to pay certain prescribed wage rates to their workers. In my judgment, the operation of this law at a time when construction wages and prices are skyrocketing only gives Federal endorsement and encouragement to severe inflationary pressures.

The action I have taken today is based on the principle that Government programs which contribute to excessive wage and price increases must be modified or rescinded in periods of inflation. This was the principle I applied to industry in the case of recent excessive increases in steel and oil prices. This is the principle I am applying to organized labor in the construction emergency.

This decision suspends a special provision of law which has applied uniquely to the construction industry since 1931. It puts the construction industry on the same footing with other industries that now sell products to the Government. For under the Davis-Bacon Act, wage rates on Federal projects have been artificially set by this law rather than by customary market forces. Frequently, they have been set to match the highest wages paid on private projects. This means that many of the most inflationary local wage settlements in the construction industry have automatically been sanctioned and spread through Government contracts.

The Davis-Bacon Act was originally passed in 1931 to ease extremely severe downward pressures on wages in the construction industry. I believe, however, that this preferential arrangement does not serve the best interests of either the construction industry or the American public at a time when wages are under severe upward pressures. I am therefore using the authority which the law gives to the President to suspend this provision. The proclamation [4031] I am issuing today also suspends the wage determination provision of more than 50 other Federal laws relating to federally involved construction' which incorporate the Davis-Bacon Act. I am calling upon States and other governmental bodies with similar statutes to take similar action.

This action is the most appropriate of the actions which are available to me at this time. Nevertheless, I make this decision most reluctantly. It has been my hope that the problem of excessive and inflationary wage settlements in the construction industry could be met without such measures. Yet on several occasions over the past e years I have also made it clear that I would take whatever further steps were necessary if the inflationary pattern did not end.

That pattern has not ended. In fact, inflation in the construction industry has grown worse. In 1970, the average contract settlement in the building trades called for a first year wage increase of 18.3 percent. On the other hand, the average increase for the first year of new contracts in manufacturing industries was 8.1 percent--a striking contrast. And in the last two quarters of 1970, wage settlements in the construction industry went even further out of control; new contract settlements in the last 6 months of the year called for nearly 22 percent average first year increase.

While some might wish to blame management or labor unions for this inflationary syndrome, we must recognize that, in fact, they are its victims. I have met with construction contractors and labor leaders on a number of occasions including a meeting last month. I know that many of them have been doing their best to find an answer to this situation. It is evident now, however, that decisive Government action is needed to protect the public interest while labor and management continue their efforts to attack the causes of this problem.

Those causes are deep and complex. They are rooted in the way the construction industry is organized--and particularly in the highly fragmented nature of its collective bargaining process. A craft-by-craft, city-by-city negotiating pattern makes competition between local unions for higher wages particularly intense. It makes strikes on particular projects more likely since alternative work is often available nearby. One out of every three wage negotiations in the building trades now produces a work stoppage. When these and other structural factors are combined with a law like the Davis-Bacon Act which, in effect, requires employers to pass on to the Government the cost of high local settlements, then the inflationary problem becomes even more acute.

The results of this inflationary situation are felt in every part of our society. As construction costs go up, so does the price for buying or renting new homes and apartments. Because the entire economy is affected by rising construction costs, other prices are driven up also. The taxpayer bears a particularly heavy burden since the Government spends so much for construction. The Federal Government alone plans to spend some $13 billion for construction in fiscal year 1971. A good part of this spending will come from the defense budget--which means that inflation in the construction industry can make it harder adequately to fund programs which are vital to our national security.

All levels of government together account for almost one-third of total construction expenditures. It is crucial, I believe, that taxpayers get their money's worth for all this spending and that it not be used to accommodate--and further accelerate---inflationary pressures.

But the person who is hurt most by this pattern of inflation is the construction worker himself. For as the cost of building increases, the rate of building is slowed-and the result is fewer jobs for the workingman. The rate of unemployment in the construction trades last year was substantially higher than in any other major industry and double the national average. It stood at 11.2 percent this past January. Moreover, those workers who do find jobs also find that as costs rise and the number of projects declines, they are working fewer hours.

The average worker in the building trades is therefore caught in a vicious cycle. His rate of pay goes up but often his overall income does not, since his opportunities to work have gone down. As a result, he is inclined to demand an even higher hourly wage which can have the effect, in turn, of further reducing available employment. By curbing inflation in the construction industry, we hope to break this cycle, expand employment, and improve the overall position of the construction worker.

During the past 2 years, this Administration has taken a number of steps to help the construction industry. We have made considerable progress in bringing down the cost of money. We have worked to stabilize the cost of materials and to increase productivity. We are planning to expand Federal construction programs--specially in housing--and we are making additional efforts to assist private construction.

We are now on the threshold of a new economic expansion. That expansion must be a genuine expansion, one that is measured by rising purchasing power and not by an accelerating cost of living; by more new homes and apartments and not by ever-accelerating rents and housing prices; by more new public facilities urgently needed to combat pollution and meet other pressing social needs. We are counting on the construction industry to make a significant contribution to our expanding economy. We have great confidence in the potential of the construction industry, and we want this potential to be fully realized.

But the construction industry cannot realize its potential---and it cannot make its full contribution to the stable growth of our entire economy--unless it can overcome its present handicaps of chronic instability, frequent strikes, and excessive wage increases. Insofar as the Government is a party to these conditions--as it is under the Davis-Bacon Act it can serve both the public and the industry best by correcting that situation.

I have suspended the Davis-Bacon Act because of emergency conditions in the construction industry. The purposes of the Davis-Bacon Act can once again be realized when construction contractors and labor unions work out solutions to the problems which have created the emergency.

In the final analysis, those who are directly involved in the construction industry must assume the leadership in finding answers to these complex problems. Construction contractors and labor leaders will have the full cooperation of this Administration as they strive to carry out this crucial responsibility.