IN THE RECENT debate over the inflationary effect of government purchasing policies, attention has focused on the Davis-Bacon Act, requiring payment of "prevailing wages" on all federally aided construction projects. Other federal practices, however, also deserve attention, among them the Service Contract Act, which applies the same prevailing wage requirement to the purchase of government services.
The Service Contract Act, like Davis-Bacon, started from the commendable notion that the federal government should be a "model contractor" in the sense that it should not use its considerable market power and its policy of competitive bidding to undermine existing wages, benefits and working conditions. While there is some reason to doubt the seriousness of this threat -- as we remember the laws of supply and demand, when a big spender like the federal government enters a market the effect should be to drive wages up, not down -- it is clearly possible that, in the case of low-skilled workers like cleaning crews, a competitor could organize a new crew and undercut whatever wage gains the previous workers had made.
While some protection for the most defenseless sort of service workers can be justified, extending the idea of wage maintenance to broad classes of workers is questionable. As amended several years ago, the Service Contract Act now applies potentially to such far-from-exploited groups as electronic technicians, computer programmers and student actors in Shakespeare on the Mall. The almost certain effect of "prevailing wage" requirements applied to groups like these is to push wages even higher.
With wages, job requirements and fringe benefits varying all over the marketplace, determining a "prevailing wage" is no easy task. A Carter administration study found that wages of workers covered by the act increased more rapidly than those of other comparable workers since they were effectively protected from underbidding by competitors and the cost of wage increases could be passed on to the government. Requiring contractors to establish uniform pay and work practices is also a big administrative burden and an impediment to productivity.
The only thing that keeps the level of employer outrage over the Service Contract Act at a less than ferocious pitch is the Labor Department's relatively ad-hoc enforcement of its provisions. Attempts to make coverage more uniform and binding have met with sufficient resistance to force at least a temporary retreat. This, however, is not a satisfactory state of affairs. Keeping an unworkable law on the books simply because its full potential for mischief is currently unrealized is not a good idea. The scope of the law should be severely restricted, preferably by legislation, but at least prompt and unambiguous changes in the Labor Department's regulations.