Confused by immigration politics? Explaining the 'prevailing wage'

Key business and labor groups have agreed to a temporary worker plan that may result in political compromise. The deal hinges on paying a "prevailing wage."

At the heart of the immigration debate is the issue of labor. On one side, you have businesses that rely on immigrants because they work for low wages. On the other side, you have U.S. workers and labor unions that worry those immigrants will bring wages down for everyone. The U.S. senators known as "The Gang of Eight" have reportedly reached a deal between the A.F.L.-C.I.O and business leaders over how to pay immigrant workers under a guest worker program. Under the agreement, employers would be required to pay prevailing wages.

So what exactly is a prevailing wage? Let's go back to 1927, when a contractor from Alabama was hired by the federal government to build a veterans hospital in New York. The contractor hired a crew of black construction workers from the South and brought them to Long Island to build the hospital.

"Those workers were paid substantially less than the local workers in the area," says Peter Phillips, a labor economist at the University of Utah. Long Island Rep. Robert Bacon objected to the presence of black workers in his district, so he teamed up with Sen. James Davis to write the Davis-Bacon Act, which was signed into law in 1931. It states that contractors must pay local wages, also known as prevailing wages.

"And so prevailing wages are an effort to create a compromise where outside workers can come in. But when they come in they have to be paid based on local labor standards" says Phillips.

But Davis-Bacon applies only to Federal public works contracts. Under the proposed guest worker program, all workers who come to America under guest visas have to be paid the prevailing wage or the employer wage, whichever is higher.

So how does that prevailing wage get set? James Parrott at the Fiscal Policy Institute says it's done at the local level. "State governments have developed extensive wage payment data. So they use those surveys to determine what prevailing wage should be," says Parrott.

The guest workers will be low-skilled workers who come to work in agriculture, the service industry and construction. High-skilled construction workers will be excluded from the program, at the request of construction unions.

The details of the guest worker program are expected to be unveiled this month when Congress returns to work.

About the author

David Weinberg is a general assignment reporter at Marketplace.

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