better position to bargain for and obtain wages in a community which are commensurate with the cost of living. We do not have vast unemployment with the concomitant problem of men willing to work for almost nothing, thereby driving down the wage level for all. In fact, in most places, such as here in the Washington metropolitan area, we have the exact opposite, without enough trained construction workers to fill the jobs available.

Futhermore, at least in housing, an industry which did not exist in anywhere near its present form in the 1930's, we no longer have the problem of out of town contractors being able to take bids away from local contractors, through large-scale importation of construction workers willing to work for a significantly lower wage scale than that paid by local contractors. Here again the situation today in many places is the reverse of that which spurred the enactment of the DavisBacon Act. In many cases, contractors with high wage scales are enabled to compete with local builders for Federal construction contracts because of the artificially high wage levels that result from the application of the Davis-Bacon Act. Davis-Bacon thus operates as an inflationary push on wage levels, a totally unjustified situation when the Nation is trying to restrain the inflationary spiral in construction wages.

Aside from unnecessarily driving up construction wages on HUDassisted housing, the Davis-Bacon Act imposes many other requirements on a builder which also drive up costs. These include excessively detailed recordkeeping and reporting requirements that further burden with redtape already burdened housing programs. The extra costs associated with these redtape requirements do nothing more than serve the bureaucracy established to administer the Davis-Bacon Act. Attached is a list of the 11 forms the builder must be familiar with and/ or complete and submit in order to be in compliance with the requirements imposed by HUD and the Department of Labor pursuant to the Davis-Bacon Act.

Another serious problem is the one faced by a builder who must frequently reorient his method of using his workmen to conform to the job classifications, and the salaries set for those classifications, by the Department of Labor. The job classifications prescribed by the Department of Labor frequently do not coincide with the job responsibilities of workmen in the residential construction industry. As is true with wages, these classifications are usually derived from job assignments in commercial and industrial construction.

The result is that the skill level required for a certain classification will not coincide with the work which the particular employee is accustomed to performing. For instance, there are several levels of carpenter skills employed in residential construction, some at a lower skill level than is common in commercial and industrial construction, and some that are at a higher skill level. Getting these different levels recognized and wages prescribed for them is always difficult and frequently impossible.

Another aspect of this problem is that an employee is required to be paid at the highest level at which he does any work, even if this represents only a small portion of his work. Thus, a laborer, who picks up a hammer to nail a board up for the purpose of barricading an opening, automatically becomes a carpenter under the rules of the

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Department of Labor and must be paid at the higher wage level. The administration of the Davis-Bacon Act is rife with such ridiculous rulings.

There is also little flexibility in the administration of the prevailing wage requirements, as is evidenced every time a slightly different type of construction work comes under the purview of the Davis-Bacon provisions of the National Housing Act and the U.S. Housing Act of 1937. One prominent example is the difficulty experienced by many builders who have gone into rehabilitation. Rehabilitation frequently calls for different job skills than those experienced in new construction with which the Department of Labor is familiar. Thus, it has been often difficult for a builder to get a wage determination for classification of jobs which relate to the rehabilitation work he desires to undertake. This very prevalent problem has deterred many builders from going into rehabilitation, undermining another important goal of the Federal housing laws and suppressing the use of existing housing supply. A natural question might be why a builder would be reluctant to pay prevailing wage rates for construction workers in his community. The vast majority of builders are not so reluctant, and if they wish to retain skilled workmen, they must meet the competition. However, in the 41 years of the Davis-Bacon Act, the wage rate levels determined by the Department of Labor have seldom, if ever, truly reflected the prevailing wages of a community. Instead, they more often than not reflect the union scale in the community which, at least for residential construction, in most parts of the country is not the prevailing wage.

The CHAIRMAN (presiding). Mr. Waranch, may I interrupt at that point. There is a rollcall on. I am going to continue for a little bit in the hope that Senator Tower gets back in time for me to go over. Then, the next order of business coming up over there is a bill I am managing, and therefore I have to stay there.

I want to say to you that I think the point that you have just made is one that has been difficult for me to understand for a long time. I have in mind particularly the fact that a smaller town or city that is far removed from perhaps a labor center has to pay the prevailing wage of that labor center. I have always felt there was a little inequity in that, or I will put it another way, it probably goes a little further than it should go. Of course, there is nearly always this complaint, that the wages prescribed under the Davis-Bacon Act constitute a great deal of the increased cost of homes. I remember a couple of years ago we had some testimony on that; it was given, by the way, by the Home Builders. I think this is when we were studying the high cost of lumber price, in looking over the prepared statement of Mr. Bonadio of the Building and Construction Trades Department of the AFL-CIO, I found he has quoted those statistics, and I was interested in looking at them. I remember them quite well. It shows the comparison between 1949 and 1969. It shows that whereas in 1949 on site labor was 33 percent, in 1969 it was 18 percent; materials had increased from 36 to 38 percent; land had gone from 11 to 21 percent; and overhead CO-I don't know what the CO stands for from 15 percent down to 13 percent; financing had gone up from 5 to 10 percent. I wish you would comment on that.

Mr. WARANCH. You will notice, Senator, that it is comparing a 20year span.

The CHAIRMAN. Yes, that's right.

Mr. WARANCH. I don't have to remind you because you know much better than I the condition that existed in 1949. We had a lot of returning veterans and homebuilding was just really taking up the slack. This comparison reflects a single family home cost. It is certainly true that in the 20 years intervening between 1949 and 1969, we have made many technological advances in the construction of housing which have in fact

The CHAIRMAN. I just wonder if there might be prepared a table that would give us a breakdown, say, over the last 10 years, in other words, from 1962 to 1972 or 1961 to 1971 or something like that. I would like to see how it stacks up. I remember when this testimony was given, and I was interested in seeing that it was included in his statement. As I say, that was a time, if I remember correctly, when we were studying the high cost of building materials, lumber in particular.

(The following information was received from the National Association of Home Builders:)

RESPONSE BY THE NATIONAL ASSOCIATION OF HOMEBUILDERS

The table of price breakdown used on page 3 in the testimony of Mr. Frank Bonadio, President, Building and Construction Trades Department, AFL-CIO, before the Subcommittee on Housing and Urban Affairs on June 23, 1972, was provided for the Congressional Record of October 20, 1969 by the National Association of Home Builders (see p. 172 of this volume). The purpose of this table was to show the changes in some of the major cost components of a “typical” single family house over a period of 20 years (1949 to 1969).

The main point in the table, as originally published, was to show the drastic change in the use of on-site labor, the cost of which declined from 33% to 18% of the total cost of the typical house in that period. The explanation offered for this change was that the cost of on-site labor increased so much that builders were shifting as much as possible to use components assembled off the site. The shift was into both small and large scale prefabrication, either in factories or small shops where the cost of labor was substantially less.

Although there was some increase in on-site production, this was due to advances made in the development of new tools and equipment, rather than to the increase in productivity as claimed by Mr. Bonadio on page 4 of his testimony. A note on the table used by Mr. Bonadio: This table was reconstructed from some very meager information available from the Bureau of Labor Statistics. For instance, the 1949 figures were an extrapolation of 1947 labor figures-the only ones available for this purpose. The 1969 data was derived from incomplete preliminary data based on a BLS study being conducted at that time. Thus, the 1949 data consisted only of on-site labor, and the other figures were derived from other NAHB sources. The 1969 data for on-site labor materials and residuals was preliminary. No official figure was available for land costs; therefore, this was estimated from NAHB land information.

Since that time, the Bureau of Labor Statistics' study has been completed. and a portion of this was published in the February 1972 issue of Construction Review. This data, together with the 1962 summary of the BLS study, as well as the labor share in 1947 is presented in the table attached.

This table shows the cost of construction (100%) excluding land. Because land cost (which in 1947 was probably no more than 11% and now is at least 22%) is excluded, the 100% shown on the bottom line is not the same as the 100% shown in the table in Mr. Bonadio's testimony. Still, this new data shows the same basic trend as estimated by NAHB in 1969. The cost of labor dropped from 32.7% in 1947, to 22.1% in 1962, and 20.4% in 1969. Clearly, the on-site labor share has dropped considerably since 1947.

PERCENT DISTRIBUTION OF ONSITE WAGES, MATERIALS, AND OTHER COSTS FOR EACH $1,000 OF 1-FAMILY HOUSES 1947, 1962, AND 1969

2 Includes offsite wages, construction financing cost, inventories, overhead, admonistrative expenses, profit.

Source: Bureau of Labor Statistics, "Labor and Material Requirements for Private One-Family House Construction," bulletin No. 1404. Franklin E. Williams, "Materials Requirements for Single-family Houses," Construction Review, February 1972, p. 4, table 1. "Onsite Labor, 1949," Stucke, Adela L.; "Labor's Share in Construction Costs of New Houses," Monthly Labor Review, May 1949.

Mr. WARANCH. I was here that day Mr. Gulledge made the statement and showed the committee a piece of plywood you could buy which was this big in 1969 and a few months before was quite larger. The CHAIRMAN. That's right. You mentioned plywood. Of course, you remember that was the one that was really running away with prices at that time.

Mr. WARANCH. I think that the cost of labor-the characteristics of that table prepared today would be very much like the table that is shown in the testimony that was given in 1969.

The CHAIRMAN. I am sorry. That means I have got 5 minutes to get to the floor. We will stand in recess until Senator Tower gets back. I am sorry I will not be here for the remainder of the hearings.

(Recess.)

Senator TOWER (presiding). The committee will come to order. Senator Sparkman has a legislative responsibility over on the floor after this vote and will not return. So, we will go ahead and proceed with the hearings. Sorry for the interruption, Mr. Waranch, but we are in a bit of a legislative crunch these days. This might happen again. I can't assure you that it won't. Go ahead and proceed.

Mr. WARANCH. I would like to continue on page 7 of my statement, if I may.

It might be said that sole reliance on union scales is not a fault of the act, but a fault in the administration of the act. This we would agree with, but after 41 years of sad experience with the administration of the act it is difficult to conceive that administration changing so drastically as to result in true prevailing wage rates being determined. This is not to say that there have not been improvements in recent years. There have been, at least for the housing programs. HUD has undertaken to do a more careful gathering of wage rates for submission to the Department of Labor which must make the determination. In several areas of the country this has resulted in realistic wage determination.

However, in many, many other parts of the country there has been little, if any, change from past patterns. And, even in those areas where changes have occurred, it has frequently come about only after long and strenuous objections have been raised by the builder, who must undergo long delays while awaiting a resurvey and consideration of his appeal. Most builders cannot stand such a delay and must elect to proceed with the job at the unrealistic wage scales.

This practice of placing heavy reliance on union scales, or of taking the wage scale for a major city and applying it to a small town of 30, 40, and sometimes 50 miles away is a significant factor and one of the reasons why housing built under the FHA and public housing programs cost more per square foot than the same housing built with conventional financing. This extra cost frequently works out to be as high as 15 percent. Since most of the housing built under HUD programs, and subject to prevailing wage rates, is for low and moderate income families, the brunt of these costs fall on these families and on the Government which must increase its subsidies accordingly.

I would like to cite a few examples of actual case situations supplied to us by our members. The first is a project built outside Philadelphia, Pa., under section 207 of the National Housing Act. In that project the additional cost incurred by the builder in constructing the project, as a result of having to adhere to the prevailing wage requirements, was $222,750. In this particular case this increase approximated 15 percent of the building, so that the actual cost increase was in fact more than 15 percent.

This project was part of an overall development in which single family homes and a small shopping center were also being built. Had he been able to construct the apartment project paying the same wages he was paying the workmen in the other components of the development, the above cited $222,750 savings would have been achieved and passed on to the consumer in reduced rents.

He pointed out that many of the subcontractors working on the other parts of the development were reluctant to work on the FHA project, since the wage scales they would have had to pay their workmen would have been higher than normal, and these workers would, as is natural, be reluctant to work for a lower rate on future nongovernment jobs. This reluctance points up another disturbing side effect of the Davis-Bacon requirements. Many builders stay away from Government programs because they cannot afford to have their workers salaries going up and down based on whether or not they are working on a Government-assisted project.

In another case in the Philadelphia area, in connection with two section 236 projects being built outside of Camden, N.J., the difference in the average hourly wage being paid by the builder, when compared with wages being paid on an adjacent conventionally financed project, was 63 percent. In this particular case the estimated cost of labor per unit was $5,120 on the 236 project, whereas it would have been $3,141 if the true prevailing wages in that locality had been paid. This is a $1,979 difference per unit and, according to the builder, represented 12.36 percent of the total of the mortgages on the projects. Here we can have brought home to us the direct impact of the Federal Government insisting on wage scales far in excess of what is in fact the prevailing wage in the community. This extra cost increases the basic rental that must be charged on each unit in that project, and it also drives up the Government's required subsidy for that project. Presuming that there was a 40-year mortgage at a 7-percent interest rate on these projects, the additional monthly mortgage cost for each unit is approximately $13 and about $8 of this additional monthly carrying charge represents increased subsidy cost to the Federal Government.