An Economic Evaluation of the Service Contract Act

Abstract

The Service Contract Act of 1965 is one of three major laws requiring that “prevailing wages” be paid by private employers with federal contracts. This paper develops a preliminary cost-benefit framework for evaluating that Act. On the benefit side, the authors identify and analyze eight possible rationales for the Act, such as the desire to prevent low wages and to encourage collective bargaining. The authors find most of the rationales to be intellectually unsatisfactory, especially in light of the way in which the Act has actually been administered. On the cost side, the authors develop a methodology for estimating the wage costs of the Act, using as an example the cost of extending coverage to federal research and development contracts. The authors also describe changes in the Act's administrative rules proposed recently by the Carter and Reagan administrations.