Obama's Minimum Wage Raise for Federal Contractors Is a Shot...

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WORK JANUARY 28, 2014

Obama's Minimum Wage Raise for Federal Contractors Is a Shot Across the GOP's Bow

Janitors in federal office buildings, food servers at veterans' hospitals, and other workers with low-paying jobs for the federal government may get paid more in the future—at least if President Barack Obama has anything to say about it.

During the State of the Union address on Tuesday evening, Obama will announce that he is using executive authority to increase the minimum wage for federal contractors, up to $10.10 an hour. The order applies only to new contracts and to renewals when other terms are changing, so it may not have a widespread effect right away. But Obama has been calling upon Congress to raise the minimum wage nationally, because it's real value hasn't been this low since the 1960s. (See graph below.) One purpose of this move is to set an example that might prod Congress to act.

The idea that federal workers need a raise might seem odd, given all the stories (some true, some not true) about government employees with wages, benefits, and job security that most private sector workers can only envy. But plenty of people whose incomes come indirectly from the federal government aren’t so lucky. A 2013 report from the think-tank Demos (where I used to be a fellow) found that nearly 2 million workers paid through federal contracts and other arrangements made less than $12 an hour. And a 2009 report from the Economic Policy Institute, based on 2006 data, found that about 400,000 workers for federal contractors had wages lower than $10 an hour. And that’s despite laws, like the Davis-Bacon Act, that require federal contractors to pay “prevailing wages” in their communities.

“Surprisingly, hundreds of thousands of federal contractor employees earn less than $10.10 an hour,” says Ross Eisenbrey, vice president at EPI.  “Even construction workers paid under Davis-Bacon sometimes earn no more than $7.25 an hour, because that’s the prevailing wage in their trade and their locality.” Adds Jared Bernstein, an economist at the Center on Budget and Policy Priorities and former Obama advisor who has been calling for such a change, “It’s a great idea, a very direct way of helping a lot—I don’t think the number of affected workers is known, but I’d guess hundreds of thousands—of workers, reaching, for example, maintenance and food service workers in national parks, museums, and army bases.”

The case for giving these workers a raise is that they need one. In 2013, the National Employment Law Institute published a report based on interviews with 567 workers in federally contracted jobs, including 104 who manufactured military uniforms and 429 working at federal buildings in Washington. In addition to low pay, these workers frequently got no paid sick days or employer-sponsored health insurance—and relied on federal assistance programs like food stamps (the Supplemental Nutrition Assistance Program) and Medicaid.   

Republicans were quick to argue the order would be inconsequential, because it doesn’t apply to existing contracts. "Let's understand something: this affects not one current contract, it only affects future contracts with the federal government,” House Speaker John Boehner said on Tuesday. “And so I think the question is, how many people, Mr. President, will this executive action actually help? I suspect the answer is somewhere close to zero.” But contracts change and, particularly over time, the order is likely to have a more far-reaching impact. The real Republican objection to a higher minimum wage is probably substantive—that requiring employers, even public sector employers, to pay higher wages actually deters job growth. 

This is the classic argument against raising the minimum wage and it makes intuitive sense. But it is not, generally speaking, in line with the latest economic thinking. Within reason, according to a substantial body of research, a higher minimum wage does not undermine job growth, in part because the higher wages lead to higher productivity and stability. “I think the federal government should be a model employer and set a standard for the companies it does business with,” says Alan Krueger, a Princeton economist and former Obama adviser who has done some of the most influential research on the minimum wage. “In this light, setting a minimum wage for contractors makes sense. In addition, research has found that higher wages lead to lower turnover, higher productivity and higher quality service.”

Of course, there’s a separate question about the move’s legality—in other words, whether Obama has the authority to take this action unilaterally. Conn Carroll of Townhall.com interviewed one George Washington Law Professor who was skeptical. On the other hand, Boehner himself has said he thinks the move is legal. Maybe it will take the courts to settle this.

Update: I fleshed out the discussion of the legality of the executive order and added this chart, which also comes from EPI:

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posted in: the plank, politics, minimum wage, employment

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PHOTO BY ROBYN BECK/AFP/Getty Images
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