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Here's a Quick, Smart Way Obama Could Raise Worker Wages
Economics

Here's a Quick, Smart Way Obama Could Raise Worker Wages Make federal contractors do right by their employees

By Photo: Shutterstock.com

Hundreds of federal contractors went on strike Tuesdaywalking off the job at Smithsonian museums and other government buildings, and demanding that President Obama issue a "good jobs" executive order to improve their working conditions and pay. The idea is to build on the orders Obama already issued, earlier this year, to raise the minimum wage for contractors and to prohibit discrimination based on sexual orientation. The workers appreciate those measures, for sure, but they want more. 

They make a good caseone the Administration should heed. 

A new Demos study finds that federally-supported firms, defined as companies that receive 10 percent or more of the yearly revenue from contracting, employ 6.6 million people. Of these workers, 3.5 million of these workers earn wages at or below 150 percent of the poverty line for a family four (disproportionally minorities and women). And they frequently get lousy treatment from their employers. 

A 2010 GAO investigation found that the government frequently awards contracts to companies with wage, safety, environmental, immigration and Medicare violations. Meanwhile, according to a Senate Health Education Labor and Pensions Committee report, firms that do federal contracting made up 30 percent of the companies with the largest penalties for health, safety and wage violations between 2007 and 2012. 

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The federal government is supposed to avoid working with such companies. But, presently, it does so only in the most egregious casesand, frequently, in a half-hearted way. For instance, in 2012 the Obama administration temporarily banned 3,800 companies, including British Petroleum and Booz Allen Hamilton, from contracting with the federal government, following pressure from Congress and the GAO. (BP was banned for “lack of business integrity” during its handling of the oil spill). But these suspensions, all temporary, generally last “fewer than 18 months.”

President Clinton, towards the end of his term, signed an executive order that required the government to contract only with firms that met higher standards for treatment of workers. President George W. Bush rescinded that regulation. Not long after, his administration went on to be marred by contracting scandals, including billions in no-bid contracts to a Halliburton subsidiary. 

Obama, upon taking office, considered reinstating a responsible contractor policy. But the Administration never followed through,partially because it was unclear whether to proceed legislatively or via executive actionand whether there was legal authority for the latter. But the authority is there. Legislation from 1984 allows the government to consider, “a satisfactory record of integrity and business ethics” and since the non-partisan Federal Acquisition Regulation (FAR) Council first pushed for a clarification of the rule, it is clear that legal authority is not the question at handit is presidential will.

The question now is whether Obama is willing to use that authority.

 

The usual argument against a stricter contracting policy is that it would force government to pay more for workor get less work for what it pays. But the Center for American Progress, using GAO research, has found companies with poor records of worker treatment frequently produce cost overruns, long delays and shoddy work. Meanwhile, by giving contracts to companies that don’t provide good pay or safe working conditions, the federal government makes it harder for more responsible employers to survive. That’s another reason to think that high-road contracting would not hurt and might actually help the taxpayers. When Maryland instituted a policy that required contractors to pay a living wage, it started receiving more bids for contracts, presumably from companies that previously could not compete with lower wage firms.

There is a long history of using the contracting system to set labor standards and to achieve social aims. Possibly the earliest example was Martin Van Buren’s order in March 31, 1840, established a 10-hour workday for all workers employed on public works, “finding that different rules prevail at different places.

In the 1960s, President Lyndon Johnson signed Executive Oorder 11246, which, “prohibits federal contractors and federally assisted construction contractors and subcontractors, who do over $10,000 in government business in one year from discriminating in employment decisions on the basis of race, color, religion, sex, or national origin.” It further required contractors with 50 or more employees and contracts of $50,000 or more to implement affirmative action plans to increase the participation of minorities and women in the workplace.

What kind of executive order(s) could Obama issue today? The best system would include pre-clearance and preference. A pre-clearance policy should bar the most egregious violators from contracting with the federal government. A preference policy should be established that gives a leg up to responsible contractors. Responsible contractors are those that offer healthcare benefits and paid leave, pay decent wages, respect collective bargaining rights and have a low CEO-to-worker pay disparity. 

Obama could also improve enforcement of existing standards. The Obama administration has already worked to reduce employee misclassification, which occurs when employees are classified as classified as “independent contractors,” and deprived of benefits. [But it could put more money and manpower into to enforcement action. Such costs will more than pay for themselves. We estimate that misclassification robs the federal government of $14 billion a year in revenue. Given how widespread the practice is, the number is likely far higher.

A higher minimum wage is welcome, but in the status quo, studies find that as many as a quarter of low-wage workers may be paid under the minimum wage. Wage theft claims, which occurs when workers are denied overtime, paid below the minimum wage or have illegal deductions taken from their paychecks, have increased dramatically over the past decade almost 400 percent between 2000 and 2011. Even when workers win lawsuits, they rarely see their back wages. Enforcement and prosecution would help millions of low-wage workers and responsible contracting can keep bad companies from exploiting workers to keep their bids low.

With Congress gridlocked, President Obama will have to find another way to create good jobs in America. The best way forward is to use the federal contracting footprint.

Sean McElwee is a research assistant at Demos. You can find him on twitter @SeanMcElwee.

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