New Obama EO will raise minimum wage 39% on new federal contracts

posted at 8:01 am on January 28, 2014 by Ed Morrissey

Tonight’s State of the Union speech will feature in large part a threat by Barack Obama to go it alone on policy, as he’s unable or unwilling to negotiate with a Republican-controlled House. Obama will make good on his threat at least once, in forcing federal contractors to pay a 39% increase in the minimum wage across the board for all new contracts:

President Obama plans use his executive authority to raise the minimum wage to $10.10 per hour for federal contract workers, according to multiple reports.

He will outline the proposal in his State of the Union Address on Tuesday night.

The White House highlighted janitors and construction workers on federal sites as some of those who would be helped by the executive order. The administration also mentioned workers on military bases.

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“Hardworking Americans — including janitors and construction workers — working on new federal contracts will benefit from the Executive Order,” the White House said in a statement, according to reports.

This raise amounts to a 39% increase from the current $7.25. The last time the minimum wage was increased was 2009, so that’s about 7% a year — a very far cry from the wage growth overall during that period. Here is the data charted out by the BLS on private-sector compensation growth, unadjusted, over the same period:

bls-wage-growthThe large increase will mean higher costs for taxpayers in a couple of ways. The way the White House crafted the EO (or at least their statement), federal contractors will have to pay $10.10 as the minimum wage for all workers if they agree to any new contracts for the federal government. That means that their labor costs will escalate rather dramatically, especially since that new minimum will have to get scaled into workers earning above the current minimum. Raising the floor in a workplace means raising a few levels above it, too. Increased labor costs will force companies to bid higher rates on federal contracts. We will be paying more for the same services and products we currently buy as taxpayers — a lot more.

This will shrink the pool of contractors, too, which will also mean less competition and higher prices for taxpayers.  Large companies that can split off their federal contract work into subsidiaries will presumably be able to avoid applying the new minimum wage to other business units. Smaller contractors probably won’t be able to manage that, and that will make them less competitive. And some companies will simply choose not to pursue federal contracts at all, leaving the government with fewer options, and less flexibility.

Furthermore, because these companies will not be able to recoup all of the costs of labor through price increases, they will have to find ways to increase efficiency. That means fewer jobs will get created, and some will get lost — as happens every time the minimum wage gets hiked in any significant way.

Can Obama do this? On new contracts, sure. But it’s going to end up being a disaster, the way most of his unilateral moves have been. Taxpayers will pay a high price for Obama’s mostly-impotent muscle-flexing.

Update: Of course, the question here is just how many federal contractors actually pay a minimum wage to workers — and how many workers that impacts. It will impact hourly workers probably no matter what, especially for those who hire in at less than the new minimum. In my last job as a hiring manager, our floor was above that level (and we weren’t federal contractors anyway), so a minimum wage hike would have no direct impact, although it might have had some indirect impact in the competitive marketplace. At that time, though, the civilian workforce participation rate was near its all-time high and the unemployment level in Minnesota was in the 3% range.

I’d guess that some federal contractors still have workers in that range, and hourly workers in the range just above it. If not, then this is meaningless anyway. I suspect that the White House is counting on it being a non-sequitur in the marketplace.

Update: A question from the comments: “Where’s his budget authority to do this?” Congress authorizes spending levels, not contract terms. The executive branch negotiates contracts within their authorized spending levels. So yes, a President can issue this kind of EO, but it doesn’t give him any more money to spend, so when prices go up …. things won’t get done until Congress authorizes more money.


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Over

Bmore on January 28, 2014 at 11:10 AM

Mark Knoller ‏@markknoller 28m

The hike in minimum wage is not retroactive. WH says the higher minimum wage will apply to those working on new federal contracts.

canopfor on January 28, 2014 at 10:04 AM

Then the solution is to start killing Federal contracts.
That new minimum wage will make things too expensive for the taxpayers too afford.

redguy on January 28, 2014 at 11:11 AM

All 3 of them?

Sheeple are fooled, again, by pajama-obama.

Schadenfreude on January 28, 2014 at 11:12 AM

No wonder

Gallup: Obama’s Job Approval for 2013 in Washington, D.C. Was 80.8%

Schadenfreude on January 28, 2014 at 11:13 AM

Po-Jama.

Bmore on January 28, 2014 at 11:15 AM

It also affects federal union contracts that are directly tied to the minimum wage. That’s the reason for these shenanigans. It’s a giveaway to the unions of our money.

njrob on January 28, 2014 at 11:23 AM

Boehner should come out and say that private sector workers are losing
and it is Obama’s fault.

redguy on January 28, 2014 at 11:09 AM

He’s got no backbone. Either he’s a wuss, or Obama has some big time dirt on him.

RandallinHerndon on January 28, 2014 at 11:24 AM

If this is so great why did he wait 5 years to do it? Who he going around? Himself?

JellyToast on January 28, 2014 at 11:30 AM

“So yes, a President can issue this kind of EO, but it doesn’t give him any more money to spend, so when prices go up …. things won’t get done until Congress authorizes more money.”

That’s something Congress can always agree on.

Obama: 1
Taxpayers: 0

Meremortal on January 28, 2014 at 11:34 AM

This is simply a failure of leadership from a petulant pseudo leader. Rather than do the work necessary he will find the easy way out. What a disaster. An experiment gone horribly wrong!

rjoco1 on January 28, 2014 at 11:43 AM

Its very sneaky. For instance, McDonalds (the hamburger joint) has federal contracts to run their restaurants in federal buildings, which requires those minimum wage workers to be paid $10.10/hr. Thats obvious.

Whats not obvious is that McDonalds would also be required to pay ALL OF ITS WORKERS at least $10.10/hr.

Employers of this type are most likely deciding, at this very moment, whether to continue with any federal contracts or walk away.

BobMbx on January 28, 2014 at 11:45 AM

Every f*cking day. Every damn, f*cking day.

Midas on January 28, 2014 at 11:58 AM

It also affects federal union contracts that are directly tied to the minimum wage. That’s the reason for these shenanigans. It’s a giveaway to the unions of our money.

njrob on January 28, 2014 at 11:23 AM

Bingo. With guy it is always about rewarding his friends and screwing his enemies (anyone who opposes him or just accidentally gets in his way).

Being The President For All Of Us is a Big Fat Joke. To the winner go the spoils.

It wouldn’t make me so angry except I know when a Republican gets in he won’t fight for us that way. He’ll be fighting for Big Business with amnesty and cheap labor oriented free trade.

May they all burn in Hell.

fadetogray on January 28, 2014 at 12:40 PM

I’m not a lawyer, but clearly this is unjust enrichment.

HopeHeFails on January 28, 2014 at 12:44 PM

If I agree to pay more across the board next year, my next-year budget has to go up. If the revenue side doesn’t magically match the increase, I’ll run out of money before the end of the budget year. When I run out of $$, that operation has to shut down. But, if it’s the government, Republicans can’t allow that to happen because, horrors, someone might say nasty things about them.

Voila – another debt limit increase, another re-fi of the mortgage on America’s future, and another spin down the rabbit hole.

It’s almost as if this bully continues to poke Boehner and his bottle tan in the chest, daring him to grow a pair. Not going to happen. Bullying might be “out” in school these days, but it’s alive and well in Washington.

IndieDogg on January 28, 2014 at 1:00 PM

Its good to be the king
cmsinaz on January 28, 2014 at 8:12 AM

Except that we deposed the king in the late 18th century.
Happy Nomad on January 28, 2014 at 8:13 AM

What happened to the King when the French had their little revolution?

dentarthurdent on January 28, 2014 at 1:13 PM

What happened to the King when the French had their little revolution?

dentarthurdent on January 28, 2014 at 1:13 PM

He got a haircut….”just off the shoulders, please”

BobMbx on January 28, 2014 at 1:49 PM

Its very sneaky. For instance, McDonalds (the hamburger joint) has federal contracts to run their restaurants in federal buildings, which requires those minimum wage workers to be paid $10.10/hr. Thats obvious.

Judging from the McDonald’s prices in the Smithsonian ($7.99 for a Big Mac “value” meal in 2012), McDonald’s was already paying its workers $10.10/hr.

Angainor on January 28, 2014 at 1:55 PM

He got a haircut….”just off the shoulders, please”
BobMbx on January 28, 2014 at 1:49 PM

Oh, that’s all – he went to SuperCuts, huh?
;)

dentarthurdent on January 28, 2014 at 1:56 PM

But it’s going to end up being a disaster, the way most of his unilateral moves have been. Taxpayers will pay a high price for Obama’s mostly-impotent muscle-flexing.

This will have consequences Zero cannot see. It will be a disaster. You are correct, Ed, he doesn’t think this will have any real impact, but as always he is wrong and it will bite him.

dogsoldier on January 28, 2014 at 2:49 PM

The price of fixing Healthcare.gov just went up. What an idiot? Fortunately I have a class tonight and don’t have to listen to him. I wonder how many will? My guess is that ratings will be way down.

COgirl on January 28, 2014 at 3:00 PM

This is indeed “small ball” stuff. The number of workers actually affected will be in the thousands at most – not tens of thousands. The only area really hit hard will be food service contracts. Nobody else doing business with the feds is paying anyone under $10 an hour anyway.

It’s actually a relief if this is the “big stick” for the SOTU. It’s nothing.

We still have to worry. With Soros stooge Podesta in the inner circle now, Obama may be tempted to rule by decree with more Stalinist frequency.

Adjoran on January 28, 2014 at 3:40 PM

$10.10 is not $15 per hour. Obama once again screws his base.

meci on January 28, 2014 at 3:43 PM

How about having Obama cut his travel bill in half and use the savings to let Congress pay their interns the current minimum wage.

talkingpoints on January 28, 2014 at 4:24 PM

$10.10 is not $15 per hour. Obama once again screws his base.

meci on January 28, 2014 at 3:43 PM

10 bucks an hour is not a self supporting wage either.

Obama is now lying about the minimum wage. In this country it was never intended to be enough to live on. Nor should it be.

dogsoldier on January 28, 2014 at 5:33 PM

How about having Obama cut his travel bill in half and use the savings to let Congress pay their interns the current minimum wage.

talkingpoints on January 28, 2014 at 4:24 PM

He could do that by making Moochelle fly with him and drop her army of retainers. With that savings we could cut the national debt.

dogsoldier on January 28, 2014 at 5:35 PM

Boehner should come out and say that private sector workers are losing and it is Obama’s fault.
redguy on January 28, 2014 at 11:09 AM

He did say that, and sounded really stupid by doing so.

Constantine on January 28, 2014 at 7:03 PM

New Obama EO will raise minimum wage 39% on new federal contracts

To be paid for by taxpayers.

farsighted on January 28, 2014 at 7:23 PM

New Obama EO will raise minimum wage 39% on new federal contracts

This idiotic and dysfunctional measure guarantees cost over-runs and failure in all new federal programs, as well as layoffs and/or cancellation of new hiring plans.

Brilliant move, O Bummer!! Way to laser-focus on jobs!!!

Higher cost…less employment…prevention of opportunity: what an agenda!!!

We can hardly wait to issue the nationwide Demo eviction notices!!

landlines on January 28, 2014 at 11:33 PM

Most maintenance and construction contracts for the feds are already covered by Davis-Bacon Act which requires paying prevailing wage rates, which in practice turns out to be the maximum available union rate. When I was in the highway engineering biz nearly 40 yrs ago, they were already paying rock pickers and sign men over
$10/hr. I don’t expect that this will effect very many people one way or another. It’s just Barry making a dramatic appearing gesture to show once again how much he cares for the poor and downtrodden, as continues to do everything he can to completely destroy them.

djaces on January 29, 2014 at 4:19 AM

More Cloward/Piven warfare?

Don L on January 29, 2014 at 8:32 AM

…. things won’t get done until Congress authorizes more money.

Which we know Congress will do because otherwise the President will use the threat of a government shutdown.

All the democrats have to do is tell the House that their actions will result in a shutdown and it will be instant fold every time. Until the House is willing to stand up and stand through a possible shut down, they might as well rubber stamp everything.

Flashwing on January 29, 2014 at 8:59 AM

Meh, how many government worker get minimum wage (or under $10 an hour) anyhow?

Any at all? I’d be surprised.

Given the ability of the government to waste money needlessly I can’t see them being so budget savvy that they’ve been keeping costs low in the first place.

That’s like declaring you’re setting a “bottom” on the price of a gallon of gasoline at $1.00 and a “top” at $20.00 a gallon and not allowing it outside that range for the next 5 years.

Price fixing is bad, but given the reality; I’m not sure that this “executive order” (or my hypothetical) changes anything anywhere for anyone.

gekkobear on January 29, 2014 at 12:53 PM

What is wrong with a decent 3 or 5% raise? 39% is way too much.

Amazingoly on January 29, 2014 at 8:34 PM

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