In his State of the Union address on January 28, 2014, President Barack Obama promised to raise the minimum wage for workers employed for new federal contracts to $10.10. In his speech, President Obama justified his decision by the fact that workers cooking troops’ meals or washing their dishes should not have to live in poverty. On February 12, 2014, Obama signed an executive order increasing the paychecks of approximately 300,000 federal contractors employed in new contracts signed after its effective date of January 1, 2015. The order goes into effect next year in order to provide contractors with the time to prepare and modify their bids according to their new obligations.
Although this number of workers only constitutes about a small percentage of the more than 2 million federal contractors, President Obama pushed the initiative as part of his campaign to encourage Congress to increase the federal minimum wage for all workers. This represents the first initiative for an increase of income for federal contractors since 2007. It is estimated that the average full-time minimum wage worker makes $14,500 a year.
This executive order represents a success for the Congressional Progressive Caucus, which had sent three separate letters to President Obama since last July to request a raise of wages for employees of federal contractors. According to the latest figures of the Bureau of Labor Statistics, about 1.6 million workers in the country earned the minimum wage of $7.25. The executive order is expected to impact workers in fast food, construction and janitorial services, as well as those working in military bases.
However, groups representing government contractors in the services industry, such as the Professional Services Council, have criticized the measure for uniquely singling out government contractors. Other critics, such as J.D. Foster, the U.S. Chamber of Commerce Deputy Chief Economist, argue that a raise in minimum wage will actually lead to a loss of jobs. The Council of Economic Advisers will be releasing a more current analysis showing that the minimum wage increase will benefit the economy and will not decrease jobs.
President Obama was able to issue this order based on the federal procurement law, which allows the president to issue orders for the purpose of making federal contracting more economical and efficient. Obama’s rationale for his directive is that the minimum wage increase will yield to savings and improvements in quality by boosting employee morale, which in turn will increase the workers’ productivity and quality of work, and help reduce supervisory costs.
Proponents of a federal raise of minimum wage argue that such reforms would increase consumer spending and fuel the economy. According to a study by economists from the Federal Reserve Bank of Chicago, a pay increase of $1.75 an hour, which is lower than what is currently proposed, would augment purchases by at least $48 billion in the first year. Private researchers also predict a gain, although smaller.
If you believe you have been a victim of minimum wage violations, please contact The Harman Firm, LLP.