An executive order by President Barack Obama to pay at least $10.10 an hour to workers on federal contract jobs will affect only a tiny fraction of U.S. employees. But like a pebble tossed in a pond, it already has created ripples.
Just hours before his annual State of the Union address, in which he once again called on Congress to raise the $7.25-an-hour federal minimum wage for all workers, Obama exercised his presidential ability to set a higher minimum wage for federally contracted employees.
The order affects a small number of such workers — probably fewer than half a million low-paid workers such as food service, laundry and janitorial workers nationwide. Estimates of the number of workers on federal contracts vary, but some worker advocacy groups said it would affect less than a quarter of about 2 million federally contracted employees.
The order doesn’t include the federal government’s own workers and won’t take effect until 2015. It will apply only at the start of new federal contracts or when contracts are renegotiated with new conditions. It does not affect workers on existing contracts.
“But when the minimum rises for a subset of the workforce, it has larger ramifications,” said John Henry, an economics professor at the University of Missouri-Kansas City. “Even though this won’t apply to the vast majority of workers, the order can, for example, help the fast-food workers who already are in the process of organizing for higher wages.”
The president’s action was part of his emphasis on reducing wage inequality and the fact that the federal minimum wage has been $7.25 an hour since 2009. It also illustrates Obama’s pledge to bypass Congress if legislators continue to thwart his agenda. By using presidential power, Obama did for some workers what he has been unable to push through Congress for all workers.
House Speaker John Boehner and other Republicans said the executive order would be carefully scrutinized for constitutionality. And his call for raising the minimum wage faces the traditional criticism that it will hurt rather than help low-wage workers.
The White House action follows a series of protests by low-wage workers in the private and public sectors. Last year’s walkouts included events at federally operated locations such as the Smithsonian Institution and Union Station in Washington, where service workers called on Obama to raise their pay.
An estimated 2 million workers are employed by federal contractors, and a large majority already earn more than $10.10 an hour. But in some federal contract jobs, wages are low. A survey last year by the National Employment Law Project of contractors who make military uniforms, do janitorial and food service work, and transport goods found that three-fourths of those workers made less than $10 an hour.
The White House said the executive order could help pressure Congress to act on an existing bill to raise the federal minimum wage for all workers. Legislation sponsored by Sen. Tom Harkin, an Iowa Democrat, and Rep. George Miller, a California Democrat, would raise the federal minimum for all workers to $10.10 in 2015 and index it to inflation.
“This policy would directly provide higher wages for close to 17 million workers by 2016,” said a letter to Congress signed by about 600 people who hold Ph.D.s in economics. “Furthermore, another 11 million workers whose wages are just above the new minimum would likely see a wage increase through ‘spillover’ effects, as employers adjust their internal wage ladders.”
In their letter, the economists said that “the weight of evidence now (shows) that increases in the minimum wage have had little or no negative effect on the employment of minimum wage workers, even during times of weakness in the labor market.”
Congressional Republicans generally oppose the bill, and Boehner, an Ohio Republican, said Obama’s “unilateral increase” for federal contract workers is bad policy that will cost low-income people their jobs.
Michael Saltsman at the Employment Policies Institute, which is critical of Obama’s wage philosophy, believes that raising the minimum wage “has disastrous results for the most vulnerable job seekers” and that any mandated increase will cause job cuts.
Pam Villarreal, a senior fellow at the National Center for Policy Analysis, also thinks wage increases won’t improve productivity, as the Obama administration believes.
“But since when did productivity follow wages?” Villarreal said. “If I am sweeping floors for $7.25 an hour and I start receiving $10.10 an hour for doing the same job with no additional effort, I am not going to sweep those floors any faster.”
National Retail Federation president Matthew Shay noted that fewer than 5 percent of hourly workers earn the minimum wage. Nonetheless, he said, raising the minimum wage is burdensome on employers: “It’s simple math: If the cost of hiring goes up, hiring goes down.”
At the International Franchise Association, president Steve Caldeira said he prefers the earned income tax credit as a more effective tool to raise the spending power of low-wage workers.
But a rising number of economists and even business owners are behind stepped increases in the minimum wage.
In south Kansas City, it could mean more pizzas sold at Waldo Pizza. At least that’s partly why owner Phil Bourne added his name to a “Business for a Fair Minimum Wage” statement signed by business owners around the country.
“Workers need to earn enough to buy the products or service that businesses are selling,” Bourne said Tuesday.
Bourne counts himself among business owners and economists who believe it’s more harmful for wages to fall behind the inflation rate than it is for the government to set mandatory wage floors.
The cumulative inflation rate since the last minimum wage increase in 2009 is 8.6 percent. A restaurant meal that cost $20.00 in 2009 would cost $21.72 today, according to that calculation.
Bourne said he’s OK with “gradual, planned increases that give business owners a chance to incorporate the change into their operations and pricing. Nobody has to just suddenly lay people off or cut hours. Nobody needs to do that if the demand is there for your product or service.”
The federal minimum applies unless states or cities set higher wage floors. Some cities in California and Washington already have set minimum pay for some workers higher than the federally proposed $10.10 an hour.
In Missouri, state law this year raised the state’s minimum wage to $7.50 from $7.35 because of an automatic inflation adjustment, putting it 10 cents higher than the current federal minimum.
Craig Jelinek, president and chief executive at Costco, is among business owners backing higher entry-level wages. He said his company pays a minimum of $11.50 an hour in all states where the discount store does business.
“Instead of minimizing wages, we know it’s a lot more profitable in the long term to minimize employee turnover and maximize employee productivity, commitment and loyalty,” Jelinek said.
Lara Granich, director of Missouri Jobs With Justice, which backs low-wage workers’ campaigns, said she believes the president is on the right track. She thinks that increasing the minimum wage will “put money in the pockets of people who work, who will spend it at small businesses in their communities.”