Bloomberg News

Obama to Raise Minimum Wage for Contractors to $10.10

January 28, 2014

Federal Contractor

Obama will issue an Executive Order for U.S. contract workers -- including janitors and construction workers -- while repeating his call to reluctant lawmakers to increase the minimum hourly wage for all employed Americans. Photographer: Brian Harkin/Getty Images

President Barack Obama will raise the minimum wage to $10.10 an hour for federal contractors hired in the future, an initiative to be unveiled tonight in his State of the Union address.

Obama will issue an executive order for contract workers performing services and those in construction -- and repeat his call to reluctant lawmakers to increase the minimum wage for all employed Americans.

Federal contract workers are paid a minimum of $7.25 an hour, the rate for private-sector employers, White House spokesman Bobby Whithorne said today in an e-mail. He said he didn’t have a cost estimate for increasing the minimum by 39 percent.

“We believe that this action will produce good value for the federal government,” Whithorne said. “Higher wages will attract higher-quality workers who are more productive, reduce turnover, which can significantly offset the cost of providing higher wages.”

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Republicans led by House Speaker John Boehner criticized the action as costing jobs while helping few workers, and a former Obama aide said it could be challenged in court.

The president is fulfilling a pledge made at a Jan. 14 Cabinet meeting to make 2014 “a year of action” by using his executive power. “We are not just going to be waiting” for legislation, adding that “I’ve got a pen and I’ve got a phone,” and pledged to use both to press the Congress.

Future Contracts

Valerie Jarrett, senior adviser to Obama, said on Bloomberg Television today the order covers “a couple hundred thousand” people.

The wage increase will touch few workers immediately. It will only kick in when new contracts are signed, and it won’t cover existing employees until their contracts are renewed, according to a White House statement.

“We don’t expect the impact of this to be all that significant,” said Stan Soloway, chief executive officer of the Professional Services Council, an Arlington, Virginia-based group that represents contractors such as CACI International Inc. (CACI:US) and a unit of Sodexo. (SW) Sodexo, based in Issy-les-Moulineaux, France, provides food and other services to the U.S. government.

The wages for the “vast preponderance” of work covered by the order are set by another federal law, Soloway said in a phone interview. Most employees that would be affected are already being paid more than the order requires, Soloway said.

Small Business

“We believe it that will help level the playing field,” said Cris A. Young, owner of Hudson Fasteners Inc. in Youngstown, Ohio, a federal contractor, and president of the American Small Business Chamber of Commerce.

Young, who said she pays her employees “way above” the minimum wage to lure talent, said the Obama order will prevent competitors from undercutting her by offering lower bids based on paying their workers less.

The order could put pressure on small companies selling to the government to increase pay, giving competitors in the private sector an advantage, said Molly Brogan Day, a spokeswoman for the National Small Business Association, a Washington-based trade group.

“It could force some small firms to forgo competing in the federal marketplace,” she said.

‘Zero’ Workers

Boehner, an Ohio Republican, said the move is a bad policy that will result in fewer people being hired as contractors.

“The question is how many people, Mr. President, will this executive action actually help?” Boehner told reporters today. “I suspect the answer is close to zero.”

Richard Trumka, president of the AFL-CIO labor federation, called Obama’s order “a step in the right direction.”

“It shows the president is serious about addressing issues of wage stagnation and unfairness,” Trumka said in a phone interview. “What we’re hoping to hear tonight is that he comes up with a bold agenda that meets the challenges that he laid out in his inequality speech in December.”

Demos, a New York-based public policy group that says it advocates to reduce economic inequality, also praised Obama.

“The president’s action adds momentum to the fight for a federal minimum wage increase that would benefit all Americans,” Demos President-select Heather McGhee said in an e-mailed statement.

560,000 Workers

Demos in May released a study that found about 560,000 workers employed by federal contractors are paid $12 an hour or less.

There is “at least a legal cloud hanging over the administration’s authority to do this for federal contracting employees,” said Dan Gordon, associate dean for procurement law at George Washington University Law School in Washington and former top procurement official for Obama.

“I’m in favor personally of raising the minimum wage both for people who work under federal contracts and people who work every place in the United States, but that doesn’t mean the executive branch has the legal authority to do it without an act of Congress,” Gordon said in a phone interview.

A 1949 law gives the executive branch the power to “take steps for the economy and efficiency of the federal procurement system,” Gordon said.

Bush, Cheney

Obama’s use of executive power is probably the most dramatic since the Bush administration and Vice President Richard Cheney’s assertion of powers for national security reasons, said Ross Baker, a political scientist at Rutgers University in New Brunswick, New Jersey.

“This is a warning shot, an indication the president intends to use these powers to the maximum,” Baker said.

Lawmakers ignored Obama’s plea in last year’s address to raise the minimum wage and congressional elections in November won’t make reaching an agreement any easier.

“It would be challenging to move the needle on inequality in the near term even with Congress’s cooperation,” said Jared Bernstein, Vice President Joe Biden’s former chief economist. “It would be really hard to do it without.”

The president is using his leverage to increase wages for those employed through federal contractors and including workers on U.S. military bases, such as dish washers, food service personnel and laundry workers. The White House, in a statement, said the president will keep pressing Congress to raise the national minimum wage from the current $7.25 an hour.

Overtime Pay

Obama also could use regulatory authority to raise the salary threshold for exemption to the overtime rules in the Fair Labor Standards Act, effectively meaning many more workers would have to receive pay at time and a half for working more than 40 hours per week, Bernstein said.

Obama wants Congress to pass a bill by Senator Tom Harkin and U.S. Representative George Miller, both Democrats, to raise the federal minimum wage in stages to $10.10 an hour, and then index it to inflation.

A White House fact sheet showed Congress hasn’t increased the minimum wage in seven years and a full-time minimum wage worker earns about $14,500 a year, meaning a family of four “has to raise their children in poverty.”

Critics said a higher minimum wage will squeeze businesses, adding costs and perhaps leading to job cuts. The administration has said numerous studies debunk that argument, and that a higher wage stabilizes the workforce.

Obama tomorrow will make the argument when he appears at a Costco Wholesale Corp. (COST:US) store in suburban Lanham, Maryland. Costco has supported previous increases in the minimum wage “because it helps build a strong workforce and profitability over the long run,” the White House fact sheet said.

To contact the reporters on this story: Roger Runningen in Washington at rrunningen@bloomberg.net; Kathleen Miller in Washington at kmiller01@bloomberg.net

To contact the editor responsible for this story: Steven Komarow at skomarow1@bloomberg.net


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