A New Executive Order to Raise Wages!

January 28th, 2014 at 9:49 am

Well, how about that?  In tonight’s State of the Union speech, President Obama’s going to announce an executive order to raise the minimum wage for workers on government contracts to $10.10, thereafter indexed to inflation.

It’s a great idea, a very direct way of helping a lot—I don’t think the number of affected workers is known, but I’d guess hundreds of thousands—of workers, reaching, for example, maintenance and food service workers in national parks, museums, and army bases.

Here’s the White House’s fact sheet on the plan, and some highlights:

–The increase is modeled on the proposed increase in the federal minimum wage (Harkin-Miller bill).  As such, it also includes an increase in the sub-minimum wage that goes to tipped workers (though the WH fact sheet doesn’t say so, the bill raises that wage to 70% of the new minimum, so $7.07; this helps reduce the variability in the earnings of tipped workers).

–The increase will be applied to new contracts after the EO is signed, so it would probably take effect next year.

–As noted, the increase would be indexed to inflation, the first time in our history that a federal minimum wage has had this critical, commonsense attribute.

Given the relatively small share of the affected workers, this is a relatively small step down a long policy path towards improved job quality for low-wage workers.  It mustn’t be seen as a replacement for the federal increase.  But at the same time, it’s hard to think of an EO that would provide more fast, direct help to a significant group of workers.

The opposition will argue that the EO will raise the cost of federal contracts.  The fact sheet interestingly makes some “efficiency wage theory” arguments, which have actually been found to apply in some research on living wage ordinances (where cities raise the minimum wage of workers on local government contracts).  The argument is that the wage increase is absorbed by more efficient work, lower turnover, fewer vacancies, and greater employer investment in worker training (since you have to pay the damn workers more, you might as well make sure they know what the heck they’re doing!).

There’s not been a lot of research on the impact of living wages on city contracts, but the work I’ve seen hasn’t found systematic increases in budget costs so whether its “efficiency wages” or something else, the wage increase is not obviously passed through to the government (and thus taxpayers).

I worked on this idea back when I was on the White House econ team, as the VP’s economic advisor.  In that regard, I would not be at all surprised if a particular Veep had his fingerprints on this EO.

Nice move, admin.

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4 comments in reply to "A New Executive Order to Raise Wages!"

  1. D. C. Sessions says:

    Please, please, PLEASE! index to per-capita GDP.

  2. Robert Buttons says:

    No need for federal action here. States and localities are doing just fine at setting their own MW. If you feel CPI adjustment is important than you MUST support local determination of MW as the CPI would be quite different in NYC vs. DesMoines.

  3. Larry Signor says:

    “Nice move, admin.”. Absolutely, but also the heart of the problem with an EO. An antagonistic presidential administration can immediately undo this EO. This is an issue that needs to be codified and indexed to GDP, as D.C. Sessions points out. Anything less is just poking the bear with a stick.

  4. Larry Signor says:

    And, yes, good go Joe Biden. My Man!