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The President of the United States recently announced that all new government contracts would have a minimum wage rate almost $3 an hour above the Federal Minimum Wage. I have heard several claims from conservative pundits who have said that this order has no effect anyway.

The two main reasons are that are given for why this is:

  • It will not affect existing contracts or their renewals, so any contracts that are currently in place with rates below the new standard can be renewed at those rates. So since the current contracts can pay $3/hour less it will be nearly impossible to under bid existing contract for these jobs. Which will most likely result in renewals of existing contracts rather than new contracts that would be impacted.
  • Almost all contract positions already have rates in excess of $12/hour.

Has there been a projection of how many positions this Executive Order will impact? Are the pundits correct that this order will have virtually no impact?

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    Good question! Unfortunately I couldn't find data to answer the question, just media more or less asserting one side or the other. Hopefully I'll be able to find something or relevant data will be released soon. – Avi Feb 3 '14 at 17:31
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The Economic Policy Institute has estimated that by 2006, there were roughly two million federal contract workers, representing 43 percent of all employees doing work for the government.7 In 2008, the Congressional Research Service noted that federal contracts and grants directly and indirectly generated more than 10 million jobs, a figure “more than twice as large as the combined total of all three branches of government, the U.S. Postal Service, the intelligence agencies, the armed forces, and the Ready Reserve.” 8 Others have calculated that nearly a quarter of American workers are employed by firms that do at least some business with the federal government.

The Economic Policy Institute estimated that in 2006, 20 percent of federally contracted workers fell below the poverty line and 40 percent earned less than a living wage. "NELP. Taking the Low Road:How the Federal Government Promotes Poverty-Wage Jobs Through its Contracting Practices" 2013.

There are 560,000 workers that make $12/hr or less according to think tank Demos. The Demos number is an exaggeration because the minimum rate is being raise to 10.10/hr and is not going into effect immediately. A study by Ellison attempting to par down the Demos number due to the fact that the executive order would only slowly be going into effect over time to help workers, arrived at the number of 200,000 workers. EPI as referenced above is estimating 400,000 workers. Others have estimated 300,000.

Analysis by Traub at Demos, EPI and Ellison and many others at this point agree that the exact effect of the executive order is unknown, but agree that it will raise the minimum wage for hundreds of thousands of workers eventually. Since its an executive order, it could be repealed by a future president and would have a much smaller effect. As explained by Traub:

The final details of the executive order document will be important, she adds, as it will likely detail exemptions and set out the schedule for implementation.

Exemptions may include workers also receiving disability or those in training, for example. Federal contracts may run from a year to as long as ten years.

But since there are more than 2 million federal contractors, it does represent a somewhat small percent. The costs is borne by contractors, so it does not effect the budget.

EPI additionally estimates that raising the minimum wage for low wage workers will raise wages for other federal contract workers higher along the pay scale and affecting the pay scale for workers in the non federal private sector. It estimates over a million workers could be potentially effected by knock-on effects.

The increase goes into effect January 1, 2015 on new contracts. It will have no effect on current contracts.

This order shall not apply to contracts or contract-like instruments entered into pursuant to solicitations issued on or before the effective date for the relevant action taken pursuant to section 4 of this order.

On January 1, 2016 and thereafter, the Secretary of Labor will set the minimum rate, but it will not fall below $10.10/hr. It will increase with the inflation rate. See: Executive Order

The pundits are wrong that it will have no impact, because the low-paying jobs are heavily condescended in certain sectors. Seventy-five percent of janitors, food service, laundry, trucker drivers and military uniform factory workers make minimum wage. It could effect the companies when they try to bid for contracts next year.

  • From your ellison link - will take effect only for “new contracts after the effective date of the order.” - And - this executive order could help around 200,000 people. That doesnt say how many it will actually help just that there are 200k positions that potentially in the future could be impacted. I am looking for the projection of what actually WILL happen. – SoylentGray Mar 5 '14 at 18:10
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    Though I did reverse my down vote because I think this answer now has good information to build on. But with out the actuals projection I can not accept it. – SoylentGray Mar 5 '14 at 18:15
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    "The costs is borne by contractors, so it does not effect the budget" How does increasing the costs to contractors not end up costing more for those hiring the contractors? – Dunk Mar 5 '14 at 20:31
  • @Dunk The Contractors are supposed to absorb the cost, but how it will work in practice in questionable. I agree. I think that the uniform factories for instance could get more money. They have competition from abroad. But then again it might just all get outsourced. Shrug. – Razie Mah Mar 5 '14 at 20:41
  • Here is the thing, the existing contracts can be renewed if no one comes in with a lower bid. Renewed contracts would not be affected either. You have good information but I am still looking for some sort of actuals projection of how many workers will actually be paid more as a result of this order. – SoylentGray Mar 5 '14 at 22:16

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