The Meaningless Symbolism of Raising the Minimum Wage for Federal Contractors

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The Biden administration is planning to increase the minimum wage for federal contractors to $15 an hour, but there is much less to this than meets the eye. The vast majority of federal contractors already earn well above that, which makes the gesture a bit of meaningless symbolism.

The president signed an executive order to that effect to great fanfare in April and the Department of Labor (DOL) recently began the process to change the rules. DOL Wage and Hour Division Acting Administrator Jessica Looman claimed that the proposed new rule would “ensure taxpayer dollars uphold the dignity of work, and provide a living wage to workers on federal contracts, including cleaning, maintenance, nursing and food service workers whose efforts are critical to the nation’s pandemic recovery.”

The proposed rule would set the minimum wage for any workers hired through federal contracts at $15 by January 30, 2022, up from the current level of $10.95, and then index the wage to inflation using the consumer price index. For a person working 40-hour weeks, 52 weeks a year, that translates to an annual salary of $31,200.

What will this mean for the vast majority of those workers? Nothing. Most already earn well above that, though there is some dispute over how much. The independent website put the average salary for federal contractors at more than $100,400 in 2018. Another independent website, Comparably, put the average salary for a Washington, D.C.-based contractor at $68,000 annually. The website Glassdoor says the average is $64,000 annually. Even with inflation-based adjustments, it will be a long time before the new $15 minimum matches those levels. In the meantime, contractor salaries will presumably rise on their own along with inflation.

The Biden administration claims that there will be “327,300 affected employees in the first year of implementation.” And how will those people be affected? How much more will they be earning? It seems the administration don’t know. “The Department expects that increasing the minimum wage of Federal contract workers will generate several important benefits. However, due to data limitations, these benefits are not monetized,” states the Federal Register notice. Instead, the benefits will flow from “improved government services, increased morale and productivity, reduced turnover, reduced absenteeism, and reduced poverty and income inequality for Federal contract workers.”

It is hard to see the administration’s move as anything other than PR. Adjusting the pay rates for federal contractors through a simple rulemaking is one of the few things that an administration can do on its own to impact wages. Increasing the federal minimum for all private sector workers requires an act of Congress.

The administration and their allies in Congress have become obsessed with raising the federal minimum wage, seeing it as a panacea to all problems for the workforce. The situation with federal contractors shows why this is folly: Workers are much better off when they earn more than the minimum wage. That should be the focus.