Executive order on federal contracting means real action on economic mobility

When it comes to boosting economic opportunity, President Obama isn’t going to wait for Congress anymore.  

In his State of the Union Address last night, the President made a powerful statement about employers’ obligation to reward work -- starting with his own obligation as the executive in charge of millions of federal contracts. 

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In a study we released last May, Demos found that nearly two million private sector employees paid with federal tax dollars through contracts, loans, grants, leases and health spending, earn wages too low to support a family.  These are people working on behalf of America, doing jobs that we have decided are worthy of public funds—yet they’re being treated in a very un-American way. That’s why federal workers have been walking off the job for the last year, organizing with Good Jobs Nation to call on President Obama to raise their wages. 

Now the President has taken a major step to lift up hundreds of thousands of those workers. In the process, the president will help families work their way up out of poverty and give new momentum to efforts to raise the minimum wage for everyone laboring too hard for too little in today’s low-pay economy.

The truth is that preferring contractors who pay workers at least $10.10 an hour will have benefits far beyond the workers themselves and their families. When our tax dollars subsidize and promote the creation of low-wage jobs rather than positions that enable workers to afford the necessities of life, there is a ripple effect throughout the economy: poorly-paid workers have less to spend in their communities, and businesses facing less consumer demand in turn hire fewer workers, stunting economic recovery. Low-paid workers also contribute less in taxes and more often need public benefits to provide for their families. On the other hand, an economy where workers are able to earn family-supporting wages would have broad benefits. 

From the 1931 Davis-Bacon Act onward, the idea that the federal government should be a model employer – and that employees working on behalf of the public should have strong workplace protections – has an extensive history in our country. The use of executive orders to improve the employment practices of companies granted federal contracts also has a long precedent. Beginning in 1941, successive presidents from both parties signed executive orders aimed at preventing employment discrimination by federal contractors. President Obama’s order raising wages for companies that do business with the federal government follows this successful precedent.

If the cost of federal contracts is a concern, the spotlight should be not on the employees who will finally see a raise to $10.10 an hour, but rather on the over $21 billion a year the government spends on the pay of their bosses, the top executives at contracting firms. After Demos put a number on this subsidy of executive excess in a September report, Congress included a lower maximum  pay reimbursement for contractors in its December budget deal. But even the lower cap still provides executives a roughly $234.00 an hour subsidy. When you consider that our current contracting system fuels inequality through both lavish compensation for CEOs and poverty wages for front-line workers, it becomes clear where cost-cutting efforts should be focused. 

For a look at what will happen when wages are raised, we can look to the experience of the dozens of cities and states that have implemented contracting standards raising worker pay over the last fifteen years. Researchers analyzing the impact of these statutes have found – contrary to expectations –  that the cost to taxpayers does not rise dramatically when contractors face a wage mandate. In fact, companies that lift the pay of low-wage employees can profit from increased productivity and save money due to lower employee turnover. With the advantages of a more stable and experienced workforce, contractors may even have the capacity to deliver better quality goods and services to the public. It is in this pursuit that the administration rightly claims its authority under the Federal Property and Administrative Services Act of 1949, which promotes efficiency in the procurement process. 

Today it is as urgent as ever that Congress acts to raise the minimum wage across the board.  President Obama has set a powerful example, and taken an important step toward addressing the economic inequality that is undermining the American Dream.

McGhee is the incoming president of the public policy organization Demos and Traub is a senior policy analyst at Demos.