President Obama’s unilateral move to give bigger paychecks to employees of federal contractors will drain more money from taxpayers without pressuring the government to cut spending, a Heritage Foundation economist predicts.
The likely result will be “a transfer of wealth from taxpayers to the employees of government contractors,” James Sherk, Heritage’s senior policy analyst in labor economics, told The Foundry.
Obama intends to announce tonight during his State of the Union address that he will sign an executive order raising the minimum wage for federal contract workers from $7.25 an hour to $10.10, administration officials told reporters.
Obama will urge Congress to raise the national minimum wage by the same $2.85 amount across the board. The executive order affecting new contracts, which liberals have urged Obama to make for weeks, is the kind of unilateral action without Congress that Obama is expected to promise more of.
“The executive order will raise the price of government contracts some. If the government increases spending to cover the cost, then taxpayers just eat the higher costs,” Sherk, who studies labor costs and the economy, told The Foundry. “If the government cuts spending elsewhere, or reduces the number of contracts, then employment could fall.”
But although a significantly higher minimum wage can spur employers to eliminate jobs or slow job creation, as Microsoft founder Bill Gates noted recently, Sherk says government doesn’t have the same cost-saving incentives as the private sector.
“In general, the government is not trying to operate efficiently and reduce costs, so it does not respond to a higher minimum wage the same way a business would. My expectation is this will be primarily a transfer of wealth from taxpayers to the employees of government contractors. ”
In a call with officials at the Economic Policy Institute last night, USA Today reported, top Obama economic adviser Jason Furman said the White House believes the executive action could affect about 250,000 workers.
About 16,000 federal employees were paid at or below minimum wage in 2012, according to the Labor Department, although it doesn’t say how many of them were government contractors.
“The American people expect the president to take action,” Jennifer Palmieri, White House communications director, said on CNN. Although the executive order will affect a relatively small number of Americans, the idea “is to encourage Congress to do this for everyone.”
This story was produced by The Foundry’s news team. Nothing here should be construed as necessarily reflecting the views of The Heritage Foundation.