Biden Orders $15 Hourly Wage for Federal Contractors

By executive order, federally contracted workers will be paid at least $15 an hour beginning Jan. 30, 2022.

President Joe Biden signs an executive order on climate change in the State Dining Room of the White House on Jan. 27. (AP Photo/Evan Vucci)

WASHINGTON (CN) — President Joe Biden is boosting federal contractors’ wages to $15 per hour starting next year, per an executive order he signed Tuesday.

Not since 2014, under then-President Barack Obama, has the minimum wage for federal contractors seen an increase. The rate is currently $10.95 an hour.

According to the Biden administration, Tuesday’s executive order — which arrives as Capitol Hill fervently debates the president’s $2.3 trillion infrastructure and jobs plan — will impact just a few hundred thousand workers.

The increase, however, will serve as leverage for the greater labor market and will force competitors to drive up their proposed wages for laborers too, White House officials said.

Agencies that hire federal contractors will be expected to incorporate the $15 hourly wage into existing agreements in addition to new contracts beginning Jan. 30, 2022. Most federal contracts are renewed annually. The new wage will also be indexed to inflation annually after 2022, so it will adjust automatically as the cost of living rises.

According to the National Conference of State Legislatures, as of April, just a dozen U.S. states automatically adjust wages for employees on the books.

The order will also remove what is known as a “tipped minimum wage” for contractors by 2024. The tipped wage allows an employer to pay a federal contractor just $7.65 hourly if what is earned in tips exceeds the standard minimum wage. Once Biden’s order officially goes into effect, all federally contracted workers, regardless of whether they earn tips, will earn $15 an hour.

Underpinning the directive is the Biden administration’s broader pro-labor push. The president has endorsed new labor reform laws such as the Protecting the Right to Organize Act — passed in the House in March — and on Monday, by executive order, he minted the White House Task Force on Worker Organizing and Empowerment.

That group will focus on promoting labor unions and giving workers across the nation more resources to bargain collectively. The White House expects the task force to issue its first report and recommendations within 180 days.

The fight for a $15 minimum wage for all workers is still brewing. In 2019, the House of Representatives passed a bill that would raise the minimum wage to $15 per hour for all by 2025. It failed to gain traction in the Senate, which was then controlled by majority leader Mitch McConnell. The Kentucky lawmaker, joined by the lion’s share of his fellow Republicans in Congress, torpedoed the wage hike’s prospects, saying it would “kill jobs and depress the economy.”

The independent Congressional Budget Office, or CBO, analyzed the proposal in February and estimated that if implemented nationwide, a $15 minimum wage could lead to 1.4 million jobs lost by 2025. But it could also up the income of 27 million Americans.

Organizations like the Information Technology and Innovation Foundation argue the CBO’s findings are based on a microeconomic view instead of a more appropriate macroeconomic view.

Microeconomics considers the decisions of individual firms and consumers, for instance, how each consumer’s purchases affect the greater supply and demand for goods. Macroeconomics assesses the market at an aggregate scale and analyzes how such factors as the unemployment rate, the national income, inflation and even how policy decisions are made at the governmental level each ultimately impact the nation’s economy.

On its face, the CBO report may not be particularly encouraging for proponents of a $15 wage for all workers, but ITIF president Robert Atkinson noted in February that the CBO also estimated U.S. companies would invest less in things like automation in the years ahead.

“Numerous academic studies have shown that higher wages force firms to invest more in capital equipment. When the price of labor is higher, the return on investment from labor-saving technologies increases because such investment helps the firm save more. The opposite is true: when companies know they can employ workers at minimal wages, they have little incentive to invest in automation. Therefore, rather than diminish the U.S. capital stock, a higher minimum wage would boost it and make the U.S. economy expand,” Atkinson said.

Biden already attempted once this year to approve a $15 minimum wage for all by building it into his administration’s $1.9 trillion coronavirus relief plan, but it was derailed when the nonpartisan parliamentarian for the U.S. Senate Elizabeth MacDonough found that budget reconciliation rules did not permit its inclusion.

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