Monday, November 3, 2014

The New Minimum Wage For Government Contracts Will Kill Jobs

On October 1, when there was just a little more than a month to go before the November 4th elections, the Department of Labor finalized the requirement that any company bidding on a Federal contract after January 1, 2015 must already be paying a minimum wage of $10.10 per hour or higher.  Thus, this fulfills Obama's February '14 executive order on this issue.

Unfortunately, this action is going to cost jobs at many companies who provide goods and services to both the Federal government as well as other non-Federal enterprises such as individuals, businesses, corporations, and state and local governments.

For example.  Let's assume that you own a shirt manufacturing operation and 25% of your business goes to the Federal government.  Under Obama's new mandate, if you want that Federal business relationship to continue, the signing of any new contracts will stipulate paying all your employees $10.10 and hour or higher.  But, your competitor, who has no Federal contracts, will keep their labor costs the same, and will only become more competitive if you do raise salaries to the new pay standard.  So, my guess is that this fictional shirt manufacture will no longer bid on any new work with the Federal government.  Thus, as their existing Federal contracts expire, they will have no other choice but to layoff that share of workers who had previously worked on those contracts.

Just another unforeseen consequence of big government action being taken without a lot of forethought but simply for political reasons in an election year.  To enact such a rule by executive order, you should be able to think like a business owner and, better yet, have the experience of being one.  The President is devoid of both.  Of course, the loss of jobs that will result from this action won't happen until long after the year's elections are over.


Department of Labor News Release: Wage and Hour Division: US Labor Secretary Thomas E. Perez announces final rule raising the minimum wage for federal contract workers:

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