Arguably the biggest part of President Obama’s State of the Union address last month was his executive order raising the minimum wage for federal contractors to $10.10 an hour.
This might seem strange at first, since some of the biggest government contractors are defense companies with billions of dollars in contracts. For context, the government had $516.3 billion in private contracts in 2012.
Despite all that money, not everyone shares in the windfall. As the White House notes, those affected by a minimum wage increase include low-skill workers like janitors, construction workers, and dishwashers on military bases. Many of these workers have gone on strike to protest their low wages, while the CEOs of companies with federal contracts took home as much as $23.9 billion in taxpayer funds.
So how much does an executive order matter? There are several ways to answer that.
The short answer is: Not many people, yet.
The federal government doesn’t collect data on federal contractors, though we know millions of Americans work for companies that have government contracts.
Valerie Jarrett, an Obama advisor, estimated “a couple hundred thousand” people would benefit from this change, a figure contradictorily disputed as being both too high and too low.
Regardless, the benefits from this change will not be felt immediately. An increase in minimum wage will only apply to future contracts and those renewed after expiring, so someone washing dishes on a military base might have to wait a while to see a raise, depending on when their contracts come up for renewal. As soon as the increase takes effect, however, more workers will go home with more money in their pockets.
Does Minimum Wage Matter?
Again, there’s a short answer: Yes.
There’s certainly a broader economic argument to make for raising the minimum wage. Take the Fair Minimum Wage Act of 2013, a bill seeking to raise the federal minimum wage to $10.10 an hour over three years. This would grow GDP by $22 billion during that three-year period and create a net 85,000 jobs, found an Economic Policy Institute (EPI) analysis of the bill.
The popular argument that raising the minimum wage is a job killer doesn’t stack up to EPI’s findings — there is little to no historical evidence that raising the minimum wage corresponds with significant job losses.
The big question here is how many people would be impacted by such a wage hike. EPI found that 27.8 million workers — close to nine percent of the population — would see their wages rise. Many of these workers currently make more than the minimum wage, but would still get a raise as employers adjusted their pay scales.
To be fair, a raise of $2.85 an hour won’t solve the issue of income inequality. It certainly doesn’t match $21.72 an hour — what the minimum wage would be if it had kept pace with increases in worker productivity.
But it would mark an improvement over the current wage, which is a start. A minimum-wage earner working 40 hours a week takes home around $15,000 in annual income. Because of this, many minimum wage workers must also rely on public assistance to get by, which strains already fragile government budgets. (For fast-food workers alone, taxpayers pay nearly $7 billion a year in benefits, according to a study from UC Berkeley.)
Will Wages Go Up For Everyone?
One more short answer: Not likely.
A recurring theme in the State of the Union address was President Obama’s willingness to go around Congress if need be. Despite asking for Congress’ help on any number of issues, including raising the minimum wage, it’s unlikely he will get it in an election year — especially considering how angry the GOP is about his executive orders in the first place. (Contrary to one extreme claim, he isn’t going nearly as far as past presidents.)
The only upside is that, politically, raising the minimum wage is popular. According to a recent Quinnipiac poll, 72 percent of Americans, including 52 percent of Republicans, favor raising it. So if Democrats want to use this as a line of attack against Republicans in 2014, that could be useful. And again, some states are pursuing their own wage hikes.
But the best way to help people put food on the table, and boost the economy, is to raise the federal minimum. Until Congress acts, measures like this potential executive order may be the only way to actually make progress.