Pressure Builds to Raise Minimum Wage. What Does it Mean?

Back in 2013, President Barack Obama used his State of the Union address to call for raising the federal $7.25 minimum wage, which has been in place since 2010. In his address on January 28 of this year, he again appealed to Congress and employers to raise the minimum wage for all workers to $10.10. And to push them even more, he signed an Executive Order on February 12 which raises the minimum wage for certain federal contractors to $10.10, effective January 1, 2015.

Should you care? Should you take any action in response?

Perhaps.

If you are a federal contractor or work on infrastructure projects at least partially funded by the U.S. Government and have employees currently earning less than $10.10 per hour, of course, the answer is yes.

That is, so long as the President’s action holds up to legal scrutiny. However, it may not. The authority to make this change belongs to the Secretary of Labor, not the President. Congress explicitly granted this power to the Labor Secretary under two statutes: the Davis-Bacon Act and the Service Contract Act, which have been on the books since 1931 and 1965, respectively.

Those laws require the Labor Secretary to set multiple minimum wages for those federally funded contract workers, taking into consideration overall local labor market conditions and variations in prevailing wages for the particular jobs involved. Regulatory machinery has long been in place to make those calculations.

It could take a long time for the judiciary to sort it out. Unless federal courts start imposing injunctions preventing the order to take effect, federal contractors will need to comply. If government contractors are a significant factor in your area, this move could put upward pressure on wages for similar jobs in your community.

Could a Higher Minimum Wage Actually Benefit Businesses?

University of Massachusetts economics professor Arindrajit Dube examines, among other things, the cost (to employers) of employee turnover, which generally is high with minimum wage positions. When minimum wages go up, overall employment in low-wage job sectors doesn’t change significantly. What does change, though, is that turnover “falls sharply,” according to Dube. Employees, for whatever reasons, stay put longer.

You can test that conclusion against your own business experience, while also analyzing what it costs you to cover a vacancy when someone quits, and find and train a new employee. For some, depending on the circumstances, it may eventually turn out the net cost of paying a higher wage is actually a negative number. Or at least not as much as a payroll increase might suggest.