Last week, the US Department of Labor finalized a rule to mandate a $15 hourly minimum wage for all federal contractors, stemming from President Biden’s executive order issued earlier this year.
After the failed attempt to enact the Raise the Wage Act which would have required a $15 minimum wage nationwide, Biden tried to deliver on his campaign promise another way – this time circumventing Congress. While the $15 minimum wage news made headlines, critics say it’s a “symbolic” move that doesn’t actually affect many employees.
Why not? Data from USASpending.Gov on federal contracts from FY2021 indicates that many companies with federal contracts are in industries with characteristically low representation of minimum wage earners, and the top industries represented by federal contracts have significantly higher average wages than those containing the majority of minimum wage earners.
- Five industries encompass three-quarters of federal contractors – but those industries combined represent only 11% of minimum wage workers nationally.
Those industries include: Manufacturing; Professional, Scientific, and Technical Services; Construction; Administrative and Support and Waste Management and Remediation Services; Other Services (except Public Administration); and Information
- One sector represents a majority (60%) of minimum wage earners nationwide: Leisure and Hospitality. But businesses in this sector only accounted for 2.8% of all companies with federal contracts.
- The industries making up the large majority of these federal contracts also have some of the highest average hourly wages according to the Bureau of Labor Statistics, meaning a $15 wage mandate is unlikely to affect the “average” employee of 74% of federal contractors.
August 2021 average hourly wages for the top 6 contractor industries:
- Manufacturing = $29.88/hr
- Professional and business services super sector (Includes both Professional, Scientific, and Technical Services & Administrative and Support and Waste Management and Remediation Services industries) = $36.99/hr
- Construction = $33.09/hr
- Other Services (except Public Administration) = $27.44/hr
While industry distributions and average national pay rates don’t tell the full story of all federal contract employees, the statistics paint a general picture of the logic behind the criticisms of Biden’s executive mandate. While it’s probable the $15 wage floor will affect some employees, the federal contractor workforce is mostly represented by industries that employ few minimum wage earners, and post average hourly pay nearly double the mandated rate. Add in the unintended consequences that come with wage mandates, and it means the policy is poorly targeted to actually deliver wage benefits to those who need it most.