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The Exponential Power of a $15 Wage Floor

President Biden has been very clear. He wants to raise the federal minimum wage to $15 from the current floor of $7.25 an hour. But it’s also clear that it’ll be a tough sell. Republicans have singled out a $15 wage in Mr. Biden’s Covid-relief package as one of the things they object to most. Even some Senate Democrats may not be on board; Joe Manchin and Jon Tester have already voiced opposition. During the deliberations over Mr. Biden’s proposal on the Senate floor this week, a measure that prohibits any minimum wage increase during the pandemic passed on a voice vote, potentially signaling problems down the road.

Mr. Biden isn’t out of options if the Senate won’t go along, however. He has the power to unilaterally and directly raise pay for federal contractors by raising their wage floor to $15 an hour, which would affect at least a quarter million Americans, according to an estimate Heidi Shierholz, senior economist at the Economic Policy Institute, shared with The Times. And the ripple of effects of such an action will reverberate throughout the American work force.

“The federal government is such a big buyer of goods and services, it could help lift the entire economy,” Anastasia Christman, director of the Worker Power Program at the National Employment Law Project, told me.

Mr. Biden has indicated that he intends to do just this, issuing an executive order on the fourth day of his administration laying the groundwork for eventual direct executive action. All American presidents have the power, through the Federal Property and Administrative Services Act, to determine employment standards for companies that contract with the federal government as long as they promote the “economy and efficiency” of contracting. Contrary to the notion that exercising this authority is an unprecedented power grab, many presidents before Mr. Biden have used it to improve working conditions for millions of Americans.

During World War II, President Franklin D. Roosevelt used the power of the government purse to push unionization. Corporations that engaged in unfair labor practices were more or less barred from federal contracts, and the National War Labor Board, which arbitrated labor disputes at firms that were central to the war effort, supported unionization and ensured that employees were made union members. Six million more people joined trade unions during that era, raising the total to 15 million by the end of the 1940s.

It hasn’t just been deployed in wartime, however. President Lyndon B. Johnson’s executive order 11246 in 1965 prohibited contractors from discriminating based on race, color, religion and national origin and required them to take affirmative steps to ensure equal opportunity. His order accelerated the hiring of women and minorities at federal contractors and it encouraged integration.

But even after these companies were no longer contracting with the government and subject to Mr. Johnson’s regulations, they continued to hire Black workers at higher rates, according to research by Conrad Miller, an economist at the University of California’s Haas School of Business. That, Dr. Miller told me, shows that companies don’t just revert to their old practices when they’re no longer subject to these higher standards. Something permanently changes, perhaps the way companies go about recruiting and hiring their work forces. “In the absence of any regulation it may not be worth it for me to pay those costs,” he said. “But once you give me that incentive … and once I pay them, it’s actually cost-effective to keep using those new tools.”

“Any given employer, there’s many different ways in which they could staff their company, there’s different paths they could end up on,” Dr. Miller pointed out. “A role regulation can play is it can affect what path a company takes.” If Mr. Biden prods companies to pay better if they want to work with the federal government, it may very well set them on the road of higher compensation permanently.

In the last days of his administration, President Bill Clinton attempted to use this executive power to raise standards for federal contractors by requiring firms to comply with employment laws, but the Bush administration paused and eventually reversed this effort.

President Barack Obama took up the mantle, however. In early 2014, he issued an executive order that increased the minimum wage for federal contract workers to $10.10 an hour for more than 180,000 federal contractors. He also baked in annual increases based on inflation and required contractors to give employees seven days of paid sick leave a year.

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The effects of Mr. Obama’s orders are, unfortunately, not clear, mostly thanks to data limitations. The data on federal contractors is scant and sketchy. “The best estimates we have are extrapolations from estimates the Department of Labor conducted in the early ’90s,” Karla Walter, senior director of employment policy at the Center for American Progress, said. (It’s a question, in fact, that Mr. Biden could help answer by requiring the data to be collected.) But the best guess is that about 25 percent of the U.S. work force works for companies that contract with the federal government.

We can still assume Mr. Obama’s actions had far-reaching impacts, according to the economists I spoke to, and that it will be the same if Mr. Biden goes even further than his former boss. “Contracting is continuing to grow,” Ms. Walter pointed out, “so there will be a broader and broader impact.”

Thanks to the Service Contract Act of 1965, which requires federal contractors to pay prevailing wages, people working on contracts in high-paying occupations are almost certainly already making more than $15 an hour. It’s the workers who are in low-wage industries — the people feeding members of Congress in their cafeterias, picking up their trash, securing their buildings — that stand to see a direct benefit. “What this kind of executive order can do is really help to pull up that bottom group of workers,” Dr. Christman of the National Employment Law Project noted.

They’re not the only ones who stand to benefit, though. Firms are likely to raise wages for other employees if one set of them gets a pay increase, in order to keep things fair. That’s a clear dynamic that emerges after certain states raised their minimum wages — they don’t just directly raise pay for those earning less than the new floor, but for their co-workers who already earned at or just above it.

There is also a wide universe of people who move in and out of federal contract work, but once they’re paid a higher wage they’ll have the power to demand higher pay at the next job. “It can potentially have spillover effects to nonfederal contractors just because it’s a fluid notion, who is a federal contractor and who isn’t,” Ben Zipperer, an economist at the Economic Policy Institute, said. Even businesses themselves move in and out of being federal contractors, but once they set wages at a certain level they’re unlikely to reduce them even if they give up government work. “It’s especially difficult for firms to actually lower wages,” Dr. Zipperer said. “We just don’t see that happen.”

Even employers who don’t and never intend to compete for federal contracts will have to compete for workers. Those workers could potentially go earn $15 an hour at a company that does have federal contracts, putting pressure on others to also raise their pay.

It’s not just workers themselves who will benefit, either. The positive impact will redound to the government itself. Some companies that already pay more may feel they’re unable to compete for bids against low-pay employers, given that the government usually wants to go with the cheapest bidder; a higher standard will let them in, and they may also produce higher quality work.

It “could create really strong incentives for quality employers to start competing for this work,” Dr. Christman said. When Maryland became the first state to require its contractors to pay a living wage in 2007, the move increased the competitiveness of the process by bringing in firms that felt the playing field had been leveled for those who paid more.

There is also a body of research showing that contractors who violate workplace laws are typically those that are a bad deal for the government to work with, resulting in cost overruns, performance issues, delays and, ultimately, higher costs. Higher wages also improve workers’ job longevity and productivity, leading to better quality work from better trained, more experienced, more engaged employees. “There’s a pretty consistent finding that if you increase labor compensation it leads to increases in labor productivity,” Aaron Sojourner, an economist at the University of Minnesota, said. “You’re going to move from this low-wage, high-turnover, low-productivity model to a high-wage, low-turnover, higher-productivity model.”

Mr. Biden could aim higher than just higher pay. He could build on Mr. Obama’s paid sick leave order and also mandate paid family leave. He could promote collective bargaining rights. He could ban federal contractors from forcing employees to sign arbitration agreements that keep workplace lawsuits away from public courts and class action waivers that take away workers’ rights to collectively sue. He could bar no-hire clauses that limit where they can seek employment in the future.

But it’s also important to remember that Mr. Biden’s authority only allows him to consider whether a higher minimum wage or better benefits will result in better outcomes for the government. The responsibility for ensuring a fairer economy for all lies with lawmakers. “That’s really the job of the Congress,” Dr. Christman said.

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