President Biden signed an executive order on Tuesday raising the minimum wage paid by federal contractors to $15 an hour, the latest in a set of ambitious pro-labor moves by his administration.
The new minimum is expected to take effect next year and is likely to increase the pay of hundreds of thousands of workers, according to a White House document. The current minimum is $10.95 under an order that President Barack Obama signed in 2014. Like that order, the new one requires that the minimum wage rise with inflation.
“I believe no one should work full-time and still live in poverty,” Mr. Biden said in a Twitter post announcing the move.
White House economists believe that the increase will not lead to significant job losses — a finding in line with recent research on the minimum wage — and that it is unlikely to cost taxpayers more money, two administration officials said in a call with reporters. They argued that the higher wage would lead to greater productivity and lower turnover.
And although the number of workers directly affected by the increase is small as a share of the economy, the administration contends that the executive order will indirectly raise wages beyond federal contractors by forcing other employers to bid up pay as they compete for workers.
Paul Light, an expert on the federal work force at New York University, recently estimated that five million people are working on federal contracts, on which the government spends hundreds of billions of dollars each year. The companies receiving the contracts employ security guards, food workers, janitors, call center workers, nursing assistants and computer support technicians, among others.
The government requires that many employees of contractors be paid a prevailing wage — essentially the going rate for an occupation in a particular place, as determined by the Labor Department — but their pay will rise as a result of the order if the prevailing wage is less than $15 an hour. An analysis by the liberal Economic Policy Institute estimates that up to 390,000 workers will directly benefit.
But a recent report by the Government Accountability Office found that violations of government-mandated wage rates and benefits like vacation pay were common among contractors, leading to hundreds of millions of dollars in withheld compensation for workers from 2014 to 2019.
The Biden administration has proposed increasing the enforcement budget for the Labor Department, which monitors whether contractors are in line with wage and benefit rules, by nearly 20 percent.
Several cities have minimum wages of at least $15 an hour, and several states have laws that will raise their minimum wage to at least that level in the coming years. There is so far little evidence on how a $15 minimum wage affects employment in lower-cost areas of such states.
Two years ago, the House of Representatives passed a bill to raise the federal minimum wage to $15 an hour by 2025, but the legislation has faced long odds in the Senate. Mr. Biden sought to incorporate such a measure in his $1.9 trillion pandemic relief package so that it could pass on a simple majority vote, but the Senate parliamentarian ruled that it could not be included.
Mr. Biden’s executive order will also eliminate the so-called tipped minimum wage for federal contractors, which currently allows employers to pay tipped workers $7.65 an hour as long as their tips put them over the regular minimum wage. Under the new minimum, all workers must be paid at least $15 an hour.
The order will technically begin a rule-making process that is expected to conclude by early next year. The wage will be incorporated into new contracts and existing contracts as they are extended.