Obama hikes minimum wage for federal contractors: How many will it help?

President Obama's executive order to raise the minimum wage for federal contract workers sets that stage for his State of the Union address Tuesday, which will touch on income inequality.

A move by President Obama to raise the minimum wage for federal contract workers to $10.10 an hour is partly an act of symbolism and political tactics, but it promises to have a practical impact on the lives of as many as half a million US workers.

The president plans to announce the wage boost – something he can do by executive order without congressional approval – in his State of the Union address.

By one estimate, 560,000 Americans currently earn $12 or less per hour and are employed by contractors to the federal government. That’s a small but not insignificant slice of the nation’s total low-wage work force.

Many of those 560,000 people work for less than $10.10 an hour, according to research by the liberal group Demos. Food service workers at federal buildings, for example, get $9.49 on average. And even those who earn an $11- or $12-an-hour wage could see some boost as employers adjust low-end pay scales in response to Mr. Obama’s action.

The pay rise won’t happen immediately. The executive order applies only as federal contracts come up for renewal.

Obama’s policy change comes amid a larger battle over the minimum wage and working-class incomes. The president is joining some congressional Democrats who aim to raise the national minimum wage to $10.10 per hour, and he’s making the theme of growing rich-poor inequality a centerpiece of domestic policy as the 2014 congressional election campaign revs up.

About 1 in 4 private sector workers earned less than $10 an hour in 2011, the National Employment Law Project (NELP) estimates.

Obama’s wage hike for federal contractors helps publicize his broader political goal. But Republicans say Obama’s policies have held back the pace of economic recovery and of wage growth.

“The [Republican] House has passed dozens of jobs bills that would increase access to American energy to help address costs and create jobs, roll back red tape on small businesses so they can boost wages, and improve education and job training programs to help connect job-seekers with the tools they need to get back to work,” the office of House Speaker John Boehner said in a statement Tuesday.

The White House fact sheet doesn’t say how much the wage change for federal contractors will cost US taxpayers. But it does assert that higher pay for low-end workers promises to result in less turnover, higher morale, and that perhaps higher quality work as more firms compete in the bidding process.

The executive order will call for the wage to be adjusted annually with inflation, just as the Democrats’ legislation would do nationally. Currently, the national minimum wage is $7.25 per hour and does not change with inflation.

Recent polls find that a majority of Americans support the idea of raising the minimum wage to $9 or even $10.10 an hour. And although economists don’t all see eye-to-eye on the issue, many say a shift of that magnitude would have little or no negative impact on job creation.

An October Gallup survey of small-business owners found 47 percent supported boosting the rate to $9.50 an hour, while 50 percent were opposed.

Obama’s order will affect federal service workers who do things like washing laundry on military bases. But it will not affect some 1.4 million other low-wage workers whose livelihoods are tied to federal spending, such as low-end jobs in the health-care sector that are funded through Medicaid or Medicare, Demos says.