President Joe Biden signed an Executive Order requiring all federal contractors to pay their employees a minimum wage of $15 an hour beginning in 2022. The order increases by 37% the minimum wage required of federal contractors which currently stands at $10.95.
As of January 30, 2022, all federal government contractors will be required to make new contract solicitations that include a $15 minimum wage. In that regard, agencies working with the federal government will be required to implement the new contracts, as well as incorporate the wage increase into extensions of existing contracts.
Biden pledged to raise the minimum wage for federal government contractors once he took office. However, the commitment could not be realized after the minimum wage increase was excluded from the stimulus plan for failing to comply with the rules of the reconciliation procedure approved by Congress.
The decision will affect hundreds of thousands of contractors across the United States. The order signed by Biden also means that the payment will be adjusted each year as the cost of living rises.
Although Biden ended up withdrawing the overall increase in the minimum wage by 2025 to $15, he has not ruled out introducing the increase in a different bill. While he has the support of the progressive benches of the Democratic Party, he will have to convince moderate senators such as Joe Manchin.
On the Republican side, Senators such as Ted Cruz and Marco Rubio have favored more moderate minimum wage increases. The federal minimum wage is currently set at $7.25.
What would be the impact of raising the minimum wage to $15?
According to the latest study by the Congressional Budget Office (CBO) on the impact of raising the federal minimum wage to $15 an hour, it determined that while 900,000 people would see their incomes rise enough to lift them out of poverty, the increase would destroy 1,400,000 jobs.
According to the CBO, the increase would disproportionately affect the youngest, migrant, and least educated population in the United States.
From 2021 to 2031, the cumulative pay of thousands of people on account of a wage increase would increase by more than $333 billion. However, the CBO also notes that businesses would see a substantial increase in labor costs, which would discourage many of them from expanding their hiring.
The minimum wage hike would also significantly increase labor costs for the largest health care programs, as the CBO estimates that by 2025 there will be about 3 million health care workers earning less than $15 an hour.
Despite the cost of the minimum wage hike, its impact on the federal budget is relatively low compared to the more than $3.1 trillion shortfall at the close of fiscal 2020.
According to CBO’s model, although health care costs in Medicaid would be reduced for those who see their wages rise, the net effect would be negative, as it would increase assistance costs for the more than one million people who lost their jobs because of the minimum wage hike.