President to Increase Min. Wage on Federal Contracts

January 29, 2014

pic-exportIn his State of the Union Address, President Barack Obama announced that in the coming weeks he plans to issue an Executive Order increasing the minimum wage from $7.25 to $10.10 per hour for workers employed on government contracts. Based on initial reports, the Executive Order will be phased in over time and only impact new hires on new or renewed contracts.

Increasing the minimum wage for workers employed on government contracts could have the unintended consequence of forcing small business owners to choose between reducing hours or letting employees go as this change would primarily impact firms in the service industry who already have a very low profit margin. Specifically, the proposed change could exert upward pressure on all employees’ pay requiring an increase in overall prices and therefore making small firms who operate in both the federal and private marketplace less competitive since many of their counterparts may not be federal contractors (i.e. not bound by the referenced Executive Order). Moreover, the proposed increase could force some small firms to forego competing in the federal marketplace altogether, which would create an even greater imbalance between large and small businesses with respect to federal contract awards.