Washington's "High Road" to Robbery

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WASHINGTON-Many Americans are intent on saving money, making every penny count. But here in Washington, even though President Obama has promised to cut the deficit, wasting taxpayer money remains the local sport, as it has been for years under Democratic and Republican congresses. Call it cronyism, or call it helping your friends.

Inside the Beltway, there's a new name for these ancient games, the "high road" procurement process. It's not brand new but was given new voice on February 26 with publication of the first annual report of the White House Middle Class Task Force.

The term "high road" refers to contractors that pay their workers high wages and benefits. It was used by the AFL-CIO in recommendations to President Obama's transition team. The AFL-CIO proposed that "a new administration should strengthen the existing responsible contractor requirements to ensure that government contracts go to high-road, law-abiding employers that provide good jobs and respect workers' rights." (Italics added.)

This means that firms that pay a "living wage" - defined by the Merriam-Webster dictionary as "a wage sufficient to provide the necessities and comforts essential to an acceptable standard of living" - be given preference for government contracts, now worth approximately $500 billion a year and covering tens of millions of workers.

In other words, the government would award contracts to the high bidder, not the low bidder. That upside-down logic smacks of waste and corruption.

Some Democrats in Congress are in favor. Some Republicans ask whether premium wages would drive up federal spending, disadvantage small business, reduce employment of low-skill workers, and transfer to the president authority to regulate wages that traditionally has been exercised by Congress.

On November 2, 2009, Connecticut Democrat Rep. Rosa DeLauro wrote to her House colleagues asking them to support such procurement "reforms." Reforms would, she wrote, "ensure that taxpayer dollars go to high-road employers that obey the law and respect workers' rights and help expand the middle class." According to her staff, six other representatives co-signed her letter.

On February 1, five Republican senators - Susan Collins, Robert Bennett, Lindsey Graham, Tom Coburn, and Olympia Snowe - wrote to the president's budget director, Peter Orszag, expressing concern that the new "high road" preference would increase the cost of government and disadvantage small business. Three days later, two Republican representatives, Darrell Issa and John Kline, wrote to Jared Bernstein, staff director of the Task Force, arguing that it was inappropriate to use an executive order to circumvent Congress's authority to regulate wages.

The Task Force report asserts that "substandard wages and benefits can have negative impacts on employees' productivity and stability, which in turn can reduce the quality of performance on Federal contracts." ("Substandard" is undefined.) It states that "contracts should not be awarded to irresponsible sources with unsatisfactory records," and that "we expect to produce shortly some new recommendations to bring these ideas into practice."

How would this work? Presumably, the administration would simply require firms that do business with it to pay higher wages than required by the law now, and deliver non-wage employee benefits such as sick leave, health insurance, and retirement income.

Such a requirement, raising employment costs for contractors, would conflict with the president's own professed goals, to lower the deficit and raise employment throughout the economy. It would be particularly detrimental to low-skill workers, because the gap between their wages and the "living wage" is the highest. Employers would have an incentive to lay off these workers and hire those with more skills.

For an example of what happens when the government meddles in wages, look no further than the minimum wage, which primarily affects unskilled teens. After it was increased to $7.25 last summer, the third increase in three years, the teen unemployment rate reached 27%, and the rate for African-American teens went to 48%.

It's not as though wages paid to federal contractors are unregulated now. The Davis-Bacon and Service Contract Acts and their associated regulations require contractors to pay "prevailing wage rates." Over the decades, that's been a euphemism for union wages. But the union pay scale is no longer enough for this administration, which wants the unions to help Democrats retain Senate and House majorities in the November elections.

Sport in Washington is not merely about outcomes, but about process. Congress wants to govern without the administration, and the administration wants to bypass Congress. Congress wastes taxpayer money, but that takes time, and looks ugly. The president can do it on his own with the flash of his pen on an Executive Order. Without congressional legislation, the administration would be passing one of the largest pay increases on record.

The higher cost of government contractors would be passed on to the taxpayer by raising taxes. But raising wages for everyone is like playing Russian roulette: someone takes a bullet and loses a job. All of the firm's workforce must be paid higher wages for the firm to qualify as a federal contractor, and some would lose their jobs.

The next time you are reminded that the federal deficit is projected to exceed $1.5 trillion (11% of gross domestic product) in 2010, you need only understand that the federal government is Washington is still playing games. Labor calls it "high road." Most Americans would call it "highway robbery."



Diana Furchtgott-Roth, former chief economist at the U.S. Department of Labor, is senior fellow and director of Economics21 at the Manhattan Institute. Follow her on Twitter: @FurchtgottRoth.   

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