Obama's Federal Wage Hike Will Hurt Taxpayers and the Poor

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Just hours before delivering his annual State of the Union address, President Obama signed an executive order increasing the minimum wage paid by federal contractors from $7.25 to $10.10. The order affects wages paid under any new or renewed contracts.

The White House claims that a "higher minimum wage for federal contract workers will provide good value for the federal government and hence good value for the taxpayer." However, studies show that these sorts of "prevailing" wage laws aren't good value for taxpayers because they raise the cost of government projects by as much as one-third, with no increase in quality.

Prevailing wage laws are, however, good for union workers because the higher minimum wage raises the cost of hiring less skilled workers-who are often young and minority-making them less competitive with union workers. Moreover, many union contracts are pegged to the minimum wage so the mandated increase translates into higher union scales. This brings a new meaning to "a rising tide lifts all boats."

The Service Employees International Union is one of those that pegs contracts to the minimum wage. Huffington Post reports that:

"the prospect of an executive order had become a rallying cry for low-wage workers employed in government buildings in Washington. The Change to Win labor federation, which includes the Service Employees International Union, has been organizing food-court workers at the Reagan Building, Union Station and even the Pentagon, carrying out a series of one-day strikes to draw attention to the low wages funded by federal dollars. The workers who took part made a point of noting that the president had the ability to raise their wages with the stroke of the pen.

Mary Kay Henry, the president of SEIU, told HuffPost the order is one way for the president to directly boost the wage floor, with or without the help of Congress."

All of these causes and effects are on display in one of the most notorious federal wage laws, the Davis-Bacon Act of 1931. Davis-Bacon requires federal contractors to pay "prevailing" wages on public works projects of more than $2,000. For convenience sake, the prevailing wage is often the union wage. The law costs taxpayers as much as $2 billion per year in higher outlays for federally funded road and construction projects.

The law was intended by its sponsors to discriminate against contractors using migrant African-American workers, and it likely still effecting minority hiring even today. The original Davis-Bacon Act was drafted in 1927 by New York Republican Congressman Robert Bacon after an Alabama contractor won the bid to build a federal hospital in Bacon's district.

As Bacon stated in the first hearing on the bill, "The bid... was let to a firm from Alabama who brought some thousand non-union laborers from Alabama into Long Island, N.Y., into my congressional district." What Bacon was hinting at was that many of the workers were black, and willing to work for less than local building tradesmen.

Some lawmakers went beyond hinting. When the final bill was debated on the House floor on February 28, 1931, Alabama Congressman Miles Allgood argued for the Act, stating: "That contractor has cheap colored labor... and it is labor of that sort that is in competition with white labor.. . This bill has merit... [and] it is very important that we enact this measure."

The law had its desired effect. In 1932, just one year after the bill's enactment, only 30 of the 4,100 workers employed on the Boulder Dam project were African-American. In 1962, two years before the landmark Civil Rights Act was passed, local construction unions in Washington, DC, prevented black electricians from working on one of Congress's own office buildings: the Rayburn House Office Building.

To be sure, most prevailing wage laws don't have such a racially tainted motivation, but their effects on taxpayers and low-skilled workers are just the same. The White House has not revealed how much his executive order will cost taxpayers, but its impact on low-skilled workers will be far more than monetary.

Scott Hodge is president of the Tax Foundation, a non-partisan tax research organization in Washington, D.C. 

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