NCPA - National Center for Policy Analysis


April 12, 2010

The term "high road" refers to contractors that pay their workers high wages and benefits.  This means that firms that pay a "living wage," defined 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, says Diana Furchtgott-Roth, a contributing editor of RealClearMarkets and an adjunct fellow at the Manhattan Institute. 

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 skill, says Furchtgott-Roth: 

  • 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 percent, and the rate for African-American teens went to 48 percent. 

It is 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, says Furchtgott-Roth: 

  • 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. 

Source: Diana Furchtgott-Roth, "Washington's "High Road" to Robbery," Real Clear Markets, March 4, 2010. 

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