Minimum Wage Executive Order Has Unintended Consequences

January 30, 2014

President Obama's minimum wage executive order will lead to job losses, says Diana Furchtgott-Roth, a senior fellow and director of Economics21 at the Manhattan Institute.

  • The executive order will raise the minimum wage for federal employees from $7.25 to $10.10 per hour, including for employees of federal government contractors.
  • Some workers will see up to a 39 percent raise.

But as Congress is not likely to increase funding for those contractors, those companies will likely have to lay off workers to keep costs level. Or, prices could go up. Food service contractors that run federal cafeterias, for example, could simply raise the price of the food that is served in order to keep their employees on the payroll.

  • Demos, a left-wing organization, reported that federal contractors have 560,000 employees making less than $12.00 per hour.
  • Furchtgott-Roth says that, assuming 250,000 of those employees make an average of $8.10 per hour and work 2,000 hours per year, contractors will have to spend $1 billion annually to raise those wages to comply with the executive order.
  • That's an extra $4,000 per employee.

The minimum wage is not the way to raise earnings. Instead, children should finish high school and seek post-secondary education in fields that are growing, such as health care or computer programming. With those skills, employers will compete to hire graduates with salaries far above the minimum wage.

Source: Diana Furchtgott-Roth, "Obama's Minimum Wage Order is Out of Step with America," Economic Policies for the 21st Century, January 29, 2014.

 

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