Executive Order Closing Restaurants, Killing Jobs

May 5, 2014

President Obama's executive order raising the minimum wage for employees of federal contractors is already hurting employees and businesses, writes Byron York, chief political correspondent at the Washington Examiner.

In February, Obama raised the hourly wages of employees who work for federal contractors to $10.10. "This will make a difference for folks," the president said. But as restaurants on military bases begin to close and ask for release from their contracts, is this the difference that President Obama and wage increase supporters were expecting?

  • Three McDonald's restaurants and another fast food outlet at naval bases announced plans to close at the end of March, and other chains have requested to be released from their service contracts with the Army and the Air Force.
  • According to sources, these closures are a result of the wage increases, which become mandatory in January 2015.

Federal contractors face high costs on military installations:

  • They are required to pay workers a "health and welfare" payment, which has been raised from $2.56 per hour last year to $3.81 per hour.
  • The health and welfare payment previously was not required for fast food businesses, but the Obama administration made it mandatory for them in the fall of 2013.
  • That $3.81, plus the $2.85 wage increase, means that employers will have to pay $6.66 more per hour for each employee.
  • These additional payments are on top of other mandates from the Obama administration, including paid holidays and vacation time.

Can't these businesses raise their prices in order to cover these new costs? No. Military contracting law prohibits businesses from raising prices above the level that prevails in the community.

According to Russell Beland, deputy assistant secretary of the Navy for military manpower and personnel, the Navy estimates that 390 fast food restaurants will close due to the new costs, meaning a loss of 5,750 jobs. Additional closures on Army and Air Force bases could mean a loss of 10,000 more jobs.

Source: Byron York, "Obama's Work Edicts Could Kill Businesses on Military Bases," Washington Examiner, April 28, 2014.

 

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