Santa Came Early This Year for the Federal Contractors, Just Not Their Employees

Last Wednesday, President Obama gave a talk on economic mobility and income inequality at the Center for American Progress. It's somewhat strange to stage your speech on economic mobility at a DC think tank rather than at a factory or small business or a school--or some other place where you can talk with "hard-working middle-class Americans." But so it goes.

The speech had little in terms of new policies, but it had fairy liberal rhetoric although lines about how "streamlining regulations" (Code: gutting them) and shrinking "long-term deficits" (Code: cutting social insurance programs) would boost economic mobility and reduce inequality show that neoliberalism has not lost its rhetorical or political hold. I'd view the talk about "a trade agenda that grows exports and works for the middle class" with a heavy dose of skepticism as well, given the administrative push for the Trans-Pacific Partnership deal and the past "free" trade deals with South Korea, Panama, and Colombia that had the President's support (and about 2:1 opposition--or more--from House Democrats each time).

But I want to highlight a different contrast here. You see, the same day that the president was talking about inequality, the Office of Federal Procurement Policy (OFPP) in the Office of Management and Budget (OMB) increased the maximum amount of contractor compensation that can be billed to government contracts from $763,029 per employee per year to $952,308 per employee per year.
However could the executives of defense and IT firms have lived on a mere $763,029 per year! Never mind that that was almost double the president's salary. And never mind that their full compensation is probably much, much higher. But that's right, my friend: defense contractor executives can now charge a salary of almost $1 million to the federal government.

The OFPP did its necessary hand-wringing, the lamentation about how awful it is that they are doing this and how they so very much don't want to do it, but their hands are just tied. Scott Amey, General Counsel at the Project on Government Oversight, rightfully criticizes the see-through theatrics:

OMB tried to excuse its scheme to enrich the wealthiest contractor executives and employees by including shallow lamentations that on the surface appear to decry the need for such a large increase in allowable compensation (OFPP acted similarly when the cap was raised in 2012). The OFPP notice essentially cries that “Congress makes us do it,” but the truth is, raising the contractor compensation cap is a discretionary act, which OFPP has managed to turn into a nearly annual contractor feeding frenzy—this year it becomes a massive holiday bonus for contractors, all while agencies are being asked to do more with less.

And to make this even better, the OFPP made the raise retroactive to January 1, 2012, for most firms. Santa came early for the contractors this year! 

Contrast the almost $200,000 increase in executive compensation with the fact that federal workers' pay has been frozen since January 2010. They might see a 1% increase next year, but that's nowhere near the 24.8% increase for maximum compensation for contractors, who already get paid more than federal employees in most occupational classifications.

For a perhaps more striking contrast, compare the treatment of contractor executives with contractor employees. As a study from Demos demonstrated earlier this year, the federal government, through its contracts and grants, is the nation's biggest creator of jobs paying less than $24,000 per year. In that same report, Demos offered some policy solutions, including an executive order to require that contractors pay their employees a living wage:

A different type of precedent is offered by the more than a hundred living wage laws and labor agreements for economic development projects enacted by American cities, counties and states over the past fifteen years. These regulations take many forms, but at their core is a requirement that public contractors, subsidized businesses, concessionaires and/or other private companies that receive special public benefits must meet baseline job standards, such as paying living wages, offering affordable employee health benefits, or hiring in the local community. Less rigorous policies simply favor contractors or subsidize recipients who pay living wages and offer benefits. Still other states and cities require that contractors and other companies doing business with the public meet a basic standard of responsible business practices which excludes companies that have repeatedly violated workplace laws, failed to pay taxes, or flouted other public protections. These many approaches to reforming relationships with public contractors and other private companies that receive special public benefits can serve as models for potential federal action.

Research into the impact of living wage laws indicates that the cost to taxpayers does not rise dramatically when companies are required to pay their employees decent wages. One reason is that companies that raise the pay of low-wage workers benefit from productivity gains and save money because of reduced employee turnover. With better paid employees and a more stable workforce, contractors may also be able to deliver more reliable and higher quality goods and services. With living wage agreements in place, taxpayers can benefit from other savings as well: better paid workers have less need to rely on public services, such as Medicaid and food stamps, so costs for these programs may be reduced. In many cases, raising wage standards for workers may not require any additional taxpayer dollars.

Improving standards for employees working on behalf of America will not, by itself, rebuild the middle class or fully reverse the trend toward growing inequality. But ensuring our tax dollars are providing decent and fair wages would complement President Obama’s broader efforts to raise the minimum wage, advance universal health coverage, and promote affordable preschool. What’s more, standards could be raised without action on the part of Congress. Not only would workers and their families benefit from improved contracting standards, but industries with a high proportion of jobs supported by the government might feel pressure to improve standards as well in order to compete for the best workers. These are employees working on behalf of America, doing jobs that we have decided are worthy of public funding—yet they’re being treated in a very un-American way. We owe them more.

And some members of Congress listened. In July, 17 members of the Congressional Progressive Caucus wrote to the president urging him to follow Demos's advice. By September, their numbers had grown. 50 members of Congress, mostly of the Congressional Progressive Caucus, signed a letter to Obama urging him to sign such an executive order.

Dear Mr. President: We are encouraged by your statements during your recent speech in Galesburg, Illinois about growing income inequality in which you said, “That’s why reversing these trends must be Washington’s highest priority. It’s certainly my highest priority…  But I will not allow gridlock, inaction, or willful indifference to get in our way. Whatever executive authority I have to help the middle class, I’ll use it.”  We stand ready to support an executive order that would help put the middle class within reach for two million workers whose jobs are currently funded by the federal government.

As you know, real wages have been stagnating for working and middle-class families for over 30 years.  The prevailing wage protections put in place over the three decades from the 1930s to the 1960s now cover only 20% of federally funded private-sector work; even for covered workers, wage rates can be little higher than the federal minimum.
According to a recent study by Demos, the federal government now funds over two million jobs paying under twelve dollars per hour – more than Walmart and McDonald’s combined – in such industries as food, apparel, trucking, and auxiliary healthcare.[1]  In another report on the federal-contract workforce, the National Employment Law Project (NELP) interviewed over 500 contract workers and found that 74% are paid less than $10 per hour and 58% receive no benefits from their employer.[2]

Low-wage federal contract workers are also subject to serious breaches of employment and occupational safety law.  Offending employers frequently continue to receive continued contract awards.  A 2010 GAO report found 25 of the 50 largest assessments for unpaid wages and 8 of the 50 largest OSHA penalties imposed by the Department of Labor from 2005 through 2009 were against companies that received federal contracts in 2009.[3]  NELP’s federal contracting report found that over one-in-five of workers contacted reported suffering violations of federal wage-and-hour law, including sub-minimum wage rates, non-payment of overtime premiums, and off-the-clock work.
Reversing the trends like these that help drive income inequality will require aggressive and creative use of every legislative and non-legislative tool at the U.S. government’s disposal. With introduction of the Fair Minimum Wage Act of 2013 and other legislation that would update the minimum wage, Democrats in Congress have responded. However, in the face of continued Republican opposition, your executive authority can provide relief.

We urge you to issue an executive order to raise wage standards, safeguard the legal rights and safety and provide labor stability for the low-wage workers on whom these federal agencies rely to fulfill their mission. We also urge the creation of a structure that will monitor implementation and compliance with these orders.  Addressing the rights and standards of this workforce would be a major first step in reversing the long-term decline in living standards and working conditions for America’s low-wage workers.  We look forward to working with you.
 Sincerely,

The following 50 members of Congress signed: 

Earl Blumenauer (OR-03)
Corinne Brown (FL-05)
Mike Capuano (MA-07)
Matt Cartwright (PA-17)
Andre Carson (IN-07)
David Cicilline (RI-01)
Donna Christensen (U.S. Virgin Islands)
Judy Chu (CA-27)
Yvette Clarke (NY-09)
Steve Cohen (TN-09)
John Conyers (MI-13)
Elijah Cummings (MD-07)
Danny Davis (IL-07)
Rosa DeLauro (CT-03)
 Keith Ellison (MN-05)
Marcia Fudge (OH-11)
Tulsi Gabbard (HI-02)
Alan Grayson (FL-09)
Gene Green (TX-29) or Al Green (TX-09) [The site doesn't mention which Green!]
Raul Grijalva (AZ-03)
Luis Gutiérrez (IL-04)
Janice Hahn (CA-44)
Eleanor Holmes Norton (DC)
Rush Holt (NJ-12)
Mike Honda (CA-17)
Steven Horsford (NV-04)
Hakeem Jeffries (NY-08)
Sheila Jackson Lee (TX-18)
Hank Johnson (GA-04)
Eddie Johnson (TX-30)
Barbara Lee (CA-13)
John Lewis (GA-05)
Alan Lowenthal (CA-47)
Carolyn Maloney (NY-12)
Jim McDermott (WA-07)
Jim McGovern (MA-02)
Gwen Moore (WI-04)
Jim Moran (VA-08)
Jerry Nadler (NY-10)
Rick Nolan (MN-08)
Chellie Pingree (ME-01)
Mark Pocan (WI-02)
Charlie Rangel (NY-13)
Lucille Roybal-Allard (CA-40)
Jan Schakowsky (IL-09)
Jose Serrano (NY-15)
Louise Slaughter (NY-25)
Mark Takano (CA-41)
Maxine Waters (CA-43)
Pete Welch (VT)
Frederica Wilson (FL-24)

How did the White House respond?  Well, it didn't.

“It wasn’t responded to,” said Rep. Raul Grijalva, D-Ariz. “I mean, the response would have been, ‘We’re working on it, we’re looking into it,’ ‘We feel it’s a good idea,’ or, ‘No, we’re not going to do it.’ Any of those is a response. We received none of that.”

That quote was from last week. I doubt much has changed.

With the Republicans still in control of the House and Senate Democrats unwilling to go for full rules reform, we are unlikely to see any action on raising the minimum wage out of Congress. But Obama could make a large impact on the lives of many workers through such an executive order. Such an action would help reduce income inequality and open up economic opportunity, as he claims he wants to do.