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The President Acts to Address Taxpayer-Fueled Inequality

Lew Daly

The White House took an important step today to protect millions of Americans who work for federal contractors from illegal wage practices and health and safety risks in the workplace. The Fair Pay and Safe Workplaces Executive Order establishes a screening system to identify whether prospective federal contractors have serious labor law violations and to subject those that do to a review process that could disqualify them from receiving federal contracts. In signing this Executive Order, President Obama is taking a stand and saying that our tax dollars should not be supporting employers who violate our labor laws and put their workers at risk.

The new E.O. comes on the heels of intensifying worker strike actions across the country to protest unfair wages and poor working conditions. In recent months, workers by the thousands have walked off the job at Walmart and McDonald’s, among our country’s largest yet lowest-paying employers. Surprisingly, similar low-wage practices are also prevalent in our federal contracting system, and, as recently as Tuesday, federal contract workers were forced to take action, walking off the job at the Ronald Reagan Building, the National Zoo, the Pentagon, and other federal facilities to protest the low wages paid by contract service employers at those facilities.  

One striking worker, Keyona Dandridge, who makes $9.50 an hour at a Potbelly’s in Union Station, drew attention to the need for responsible contracting and the president’s responsibility to elevate workforce standards in the contracting system. “I’m going on strike [Tuesday] to get a good jobs executive order signed,” she said, and now the president has taken an important step in that direction along with his earlier E.O. establishing $10.10 as the minimum wage for federal contractors. With most of our country’s employment growth shifting toward low-wage sectors of the economy such as retail trade and food service, our federal contracting dollars should not be compounding this problem but countering it. In a recent study, Robert Hiltonsmith and I found that more than half of the jobs held by employees of federal contractors with a substantial contract—3.5 million jobs—are poverty-level or lower-wage jobs that do not provide a decent living standard for these workers.    

The problem of wage theft—which mainly takes the form of workers being denied minimum wages and/or overtime pay—adds insult to injury for millions of hardworking Americans, and the president is correct in seeing the urgency of this problem. A 2008 survey of 4,387 workers in low-wage industries in the three largest U.S. cities found that wage theft was widespread: 26% of low-wage workers were paid less than the minimum wage in the week prior to the survey, and 76% of those who worked more than 40 hours were not paid the legally required overtime rate. A 2013 study by the U.S. Senate Health, Education, Labor, and Pensions Committee exposed a substantial minority of federal contractors as persistent violators of federal labor laws, repeatedly committing wage theft by paying employees less than the minimum wage and denying workers overtime pay. 

According to committee chairman Senator Tom Harkin, nearly 30 percent of companies receiving the highest penalties for violations of federal labor laws are also federal contractors. In fact, the 49 federal contractors liable for major violations of labor law were responsible for close to 1,800 distinct enforcement actions by the Department of Labor over six years and were required to pay $196 million in penalties and back wages. There is also evidence that federal contractors with labor law violations are prone to significant performance problems with their contracts, thereby compromising the president’s obligation to use our tax dollars effectively and efficiently. 

With the Fair Pay and Safe Workplaces Executive Order, President Obama is implementing a series of important steps to ensure that federal contract workers enjoy full protection of our wage-and-hour laws, occupational health and safety laws, collective bargaining laws, and other applicable employment laws. The E.O. will require prospective federal contractors, for contracts valued at more than $500,000, to disclose any violations of these laws that occurred within the previous three years. According to the White House, firms with violations will be subject to review and potential disqualification; at this point, however, the bar for disqualification is not well-defined. The White House fact sheet on the E.O. states that “only the most egregious violations” will be reviewed and only “the worst actors” disqualified.

Nevertheless, the disclosure requirement itself, by providing critical information about labor law compliance in the federal contracting system, is a big step forward, and reasonable steps should be taken to ensure that the public has access to this information. Another component of the E.O. supports the legal rights of workers in employment disputes by preventing employers with contracts valued at $1 million or more from forcing employees into arbitration agreements over civil rights and sexual harassment complaints. In addition, the E.O. requires federal contractors to provide employees with regular pay stubs detailing pay and hours, overtime, and any deductions, so that employees can be sure they are getting what they are due. 

Drawing on our recent report Underwriting Good Jobs, we estimate that at least 6.6 million workers—probably more—are gaining new protections against wage theft and other workplace harms from the Fair Pay and Safe Workplaces Executive Order. These 6.6 million workers are employed by federal contractors who get at least 10 percent of their revenue from federal contracts, which roughly matches with the $500,000 threshold for President Obama’s E.O.  

Clearly, this is an important and impactful step forward for a substantial number of workers. Yet it does not address the deeper problem we need to face: our federal purchasing for the goods and services we collectively enjoy is helping to spread America’s growing epidemic of low-wage jobs, when it should be a powerful antidote. As noted above, more than half of the 6.6 million jobs we categorize as federally-supported are poverty-level or lower wage, falling short of providing a middle class living standard for these workers. 

With a Congress that has almost completely ignored American workers’ challenges and distress in recent years, the president has a compelling responsibility to do as much as he can for lower-wage workers by executive authority, not least by raising workforce standards in the federal contracting system. Barring the bad actors is an important step toward a healthier employment culture in a substantial share of our economy, yet the leverage we have with our federal purchasing dollars can and should be used more robustly. 

As we outline in Underwriting Good Jobs, the president can build on today’s step forward by establishing a further set of preferential standards for awarding federal contracts, favoring employers who pay living wages, offer good benefits, welcome collective bargaining, and maintain a reasonable distribution between executive compensation and average worker pay. Such a policy, the twenty-first century equivalent of President Johnson’s groundbreaking executive order banning racial discrimination and promoting racial equity in the employment practices of federal contractors, would be a milestone turn for the better in an economy leaving millions of workers behind while the bankers get bailouts and the rich just keep getting richer.