Biden’s $15 Minimum Wage for Federal Workers, Contractors Is Futile
17th February 2022
While the federal government can avoid some of the harmful effects of wage-setting by politicians, this executive order may provide a temporary—though limited—dose of economic reality.
At least within the current fiscal year, federal agencies’ budgets are limited by what Congress has allocated to them. Thus, having to pay certain workers more to do the exact same thing will force agencies to make some of the same decisions that businesses have to confront when policymakers set minimum wages above market wages.
The natural response of employers to government-imposed minimum wage hikes is to lay off workers or to shift the composition of their workforce to eliminate lower-skilled labor. Employers also respond by reducing or eliminating benefits like health insurance and retirement contributions and taking away scheduling flexibility.
But most of those things aren’t options for federal agencies. For starters, it takes about a year-and-a-half to fire a federal worker, and the convoluted and painstaking process takes so much time and effort on the part of managers that most have determined it’s not worth the effort—even if it does result in deadweight and adverse workers keeping their jobs.
Moreover, federal agencies have very little control over salary and benefits, and federal unions staunchly oppose anything that might result in less flexibility for federal workers.
Thus, federal departments are likely to have to cut back on services and on needed modernizations. In particular, this will most directly impact the Department of Defense and defense contractors.