Minimum wage regs to cost $500 million over next five years

6/14/2014

By Benjamin Goad - 06/13/14 11:03 AM EDT

Regulations proposed this week to lift the minimum wage for federal contractors will cost employers and taxpayers an estimated $100 million next year and just over $500 million by 2019, according to the Obama administration. 

A Labor Department analysis of the rule’s economic impact, however, concludes that the increased expense will be offset by a range of benefits, including reduced absenteeism, improved worker morale and productivity, reduced supervisory costs and better government services. 

“The Department believes that the long term cost savings to employers and the Federal Government justify the short-term costs that would be incurred,” the agency said in its 181-page draft rule unveiled this week.

The agency did not assign a dollar value to those projected benefits. 

With his calls for a national wage hike unanswered by Congress, President Obama signed an executive order in February directing the Labor Department to issue regulations increasing the minimum wage for federal contractors from $7.25 to $10.10 per hour.

Federal contractors reflect a fraction of the American workforce, and only some earn the minimum wage.

The Labor Department analysis concludes that the rule, as drafted, would increase the wages of fewer than 184,000 workers, who currently make an average of $8.79 an hour.  

It would apply to new contracts and those up for renewal. The agency said roughly 20 percent of contracts are up for renewal each year. The overall increase in wages would be an estimated $100 million next year, with the total cost increasing by the same amount each year until all contracts have been renewed in 2019.

The agency anticipates additional “familiarization” costs of nearly $26 million.

Once the draft rule is published in the Federal Register, interested parties and members of the public will have 30 days to comment before the agency finalizes the regulations. 

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