The Economic Case for Raising the Minimum Wage

In his 2014 State of the Union address, President Obama announced his intention to move forward using his own authority and raise the minimum wage for workers on new and replacement Federal service contracts to $10.10 an hour. As the President said, “If you cook our troops’ meals or wash their dishes, you shouldn’t have to live in poverty.” Yesterday,  President Obama signed an Executive Order making this vision a reality.

This step is a smart business decision for the government because it will make Federal procurement more economical and efficient. An extensive body of research suggests that giving a raise to lower-income workers reduces turnover and raises morale, and can thus lower costs and improve productivity. In addition, firms that already pay a decent wage and realize these kinds of efficiencies should not have to radically alter their bids to comply with the Executive Order. This means the new rule can allow Federal agencies to select from a higher-quality group of bidders without a marked increase in costs—a fact that is borne out by empirical studies of municipal government contracts.

This Executive Order will also give a boost to hardworking Americans struggling to make ends meet, and the President still believes that Congress should act to do the same for millions more.

A presentation prepared by the Council of Economic Advisers, “The Economic Case for Raising the Minimum Wage,” can be viewed below or online here: