How President Biden's Minimum Wage Requirement Will Affect Construction

By John Kenney, Cotney Attorneys & Consultants.

An increased minimum wage of $15 for all federal employees will impact both companies and workers.

Newly installed President Joe Biden is moving quickly to increase the minimum wage to $15 for all federal employees, including those working on construction projects. This is likely to have the most significant impact on unskilled workers, many of whom find jobs in the construction industry.

The move is expected to uplift individuals out of poverty but could also lead to inflation and a loss of jobs as employers consider their budgets for federal contracts.

The U.S. minimum wage has been sitting at $7.25 since 2009. Unions and other supporters have pushed for a $15-an-hour minimum wage for a decade now. Some believe the time might be right due to the widespread financial pain many Americans are experiencing and the embrace of populism by both major political parties.

Some 29 states and Washington, D.C. have already approved higher minimum wages.

Just how construction contractors will handle this change and its impact on their businesses remains to be seen. One thing is for certain, though, there will be impacts for both companies and workers.

Some pros

On the upside, the move to a higher minimum wage would put more money into the hands of unskilled and low-skilled workers, who could then boost economic activity at a time when it is sorely needed. Through consumer spending and savings, it could help support the broader economy.

A new report from the University of California, Berkley’s Center for Labor Research and Education states that increasing the minimum hourly wage could help all taxpayers since nearly half of low-income families rely on some of the federal assistance programs available to them. Those programs include Medicaid, Children’s Health Insurance Program, Earned Income Tax Credit and the Temporary Aid for Needy Families. Those programs cost taxpayers $107 billion a year, money some argue is used to federally subsidize corporations who hold down labor costs.

A report from the Congressional Budget Office in 2019 projected a minimum wage increase to $15 per hour by 2025 would improve the standard of living for at least 17 million people, including some 1.3 billion whose income would then vault them above the poverty line.

Improved employee morale due to the higher wages could result in benefits to companies as well as those employees receiving higher wages. Business owners often decry the challenges of motivating low-pay workers to give their jobs maximum effort when they feel that it does not matter because they will still be below the poverty line.

That improved morale could lead to increased worker retention and fewer hire, training costs, and relocation expenses.

Consumer spending typically increases with wages, so a higher minimum wage would put more discretionary dollars in the hands of millions of workers.

Some cons

There is the potential for job losses since labor is a significant cost of doing business and some employers will choose to cut positions to maintain profitability.

The increase could result in prices going up, which some believe would negate the advantages workers gain with a higher hourly wage. Those increased costs could also fuel inflation. It could also result in salaries and wages going up across the board, increasing company expenses that would be passed along in product and service cost increases.

The same Congressional Budget Office report that told of lifting people out of poverty also estimates a potential job loss of 1.3 million or higher if companies decide to outsource more jobs to cut labor expenses.

A higher minimum wage could also lead to more competition for minimum wage jobs. An increased number of overqualified workers could take minimum wage positions otherwise held by less experienced workers. That could preclude younger workers from entering the job market and gaining experience to bolster their careers.

Extreme arguments on both sides

Depending on whom you ask, a minimum wage increase is either the way out of poverty for employees or a train out of profit-town for companies.

The minimum wage increase remains a hot issue and it would create both winners and losers.

The Bureau of Labor Statistics, before the COVID-19 pandemic, reported that a quarter of all workers in 47 states make less than $15 per hour. Workers in 20 states earn less than $18 per hour and in 30 states, the median wage is less than $19 per hour.

Government data shows that more experienced workers actually get the advantage with this increase. In Seattle, where the minimum wage increased to $13, workers got fewer hours, so employees experienced a reduction in earnings of $125 per month.

But most say the doomsday predicted did not materialize in states that increased the minimum wage, though it is difficult for economists to measure the long-term effects of a single wage increase. The Congressional Budget Office report states that while the wage increase would eliminate more than 1 million jobs, some 17 million workers would see their earnings increase, mostly for families with incomes below the poverty line.

More federal jobs coming

One counter to the wage increase may be Biden’s plan for a robust federal infrastructure plan that would create millions of more good-paying jobs.

Part of Biden’s coronavirus “rescue” plan is a small list of construction-related provisions. However, construction executives are more interested in the second item on the president’s Capitol Hill agenda – his economic recovery proposal to “make historic investments in infrastructure, along with manufacturing, research and development, and clean energy.”

The president’s official website states, “We need millions of construction, skilled trades and engineering workers to build new American infrastructure and clean energy economy. These jobs will create pathways for young people and for older workers shifting to new professions, and for people from all backgrounds and all communities.”

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