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President Obama’s new order targets contractors that break labor laws

President Obama arrives in the East Room to sign an executive order banning LGBT discrimination. (EPA/SHAWN THEW)
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The conservative mantra that the “federal government doesn’t create jobs” is, of course, deeply detached from reality: last month, 2.7 million people were directly employed by the feds. But the government’s job creation doesn’t stop there. The Labor Department estimates that roughly 28 million workers are employed by 24,000 firms that contract with the federal government. When you’re responsible, directly and indirectly, for that much employment, you’ve arguably got a responsibility to do what you can to ensure those jobs are good jobs.

That’s the idea behind an executive order the president just signed to reduce labor law violations among firms that contract with the federal government (disclosure: I worked on this idea during my time with the administration).

The first point to emphasize here is that while most government-contracted firms do not break these laws, some do. And while there are some safeguards in the current system, procurement officers—the folks who decide who gets the bid—don’t have all the information they need to track labor violations like unpaid wages or overtime, not paying the minimum wage, safety and health violations, misclassifying employees as independent contractors, and so on. This executive order provides contract officers with precisely that information and that’s smart policy in a number of ways.

First, the federal government does a lot of business with private firms, something in the neighborhood of $500 billion per year, and many firms depend on the business. The new order thus raises the cost of labor violations and strengthens the incentives to do the right thing. In so doing, it puts scofflaws at a competitive disadvantage.

Second, since the minority of firms that have shoddy labor practices and/or ongoing labor disputes are likely lousy performers anyway, I suspect this new rule will improve contract efficiency.

As the White House put it: “Contractors who invest in their workers’ safety and maintain a fair and equitable workplace shouldn’t have to compete with contractors who offer low-ball bids—based on savings from skirting the law—and then ultimately deliver poorer performance to taxpayers.”

Unfortunately, though there’s not a lot of data on this, the historical record suggests that it’s a problem in need of a solution. Some of the largest labor law violations have been found at firms that contract with the feds, including firms that continued to get contracts even after the violations were established. Some details:

  • Federal procurement officers will have information from firms seeking contracts on labor violations over the past three years in any of these areas: wage and overtime rules, safety and health, collective bargaining, family and medical leave, and civil rights. As I understand it, prior violations don’t disqualify companies, but they must have a three-year clean bill of health.
  • It sounds like they’re trying to set up this new system to help companies with violations get back on the right track. If a firm is found to have labor law violations, it will get early guidance “on whether those violations are potentially problematic and opportunities to remedy any problems. Contracting officers will take these steps into account before awarding a contract, as well as after awarding a contract to ensure the contractor is living up to the terms of its agreement.”
  • The order tackles another important issue: muddled pay stubs that prevent workers from figuring out whether there’s a violation in the first place. It “requires contractors to give their employees information concerning their hours worked, overtime hours, pay, and any additions to or deductions made from their pay, so workers can be sure they’re getting paid what they’re owed.” Fuzzy pay stubs are one way in which regular workers are kept in the dark about the employment status: they don’t recognize that they’ve been classified as independent contractors and thus exempted from basic protections.
  • This executive order builds on an earlier one announced by the president back in January to raise the minimum wage of workers on federal contracts to $10.10.

I’m but one taxpayer, but I suspect I’m not alone in asserting that I’d rather my money went to firms that play by the rules. I also suspect I’m not alone in bemoaning the congressional gridlock that continues to block any idea targeted at helping working people get a slightly better deal. This executive order won’t change the fact that it’s been an awfully lopsided recovery in terms of where most of the growth has flowed. But it’s surely a move in the right direction, and that makes it very welcome indeed.