Labor Day Order Gives Labor a Raise

Labor costs increased on Labor Day.  On September 7, 2015, President Obama’s non-legislative executive order gave employees of federal contractors a new paid benefit.  With the stroke of a pen, vendors were required to grant paid leave to employees working on future government projects.  Like the special minimum wage increase imposed on contractors, the effect of the rule won’t be felt immediately, but the bill will come due eventually.  Or it may never be presented, if the optimists are right.

Supporters will say the executive order was necessary for fair treatment.  The USA is one of the very few nations without laws requiring paid vacations or paternal leave.  It could be argued that the unjust price advantage held in the past by contractors who denied paid leave to their employees should be eliminated.  After all, companies should not be rewarded for exploiting their workers.  Equalizing payroll cost factors with a benevolently level playing field could make contract bids more properly competitive. 

Some enthusiasts claim that productivity should rise, with higher labor costs offset by savings from improved engagement and lower turnover.  Of course, if that were true, contractors who already provided the newly required benefits would have seen labor costs drop after they first initiated those programs.  Don’t recall seeing any reports of how generous paid leave policies paid for themselves.  Of course, there are reasons some companies don’t openly share information.  Maybe the successful implementers wanted to keep their competitive advantage a secret.

Critics will claim that the president paid a political bill with a check drawn on taxpayers.  Although federal contractors will be the ones directly affected by this order, no one doubts that they will pass any extra costs on through higher charges in the future.  Employers who have already implemented every possible productivity saving will see payroll expenditures rise.  Increased labor burden rates will produce higher contract bid amounts and more expensive federal contract awards.  The eventual cost of covering those new higher payrolls will be borne not by the Treasury Department but by the taxpayers who give government the money needed to pay for everything.

No economic justifications were offered for the presidential initiative.  No cost impact studies were conducted.  Assertions that the immediately higher payroll expenses will be balanced by benefits were not supported by any analyses.  Expect that factual vacuum to be filled soon by testimonial witnesses from each side.  Proponents will trot out rosy projectors while antagonists will turn to their preferred doomsayers.  This will be an opportunity to objectively test the contrasting economic predictions. 

An Oval Office signature may initiate action, but promises are easy while results are hard.  Nothing is impossible for the person who doesn’t have to do it.  Perhaps prosperity can be instantly imposed by a political maneuver.  But this labor economist would feel more confident with an economic decision based on an economic justification.  Unlike those in the nation’s capitol, we total reward people have to deal with reality rather than image.  

Hope it works, but I get nervous when politicians roll the dice while the U.S. taxpayers are left to cover their bets. 

E. James (Jim) Brennan is an independent consultant with extensive total rewards experience, specializing in job evaluation, market pricing and pay budget distribution.  After HR corporate jobs in chemical/pharmaceutical manufacturing, he consulted at retail, government, energy, IT, tax-exempt and other industries throughout North America before becoming Senior Associate of pay survey software publisher ERI until 2015.  A prolific writer (author of the Performance Management Workbook) and speaker, he gave expert witness testimony in many reasonable executive compensation cases both for and against the Internal Revenue Service.  Jim also serves on the Advisory Board of the Compensation and Benefits Review.

Image courtesy of renjith krishnan at FreeDigitalPhotos.net

Comments

[Jacque Vilet]

Do you think there were similar reactions the last time minimum wage was increased? Seems like the only difference here is that it was not a federal increase for all industry as in the past ---- but this "onesy-twoesy" roll-out of both company initiated increases as well as government initiated (both local and federal).

On the flip side here, what happens if minimum wage is not increased? Hard to understand why when corporate profits are soaring and productivity has increased ten-fold in the last decade why this has not somehow "trickled down" to regular folks.

[E. James (Jim) Brennan]

Hard to say, Jacque, because only one sector was affected by the narrow federal contractor rules. Both last year's special minimum wage boost that went into effect January 1 2015 and the new paid leave obligations that will kick in later are only binding on firms with government contracts.

Many unknowns exist. How many targeted employers are already in compliance with these "new" rules? Are they the most profitable ones or are they struggling hardest to barely stay above water and eagerly welcoming extra costs to hit their competitors? Expect only those who bleed will complain while their rivals will chuckle and rejoice.

This is not a minwage issue that directly affects most employers. I also wonder how and why corporate shareholders (which include union pension plans and public agencies) have not diverted more profits into wages and new hiring. But I also question why the burden of paying for things that are justified as universally good for everyone is only imposed on large corporations. Perhaps that duty should be more fairly shared by all employers of all types and sizes, if it's such a good idea.

[Jacque vilet]

Maybe it should

[E. James (Jim) Brennan]

What think all? Why ARE "small" employers exempted from so many socially beneficial taxes, laws and other costly penalties solely borne by "big corporations"? Is that fair? Doesn't simple equity (a pillar of our profession) demand nondiscriminatory treatment without reference to type or size?

[Scott B]

It is much easier to demagogue "big corporations" than the neighborhood Mom & Pop store. It's a very Populist thing to suggest that the large corporations are somehow not paying as much in taxes as they should and can therefore afford to bear the burden of additional taxes and compliance rules. A politician can pretty much count on the support of the majority when proposing such things.

There's truth to the claim that such taxes, laws, etc. would impose too much of a burden on small employers, and therefore they should be exempt from some rules. But I (cynically, I know) believe that the larger reason why small employers are often exempt from rules is because it's just bad politics to, in a very visible way, hurt the Mom & Pop stores with onerous rules and new taxes.

[E. James (Jim) Brennan]

Wish I could disagree with you, Scott... but I can't. There are a lot more tiny Mom & Pops than there are big corporations. The one large group tends to take criticism personally while the other smaller bunch use hirelings to defend/protect their enterprises. Few majorities ever voted against their own interests, even when it elects the very people supported by those they publicly demonize.