by Antony Davies
Mercatus Center
July 28, 2014
The Department of Labor’s (DOL) proposed rule, “Establishing a Minimum Wage for Contractors,” is intended to increase efficiency and cost savings in work performed by federal contractors by raising the hourly minimum wage that contractors pay their workers. Research suggests that the rule is unlikely to achieve this goal – that, although an increased wage is correlated with increased productivity, the value of the increased productivity does not exceed the cost of the increased wage. The proposed rule suggests that increased wages cause increased productivity, but the research is either agnostic as to causal direction or suggests that causality runs in the opposite direction. Raising the federal contractor minimum wage can adversely affect the most vulnerable workers. Equally alarming, the rule as currently stated could be enforced in a manner so that its impact would extend to far more businesses than originally intended.

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