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122241440
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Minimum Wage
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122241440
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Minimum Wage
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Records of the Office of the Chief of Staff (Clinton Administration)
George Stephanopoulos's Subject Files
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FOIA Number: 2016-0531-F
FOIA
MARKER
This is not a textual record. This is used as an
administrative marker by the William J. Clinton
Presidential Library Staff.
Collection/Record Group:
Clinton Presidential Records
Subgroup/Office of Origin:
Chief of Staff
Series/Staff Member:
Subject Files
Subseries:
OA/ID Number:
6421
FolderID:
Folder Title:
Minimum Wage
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Row:
Section:
Shelf:
Position:
S
23
7
11
1
MINIMUM WAGE
THE WHITE HOUSE
AUG 24
\
HE - vettug Execute n
minimum ARE you wage
order for Pederalment ?
MINIMUM WAGE
EXECUTIVE OFFICE OF THE PRESIDENT
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON, D.C. 20500
THE CHAIRMAN
August 30, 1995
MEMORANDUM FOR THE PRESIDENT
FROM:
JOSEPH STIGLITZ
MARTIN BAILY
for
Subject:
Proposed Executive Order Regarding Minimum Wage
Although we strongly support the Administration's proposal to
raise the minimum wage, we have serious reservations about the
proposed Executive Order on minimum wages for federal contractors.
There is, to our knowledge, no substantive body of literature
to support the proposition stated in the preamble that
requiring federal contractors to pay a higher minimum wage
will lead to increases in efficiency sufficient to offset the
cost to federal contractors of the higher wage. Most of the
economic literature has either focused on low wage sectors,
like restaurants, or discussed effects of an across the board
increase in the minimum wage.
More generally, the effects of an increase in wages mandated
in one sector of the economy (here the federal contracting
sector) may be far different from those of an across the board
increase in wages.
Most economists would argue that if federal contractors' costs
would have been lowered by paying higher wages, they would
have already done so. Imposing additional constraints on
contractors would normally be expected to increase total
costs. (The preamble does not contain any refutation of this
argument.)
The magnitude of the increased costs may be significantly
greater than the direct costs associated with increasing wages
of workers at or near the minimum wage. The executive order
will make it less attractive for firms to bid on government
contracts (since it will raise costs on all production, not
just on production for the government), and with fewer firms
bidding, costs to the government will rise. More generally,
the executive order is likely (if actively enforced) to
interfere seriously with our efforts to reform government
procurement policy, to make government procurement more
efficient and less costly.
- 2 -
There is some chance that the increased minimum wage will
reduce employment among federal contractors--even under
conditions in which an across the board increase in the
minimum wage would not. Federal contractors could simply
substitute high-quality high wage workers. Such policies
could exert downward pressure on wages in other sectors of the
economy.
There are a further set of technical issues not addressed by
the executive order. Will contractors be responsible for insuring
that subcontractors pay the $5.15 minimum wage? If not, this is an
easy way for contractors to avoid the force of the executive order.
But if contractors are responsible for enforcing minimum wages on
subcontractors, it may impose significant economic costs. Each
contractor will have to review the wage policies of all of its
subcontractors (and its subcontractors of their subcontractors).
For some, the share of federal business may be sufficiently small
that they will be unwilling to revise their wage policy,
necessitating entering into new contractual arrangements,
presumably at greater costs. And what about products purchased on
the market: does the contractor have to make sure that each
product is produced by a manufacturer who pays the $5.15 wage?