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FOIA Number: 2016-0531-F
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This is not a textual record. This is used as an
administrative marker by the William J. Clinton
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Collection/Record Group:
Clinton Presidential Records
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Chief of Staff
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Harold Ickes
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Minimum Wage - General
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RN
CLINTON LIBRARY PHOTOCOPY
Minimum wage
THE WHITE HOUSE
WASHINGTON
OFFICE OF THE HONORABLE LEON E. PANETTA
CHIEF OF STAFF TO THE PRESIDENT
ERSKINE BOWLES
HAROLD ICKES
DEPUTY CHIEF OF STAFF
DEPUTY CHIEF OF STAFF
DATE: 8/31
PAGES: (INCLUDING COVER) 23
TO:
Harold lckes - grest
FROM:
Jennifer 0 "conner
FAX NUMBER:
COMMENTS:
Please Deliver to Mr. Ickes
Harold please call to let one Knen
son received this Also Bob Nash/
Patsy Thomasson urgentle, and to
speak with you.
IF THERE ARE ANY PROBLEMS WITH THIS TRANSMISSION PLEASE CALL (202)456-6797
(
THE WHITE HOUSE
WASHINGTON
August 31, 1995
MEMORANDUM FOR ERSKINE BOWLES
HAROLD ICKES
BRUCE LINDSEY
FROM:
JENNIFER O'CONNOR
SUBJECT:
Proposed Minimum Wage Executive Order
Secretary Reich forwarded the attached proposed Executive Order (E.O.) which would require
federal contractors to pay the President's proposed new minimum wage of $5.15 per hour. In
his transmittal memorandum, he outlined the advantages and disadvantages of his proposal.
The advantage is that it would demonstrate the President's commitment to increasing working
families' wages. The disadvantages Reich discusses are twofold: 1) the policy rationale for
such an E. O. is that it would increase overall economic efficiency; yet this finding is weak
and not supported by the Department of Labor's economists; 2) the legal justification is also
that the E.O. would increase economic efficiency; since the economists do not support such a
finding, the E.O. is particularly vulnerable to a court challenge.
Also attached are memoranda from the following White House offices based on a quick
review of the proposed E.O.: OMB, NEC, DPC, CEA, Vice President's Office, White House
Counsel, Office of Legal Counsel at Department of Justice (OLC). None of these offices
reported any positive reaction to the proposal. The criticisms they point out include: 1) it will
not increase economic efficiency as claimed and because of this Administration economists
will not support it; 2) it will make contractors stop doing business with the government which
will drive up the government's, especially the Defense Department's, costs; 3) it will reduce
employment among federal contractors; 4) there is no legal justification for the E.O. since it
will not increase economic efficiency; 5) it will disproportionately hurt small and minority
owned businesses; 6) it could add $2 billion to our budget; 7) it is inconsistent with the
National Performance Review goals of reinventing federal procurement; 8) it is inconsistent
with a reported conversation the President had with the Vice President shortly before vacation
in which he promised not to do anything further to undermine procurement reform.
The OLC memorandum includes suggestions for how to change the draft E.O. such that it
would be legally defensible and supportable. It's suggested changes require the President to
be comfortable claiming that the E.O. would increase overall economic efficiency (even if his
economists don't agree).
2
MEMORANDUM
DATE:
AUGUST 29, 1995
SUBJECT:
MINIMUM WAGE EXECUTIVE ORDERS
Summary
As requested, we have prepared a draft executive order that would prohibit
government agencies from doing business with federal contractors that pay below $5.15 per
hour.
Attached to this memorandum are: (1) the draft executive order relating to federal
contractors and the minimum wage; (2) the press packet released by the White House on
February 3, 1995 accompanying your legislative proposal to increase the minimum wage;
(3) an excerpt on the minimum wage from your May 19, 1995 speech for the 75th
Anniversary celebration of the Labor Department's Women's Bureau; and (4) a legislative
background brief describing how members of Congress voted when the minimum wage was
last increased in 1989.
Message
*
The nation's leading economic problems are stagnant wages and declining real
incomes for working families.
*
The federal government should not contribute to the wage and income problems
facing working families.
*
The President has presented Congress with a legislative proposal to increase the
minimum wage 90 cents from its current $4.25 per hour. This initiative would assure that
people who work hard and play by the rules receive a living wage of $5.15 per hour.
Congress has refused to act.
*
If Congress won't act, President Clinton will. The President will use his executive
authority to guarantee a living wage --- $5.15 per hour --- for everyone working in firms that
do business with the federal government.
*
At a minimum, the federal government should not do business with corporations
that pay workers less than a living wage.
1
3
Discussion
I.
Increasing the Minimum Wage for Employees of Federal Contractors
A. How the Executive Order Would Work
This draft executive order would establish that "[i]t is the policy of the executive
branch in procuring goods and services that
federal agencies shall contract with
companies that pay their employees no less than $5.15 an hour." This policy would be
enforced in two ways. First, every government contract entered into after the effective date
of the executive order (the date you sign it) would include a clause in which the contractor
agrees to pay a minimum wage of $5.15 per hour. Second, any contractor that pays below
$5.15 could have all of its government contracts terminated. The executive order does not
provide for any exceptions.
The Secretary of Labor would enforce and administer the order. If the Secretary
finds that a contractor is not paying a minimum wage of $5.15, he would transmit a finding
to the heads of contracting agencies or departments who, in turn, must terminate all contracts
with the contractor unless the contractor pays all of its employees at least $5.15 per hour
within a time specified by the Secretary.
Like the "striker replacement" executive order, this draft order is premised on the
authority delegated to the President by Congress in the Federal Property and Administrative
Services Act of 1949 "to provide for the Government an economical and efficient system for
procurement and supply." Some economic theories suggest that increasing the wages of
low-wage workers will result in an increase in those workers' productivity and, in turn, to
increases in efficiency that will offset the cost to federal contractors of the higher wages.
Thus, the federal government would, according to these theories, procure its goods and
services from more efficient, more economical federal contractors.
B. Possible Variations in this Executive Order
(1) Use CEO Pay as a Trigger: The executive order could be made to apply only to
federal contractors that pay their chief executive officer (or other top executive) more than
100 times the lowest wage paid to their employees. This approach would dramatize the
growing wage disparity in our economy. On the other hand, it undermines the central moral
argument which supports raising the minimum wage: every worker is entitled to a living
wage, regardless of who employs them or how much others in their organization earn.
Further, using a CEO pay trigger may weaken the nexus to economical and efficient
procurement, the legal prerequisite for presidential action of this type.
(2) Use Profits as a Trigger: The executive order could also be made to apply only to
federal contractors that earn above average profits. This approach would juxtapose the huge
economic returns being yielded by capital (e.g., the soaring stock market) with the decline in
2
4
middle and working class family incomes. On the other hand, it suffers from both of the
infirmities outlined above (i.e., undermining the moral argument and attenuating the
procurement nexus), plus it would require an administrative apparatus to decipher each
contractors' profits.
C. Arguments For and Against the Executive Order
(1) Pro: This draft executive order will demonstrate your commitment to increasing
working families' wages (particularly for the lowest wage workers) and distinguish you from
a congressional majority that refuses to even consider your legislative proposal to increase the
minimum wage. The minimum wage has fallen 27% in real terms since 1979 and, without
adjustment, will fall to its lowest real value in forty years in 1996. It is arguable that the
growing disparity in family incomes and wealth is the most pressing issue for middle and
working class families. This executive order would make your moral position clear --- you
will not allow the federal government to do business with any company that contributes to
declining real wages for low-wage workers.
(2) Con: This executive order is premised entirely on economic theory, much of
which will be difficult to explain in simple terms to the public, that is outside the mainstream
of scholarly economic thought; accordingly, it is unclear whether reliable third parties will
validate the arguments set forth in the preamble. Further, it is unclear whether theory alone
is adequate to support an executive order. Even accepting the theories as true, it is also
unclear whether the nexus between a minimum wage increase and efficient and economical
procurement is sufficiently close to pass judicial scrutiny.
Preliminary research has not disclosed any executive order, outside the context of
President Roosevelt's extraordinary powers during World War II, that directly sets wages for
employees of federal contractors; that is, this executive order could be unprecedented. The
closest analogy may be President Carter's Executive Order No. 12092 which required federal
contractors to certify that they were in compliance with voluntary wage and price guidelines
established by the President's Council on Wage and Price Stability. Finally, this executive
order could lend support to attacks that President Clinton and the Democrats want big
government. A slippery slope argument is easily made: "If Bill Clinton can require federal
contractors to pay a higher minimum wage, is he going to require a pay increase for all
workers? Will he require all federal contractors to follow his health plan? To finance
abortions through their health plans?"
(3) Likely Constituency Responses: The labor movement and other advocates for low-
wage workers will likely support the executive order. Federal contractor groups and
representatives of the business community (e.g., the Chamber of Commerce, the National
Association of Manufacturers), as well as the Republican congressional majority, will oppose
the executive order. Since a substantially larger group of federal contractors will be affected,
it is reasonable to expect a much more vigorous negative response from the business
community than the striker replacement executive order evoked. Litigation and congressional
3
5
action (e.g., efforts to overturn the executive order, appropriations riders blocking
enforcement of the order) will likely result.
D. The EO's Costs Are Difficult to Estimate
A very rough estimate of the costs of the executive order suggests that it will cost
federal contractors not more than $2.1 billion per year. Please note, however, that the data
needed to make a precise estimate of the cost of the minimum wage executive order are not
available. Estimates of worker wages and the number of workers involved do, however,
permit this crude projection.
The assumptions employed to reach the above estimate likely bias the estimate
upward. First, many federal contractors (e.g., construction, service) are required to pay a
prevailing wage above the minimum wage by the Davis-Bacon Act and the Service Contract
Act. Second, federal contractors' firms tend to be larger and, as a result, may have a
smaller percentage of minimum wage workers than firms in the economy as a whole.
Accordingly, the total number of workers affected by the executive order is probably smaller
than that assumed in the calculations to reach the above estimate. Certain structural changes
to the executive order (e.g., adding a threshold, narrowing the definition of "federal
contractor") would further reduce the number of workers covered and the commensurate
costs.
On the other hand, this estimate does not take into account any "ripple" effect that
minimum wage increase might have on the wages of workers that currently earn $5.15 or
slightly more. The ripple effect would tend to increase the costs of the executive order to
federal contractors.
II.
Two Approaches to Announcing the Executive Order
Should you decide to proceed, you should consider two approaches to announcing the
executive order.
You could announce the executive orders in a speech --- such as your forthcoming
address to the Alameda Central Labor Council's Labor Day Picnic --- or radio address and
then sign the order soon before, the same day, or soon thereafter. This approach gives the
White House control over timing and press arrangements. It also provides an opportunity to
brief potential supporters without tipping off opponents. On the other hand, it could inspire
congressional retaliation in the appropriations/reconciliation/debt ceiling process.
Or, you could announce in a speech or radio address that you are giving Congress a
90-day (or until Christmas or New Year's Eve) deadline before which it must enact your
proposed 90-cent increase in the statutory minimum wage. If it does not act by the time the
deadline is reached, you would issue the executive order. This approach puts the onus
4
squarely on Congress' shoulders. It also allows you to wield all of your available authority
to keep the minimum wage from falling to its lowest real value in 40 years (which it will in
1996 if there is no adjustment). On the other hand, this approach allows opponents time to
organize and, possibly, to seek judicial intervention. It also offers words when bold action
might send a stronger and clearer message.
Attachments
5
DRAFT 4
August 25, 1995
ENSURING THE ECONOMICAL AND EFFICIENT ADMINISTRATION AND
COMPLETION OF FEDERAL GOVERNMENT CONTRACTS
PREAMBLE
Some economic theories suggest that requiring federal
contractors to pay a higher minimum wage will lead to increases
in efficiency that will offset the cost to federal contractors of
the higher wage. The minimum wage has fallen 27% in real terms
since 1979 and, without adjustment, will fall to its lowest real
value in forty years at the end of 1996. Meanwhile, labor
productivity has increased 17% since 1979.
These theories suggest that the productivity of low-wage
workers is depressed when the minimum wage falls significantly in
real terms. These conditions can lead to greater levels of
"shirking" (i.e., reduced efforts by workers), higher turnover,
lower morale, and longer periods in which needed jobs remain
unfilled. Raising the minimum wage may lead to efficiency gains
among federal contractors that employ low-wage workers by
reducing shirking, lowering turnover, increasing morale, and
reducing the periods of time during which needed jobs remain
unfilled. In sum, productivity is lower when workers are paid an
obsolete minimum wage and, as a result, the federal government
receives lower quality, less reliable, and less timely goods for
each taxpayer dollar. By paying a higher wage to low-wage
workers, federal contractors will increase worker productivity.
The federal government will procure its goods and services from
more efficient, more economical federal contractors.
The market may not address this problem on its own. The
problems of turnover, shirking, low morale, and extended job-slot
vacancies likely result from a minimum wage which is too low to
attract new workers and retain incumbent workers. However,
employers cannot lure a new worker into a particular job with a
higher wage without giving everyone else in that job a pay
increase. Thus, in the absence of a requirement that they pay a
higher wage, employers choose lower levels of employment and
output rather than increasing the wages paid to all of their low-
wage workers.
NOW, THEREFORE, to ensure the economical and efficient
administration and completion of Federal Government contracts,
and by the authority invested in me as President by the
Constitution and the laws of the United States of America,
including 40 U.S.C. 471 and 486 (a) and 3 U.S.C. 301, it is hereby
ordered as follows:
Section 1: It is the policy of the executive branch in procuring
8
goods and services that, to ensure the economical and efficient
administration and completion of Federal Government contracts,
Federal agencies shall contract only with companies that pay
their employees no less than $5.15 per hour of work. All
Government contracting agencies shall include in every Government
contract hereafter entered into the following provision:
"During the course of the contract the contractor agrees
that all employees of the contractor will be paid no less
than $5.15 an hour."
Sec. 2. (a) The Secretary of Labor ("Secretary") may investigate
any Federal contractor to determine whether the contractor is
paying any of its employees less than $5.15 per hour of work.
(b) The Secretary shall receive and may investigate
complaints that the contractor is paying any employee less than
$5.15 per hour of work.
(c) The Secretary may hold such hearings, public or
private, as he or she deems advisable, to determine whether any
contractor is paying any employee less than $5.15 per hour of
work.
Sec. 3. (a) When the Secretary determines that a contractor has
paid any employee less than $5.15 per hour of work, the Secretary
may make a finding that it is appropriate to terminate the
contract for convenience. The Secretary shall transmit the
finding to the head of any department or agency that contracts
with the contractor. All Government contracts with the
contractor shall be immediately terminated unless the contractor
commences within a time specified by the Secretary to pay all of
its employees no less than $5.15 per hour of work.
(b) Each contracting agency shall cooperate with he
Secretary and provide such information and assistance as the
Secretary may require in the performance of the Secretary's
functions under this order.
Sec. 4. (a) The Secretary shall be responsible for the
administration and enforcement of this order. The Secretary may
adopt such rules and regulations and issue such orders as may be
deemed necessary and appropriate to achieve the purposes of this
order.
(b) The Secretary may delegate any function or duty of the
Secretary under this order to any officer in the Department of
Labor or to any other officer in the executive branch of the
Government, with the consent of the head of the department or
agency in which that officer serves.
Sec. 5. This order is not intended, and should not be construed,
to create any right or benefit, substantive or procedural,
enforceable at law by a party against the United States, its
agencies, its officers, or its employees. The order is not
intended, however, to preclude judicial review of final agency
decisions in accordance with the Administrative Procedure Act, 5
U.S.C. 701 et seq.
Sec. 6. This order is effective immediately.
THE WHITE HOUSE
10
EXECUTIVE OFFICE OF THE PRESIDENT
COUNCIL OF ECONOMIC ADVISERS
WASHINGTON, D.C. 20500
THE CHAIRMAN
August 30, 1995
95 AUG 30 : 20
MEMORANDUM FOR THE PRESIDENT
FROM:
JOSEPH STIGLITZ
MARTIN BAILY
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?
12
AUG-30-95 18:26 FROM:OMB DIRECTOR
ID:
PAGE
2/3
EXECUTIVE OFFICE OF THE PRESIDENT
OFFICE OF MANAGEMENT AND BUDGET
WASHINGTON, D.C. 20503
THE DEPUTY DIRECTOR
August 30, 1995
MEMORANDUM FOR HAROLD ICKES
FROM:
Jack Lew
a
SUBJECT: Minimum Wage Executive Order
This afternoon I received a copy of the draft executive order that would require all
federal contractors to pay the proposed new minimum wage of $5.15 per hour. The following
comments reflect our quick review. I have pulled together comments from Steve Kelman, Ken
Apfel's shop and Bob Damus, our general counsel. Without addressing the merits of a
statutory minimum wage increase, we think it would be a mistake to implement a minimum
wage increase applicable to federal procurement only.
(1)
Required finding is problematic
As a legal matter, any procurement-related Executive Order would need to be justified
on the rationale that it promotes "economy and efficiency" in procurement. While it might be
possible to identify a theoretical study that shows that improved morale increases efficiency,
the common sense case would be difficult to make. There is a risk that the result would
expose us to significant ridicule, i.e., that we think you promote economy and efficiency by
spending more money and paying higher prices than others.
(2)
Differential minimum wage would disrupt Federal procurement
Creating a differential minimum wage, which is higher for federal contractors than for
all other employers, would cause many existing government contractors who also sell in the
commercial marketplace to withdraw from government business. It is unlikely that many of
these employers would be willing to disturb their existing wage structure (where a minimum
wage increase would produce ripple effects on other wages within the company) in order to do
business with the government. If fewer companies are willing to do business with the
government, we will experience higher prices due to less competition. This contradicts the
Administration's reinventing government efforts to attract more contractors to business with us
and increase competition.
This will be particularly an issue for small businesses and minority contractors, with
which the Administration is making efforts to expand opportunities.
13
AUG-30-95 18:27 FROM:OMB DIRECTOR
ID:
PAGE
3/3
(3)
Budgetary impact
It is not possible this afternoon to produce a precise budget estimate, but the direct
wage effect alone could cost over $2 billion, not counting the ripple effect as wages near
minimum climb as well. As noted above, in addition to the direct effect, there would be the
added cost of reduced competition if there is a higher minimum wage for firms that do
business with the federal government, as many firms opt to drop federal contracts to avoid the
wage increase in their non-federal business. This indirect cost increase would not be present if
there is a statutory increase in the minimum wage.
The COSE of reduced competition will be most severely felt at the Department of
Defense, which has already been experiencing significant problems in terms of contractors
who are unwilling to do business with the federal government.
I
THE WHITE HOUSE
WASHINGTON
August 30, 1995
MEMORANDUM FOR ERSKINE BOWLES
HAROLD ICKES
CC:
CAROL RASCO
FROM:
Paul Weinstein
SUBJECT: Proposed Executive Order On Increasing
Minimum Wage For Government Contractors
The DPC has read over the proposed Executive Order from the
Department of Labor requiring any Federal contractor to pay a
minimum wage of $5.15 per hour. While the goal of such a
proposal is laudable, we believe the Order has some serious
drawbacks from a policy perspective. First, we do not think that
there will be any significant economic efficiency gains from the
Executive Order. Second, as part of the Vice President's
reinventing government effort, the Administration has been trying
to reform the procurement system by reducing the number of socio-
economic requirements placed on Federal agencies when they
contract with the private sector. The issuing of this Executive
Order would be inconsistent with the National Performance
Review's procurement reform proposal. Finally, the Executive
Order would have a negative budgetary impact at a time when we
are struggling to identify funds to pay for Presidential
initiatives.
15
THE WHITE HOUSE
WASHINGTON
August 30, 1995
95AUG30 P6:27
MEMORANDUM TO THE PRESIDENT
FROM:
LAURA TYSON
Bo CUTTER
SUBJECT:
PROPOSED EXECUTIVE ORDER REGARDING MINIMUM
WAGE
We oppose an Executive Order requiring federal contractors to pay a minimum wage higher
than the statutory minimum wage. (Gene Sperling is out of the country, but we believe he
would agree.)
As a matter of process, we should not make as complex a decision as this one with as
little analysis as has been carried out to date.
The proposed Executive Order would further complicate federal procurement, raising
an additional barrier to working with the Federal Government, and would be
inconsistent with the overall direction of federal procurement policy. We have not
analyzed the long-run costs the Government would experience as firms shift away
from federal work.
The proposed Executive Order would raise federal procurement costs, and, therefore,
because budgets will not expand, may well result in lower employment derived from
federal procurement.
The proposed Executive Order raises a number of other detailed issues we have not
been able to analyze in this short a time period: How would the international
operations of affected firms be treated? Would firms cut back on benefits? Are we
legally able to terminate contracts?
Finally, the basic justification for such an Executive Order -- that it would increase
overall economic efficiency --is not supportable for a measure applying only to part
of the economy. Larry Katz, who is, as you know, a leading proponent of this
argument when applied to the whole economy, would probably publicly criticize it in
this case.
We think our current minimum wage position is right and a political winner. We do
not need to jeopardize our position with one action we have not thought through. If
you wish, we can initiate a process immediately to develop a more thorough analysis
and provide you with a better basis for a decision.
EXECUTIVE OFFICE OF THE PRESIDENT
30-Aug-1995 04:54pm
TO:
OCONNOR_J
FROM:
Lee Ann Brackett
SUBJECT: minimum wage -- procurement eo
Jennifer,
Please tell Harold in ;the strongest possible terms that the VP would be
very much opposed to the proposed executive order requiring federal
contractors to pay a minimum wage higher than the statutory minimum wage.
This proposal would run counter to all of the President's efforts in the
area of procurement reform. The effect would be to cause many existing
government contractors to withdraw from government business since these
companies do not now produce products off separate product lines. Having
fewer companies willing to do business with the government means both
higher prices for the government and contradicts the Administration's
efforts to lower the cost of goods and services through procurement
reform.
In addition, the VP believes that he has a commitment from the President
made at their last lunch before vacation that in the search for executive
actions, we would not entertain any further actions that undermine
procurement reform. If this does not die I will insist that the VP weigh
in.
Elaine Kamarck
17
OFFICE OF THE VICE PRESIDENT
WASHINGTON
August 30, 1995
MEMORANDUM FOR HAROLD ICKES
ERSKINE BOWLES
FROM:
ELAINE KAMARCK
KUMIKI GIBSON
SUBJECT:
MINIMUM WAGE EXECUTIVE ORDER
We have reviewed the proposed Executive Order on "ensuring
the economical and efficient administration and completion of
Federal government contracts." We oppose the issuance of this
Executive Order for several reasons.
First, please be advised that before leaving for their
vacations, the President and the Vice President agreed that the
President would not issue any new directives regarding
procurement reform -- an effort being pursued as part of the
National Performance Review. Second, we have serious concerns as
to whether this order will in fact "increase efficiency," as it
purports to do. Third, we question whether this order is
defensible legally. Finally, we believe that this order may be
viewed as purely political.
Please contact either one of us if you have any questions
regarding our position.
Thank you.
PRINTED ON RECYCLED PAPER
10
THE WHITE HOUSE
WASHINGTON
DETERMINED TO BE AN
ADMINISTRATIVE MARKING
PRIVILEGED AND CONFIDENTTAL
INITIALS: JAM DATE: 12/1/17
2016-0531-F
August 30, 1995
MEMORANDUM FOR ABNER J. MIKVA
FROM:
CHRIS CERF CPC
RE:
Minimum Wage E.O. Talking Points
* The proposed Executive Order would require federal
contractors to pay employees $5.15 per hour.
* The D.C. Circuit has held that the President can "legislate"
in this fashion only if he has the express or inherent
authority to do SO.
* The E.O. relies solely on the Federal Property and
Administrative Services Act as the basis for presidential
authority. Under D.C. Circuit law, the President may
properly rely on the Act if there is a "nexus" between his
actions and "the pursuit of economy and efficiency in the
management of federal property."
*
It is unclear to what degree a court would "look behind" a
presidential finding that such nexus exists. Judge
Kessler's opinion in the Striker Replacement cases implies
that courts would give deference to such a finding, and
there is some support for this in the D.C. Circuit.
*
The Minimum Wage E.O. asserts that "some economic theories
suggest that requiring federal contractors to pay a higher
minimum wage will lead to increases in efficiency that will
offset the cost to federal contractors of the higher wage."
In other words, pay people more and they will be more
productive and the savings associated with that productivity
will be at least equal to the increased costs stemming from
the higher wages.
*
The Chief Economist of D.O.L. has informed me that there is
no empirical evidence to support this theory. Moreover,
although the theory has some support in the literature, it
does not go so far as to suggest that there would be a full
offset. In his view, "it is unlikely, but possible" that
19
the savings from the efficiency gains would fully offset the
increased costs." He does think, however, that there would
be some offset.
*
The Office of Legal Counsel thinks that it is reasonable to
assume (but not certain) that courts would more or less
defer to a concrete presidential finding. They believe,
however, that the E.O., as currently drafted, does not
contain such a finding.
To pass muster, the E.O. would need to delete all reference
to "economic theories" (see above) and state outright that
requiring contractors to pay a higher minimum wage would
lead to increases in efficiency that would offset the
increased costs associated with the wage.
The key question is whether the President would be
comfortable making such a finding. If not, the best guess
is that the order would not survive judicial review.
Even if we can make such a finding, there are substantial
litigation risks. The outcome will depend on how "tight" a
nexus the D.C. Circuit requires and whether it simply
accepts the President's finding or allows the plaintiffs to
challenge its factual basis.
20
08/30/95
22:45
202 514 0563
OLC
002
Memorandum
THE
Subject
Date
Minimum Wage Executive Order
August 30, 1995
To
From
Robert Damus
Teresa Wynn Roseborough
the
General Counsel
Deputy Assistant Attorney
OMB
General
Office of Legal Counsel
We have reviewed the draft executive order entitled
"Ensuring the Economical and Efficient Administration and
Completion of Federal 1 Government Contracts" and the accompanying
draft documents. We believe that the determination that
economy and efficiency in procurement will be promoted by the
specific provisions of the order is legally available, if the
assertions made in the order can be substantiated. That is, if
the President determines, in good faith, that increasing the
minimum wage of persons employed by federal contractors would
promote economy and efficiency in federal procurement, we believe
the issuance of the order would be authorized by the Federal
Property and Administrative Services Act of 1949, 40 U.S.C. $ 471
et seg. See Chamber of Commerce V. Reich, 886 F. Supp. 66
(D.D.C. 1995).
The supporting documents, however, do not suggest economy
and efficiency in government procurement would be promoted by
proposed provisions that would link the application of the order
to CEO pay or company profits. Accordingly, we suggest that such
provisions be eliminated from consideration. Below are our
documents: suggestions for strengthening the draft order and supporting
A. The Executive Order.
We believe that the preamble articulates an economy and
efficiency argument that may be sufficient to support the
issuance of this order with the following alterations:
(1) The first and third paragraphs should be deleted
because they weaken the economy and efficiency argument and seem
to be contradictory and confusing. However, it may be possible
1
This memorandum provides our initial comments and
observations. OLC review for form and legality is not yet
complete.
21
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202 514 0563
OLC
003
to fit the penultimate sentence of the first paragraph into the
second paragraph.
(2) The President's authority to issue the proposed order
is contingent upon his determination that it will promote economy
and efficiency. Therefore, in the third sentence of the second
paragraph, we believe the word "may" should be replaced with a
less equivocal formulation, such as "I find that this order would
If the President cannot make such a finding, the basis
for issuing the order would be doubtful. (While it is not
necessary for the President to be absolutely certain that the
proposed order will promote economy and efficiency, we believe
that language that suggests a higher degree of certainty than
"may" is necessary. In that regard, we suggest that, where
possible, the language of this paragraph should be strengthened
to reflect that the President holds a good faith belief that the
proposed order will promote economy and efficiency in government
procurement. See, e.q., Executive Order 12954, "Ensuring the
Economical and Efficient Administration and Completion of Federal
Government Contracts.")
(3) Finally, we suggest that the penultimate sentence of
the second paragraph be amended to read as follows: "By paying a
higher wage to low-wage workers, federal contractors will
increase worker productivity, improve the stability of their
workforce, attract better qualified employees, and produce higher
quality goods. Procuring goods from such contractors will
promote economy and efficiency in federal procurement by (fill in
the blank)." (addition in bold) The last sentence of the second
paragraph should be deleted.
The Striker Replacement Order provides that the Secretary's
exercise of discretion under the order must be consistent with
the policy stated in section 1 of the order. We believe that the
Secretary's exercise of discretion under section 3 (a) of the
proposed order should be similarly limited. We therefore suggest
the insertion of the following sentence at the end of section
3(a): "All discretion under this section shall be exercised
consistent with the policy enunciated in section 1 of this
order."
B. The Discussion Memorandum for the President.
We believe that the Memorandum does a very good job
presenting the pros and cons of issuing this proposed order.
Therefore, we limit our comments to three points.
First, the Memorandum fails to reveal the view of the
Secretary of Labor as to whether the proposed order will promote
economy and efficiency in procurement and does not include his
recommendation as to whether the President should issue the
proposed order. We believe that the President's determination
22
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202 514 0563
OLC
004
that economy and efficiency in government procurement will be
promoted by the proposed order would be substantially bolstered
if it were supported by the recommendation of the Secretary.
Second, we believe that when discussing the different
options for announcing the order it should be made clear that
congressional retaliation in the appropriations/reconciliation/
debt ceiling process is a possibility regardless of the approach
the President decides to take. While the memorandum only lists
this possibility as a factor to be considered in the "sign
immediately" approach, we believe that it is also a possibility
if the President decides to announce his intention to act if
Congress fails to enact legislation within a certain time period.
In fact, utilization of the latter approach may provoke Congress
to block the operation of the order through a prospective
appropriation's rider.
Finally, we believe the discussion of the litigation risks
associated with the order should be expanded. In addition to
recognizing that the proposed order will almost certainly be
challenged, we note that the issuance of the proposed order may
have an adverse impact on the Chamber of Commerce litigation,
which is presently pending before the Court of Appeals in the
District of Columbia. The court may be more reluctant to accept
assertions of Presidential authority in Chamber of Commerce
knowing that this potentially would lead to broader assertions of
authority. If the court were to view the proposed order as an
indication that the President intends to legislate other than
through bicameralism and presentment, this too could color the
result of the litigation in Chamber of Commerce.
CC: Jennifer O' Connor
Chris Cerf
23
SENT BY:OFFICE OF SECRETARY
: 2- 8-95 : 1:25PM :
DOL-
2024566704: # 2/ 4
MinimanWage
UNITED STATES DEPARTMENT OF LABOR
OFFICE OF THE SECRETARY
18th
February 8, 1995
DRAFT
SEAIRS
Note to: Steve Silverman
CAB
Delivered
From:
Kris Balderston
Per our conversation, please see the
attached draft minimum wage letter from the
President to Speaker Gingrich and Vice President
Gore.
WORKING FOR AMERICA'S WORKFORCE
SENT BY:OFFICE OF SECRETARY : 2- 8-95 : 1 :25PM :
DOL-
2024566704: # 3/ 4
CONFIDENTIAL
DRAFT
FEB 8 1995
The Honorable Newt Gingrich
The Honorable Al Gore
Speaker of the House
President
U.S. House of Representatives
United States Senate
Washington, D.C. 20515
Washington, D.C. 20510
Dear Mr. Speaker:
Dear Mr. President:
I am pleased to enclose for the consideration of Congress a
draft bill entitled the "Working Wage Increase Act of 1995."
This draft bill would amend the Fair Labor Standards Act to
increase the minimum wage from the current rate of $4.25 an hour
in two 45 cent steps --- to $4.70 an hour on July 4, 1995 and to
$5.15 a year thereafter. This increase in the minimum wage
builds on a similar increase that President George Bush signed
into law in 1989.
I believe that this minimum wage increase is needed to
assist 2.5 millions of working Americans who are at the minimum
wage. It is these workers who are the least capable of
bargaining for higher incomes and of sharing in our increased
prosperity. The increase in the minimum wage is an essential
component in making work pay and in assuring a living wage for
working Americans.
In submitting this legislation, I am mindful that certain
and technical policy and conforming changes may be needed with
respect to this legislation. I look forward to prompt and
constructive Congressional consideration and passage of this
legislative measure of fundamental importance to working
Americans.
Sincerely,
William J. Clinton
DETERMINED TO BE AN
ADMINISTRATIVE MARKING
INITIALS: JAM DATE: 12/1/17
2016- 2016-0531-F 0531-F
SENT BY:OFFICE OF SECRETARY
: 2- 8-95 : 1:26PM ;
DOL-
2024566704:# 4/ 4
DRAFT
A BILL
To amend the Fair Labor Standards Act of 1938 to increase the
minimum wage rate under that Act.
Be it enacted by the Senate and House of Representatives of
the United States of America in Congress assembled,
SHORT TITLE
Section 1. This Act may be cited as the "Working Wage Increase
Act of 1995.' "
INCREASE IN THE MINIMUM WAGE
Section 2. Paragraph (1) of section 6 (a) of the Fair Labor
Standards Act (29 U.S.C. 206 (a) (1)) is amended to read as
follows:
'(1) except as otherwise provided in this section, not less than
$4.25 an hour during the period ending July 3, 1995, not less
than $4.70 an hour during the year beginning July 4, 1995, and
not less than $5.15 an hour after July 3, 1996;"
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The Minimum Wage
The Administration has promised to revisit the minimum wage after the impact of health care
reform on employers was resolved.
O In Putting People First and during the campaign, President Clinton promised to index the
minimum wage to prevent a decline in its purchasing power and to "make work pay." Since its
last increase (April 1991), the real value of the minimum wage has declined by 45 cents.
0 The Federal minimum wage is currently $4.25 an hour. The minimum wage increased to $4.25
in April 1991 and to $3.80 in April 1990. It was frozen at $3.35 per hour 1981-90.
O The real value of the minimum wage is now 33 percent lower than it was in 1979. If the
minimum wage does not increase again, by 1996 it will sink to its lowest real level since 1955.
O The recent expansion in the EITC, while very helpful, only partially offsets the erosion in the
value of the minimum wage. In the best case scenario (for a married couple with a year-round
minimum-wage earner) the EITC brings the after-tax hourly wage rate up to $5.14 in 1994 -- still
below the poverty level.
O The phase out of the EITC increases the marginal tax rate for some workers, which may
discourage work. The minimum wage has the opposite effect -- it makes work more desirable.
O The EITC is only claimed by about 80% of eligible families, and the EITC is generally paid
in a lump sum. The benefits of a minimum wage hike are received with every pay check.
O The standard criticism of the minimum wage is that it raises employer costs and reduces
employment opportunities for teenagers and disadvantaged workers. Recent research finds no
convincing evidence of significant adverse employment consequences of moderate (e.g., $1.00
or less) increases in the minimum wage. See pages 4 and 5.
O The youth subminimum wage that was enacted in 1989 for a three year period. Much evidence
suggests that employers very rarely took advantage of the subminimum wage.
O On a theoretical level, the minimum wage may not harm employment because some employers
will be able to fill vacancies faster and reduce turnover if there is a a moderate rise in the
minimum wage. Employers don't do this on their own because it cuts into profit. Of course, too
high a rise in the minimum could have adverse consequences for employment.
O Two-thirds of minimum-wage workers are adults. The dramatic changes in the wage structure
the last 15 years (i.e., the rise in wage dispersion) has meant that many prime-age workers are
earning wages at, or near, the minimum wage. The average minimum-wage earner brings in 40
percent of his or her family's labor income.
O Wage growth for median and low-wage earners has been remarkably low in this recovery. In
1993, and so far in 1994, the median worker (as well as lower-wage workers) has experienced
a decline in his or her earnings.
A recent study concludes that the declining real value of the minimum wage since 1979
accounts for 20 percent of the rise in wage inequality for men, and 30 percent for women.
A $1.00 rise in the minimum wage would directly raise the pay of some 13 million low-wage
workers, and could have a "ripple" effect on another 4 million.
Last year five bills were introduced in Congress to raise or index the minimum wage.
Senators Kennedy and Sarbanes made raising the minimum wage an effective campaign issue this
year. Senator Kennedy plans to reintroduce his bill this year.
A large majority of Republicans voted to increase the minimum wage to $4.25 in 1989
(including Newt Gingrich and Bob Dole).
O A 1992 Time-CNN poll found that 74% of the public favored raising the minimum wage to
make work a more attractive alternative to welfare. Polls find that support for a minimum wage
increase is strongest among women and minorities. Polls have found that most of the public is
skeptical of claims that a minimum wage increase reduces employment. A majority of the public
even supports a minimum wage hike if they are first told that a minimum wage rise will cost
some people their jobs.
O The AFL-CIO has voiced its support for a minimum wage increase. In addition, women's
groups (women currently make up 66% of minimum-wage earners), children's groups, and civil
rights groups would favor a minimum wage increase.
O The interest groups opposed to the minimum wage (e.g., NFIB) are better organized and more
influential than they have been in the past.
The Real Minimum Wage
7
6.5
$6.29
6
$5.82
1994 Dollars
5.5
5
4.5
$4.25
4
3.5
1960
1962
1964
1966
1968
1970
1972
1974
1976
1978
1980
1982
1984
1986
1988
1990
1992
1994
1961
1963
1965
1967
1969
1971
1973
1975
1977
1979
1981
1983
1985
1987
1989
1991
1993
1995
Year
NOTE: Minimum wage is in 1994 CPI-U-XI Dollars. The inflation rate for 1994 and 1995 is assumed to be 2.7 and 3.1 percent, respectively.
A. Comparison of Stores in NJ and Pa
25
20
Average Employment Per Store
15
10
5
O
Pennsylvania
New Jersey
Before
After
B. Comparison Within NJ By Initial Wage
25
20
Average Employment Per Store
15
10
5
0
Wage=$4.25
$4.26-4.99
$5.00 plus
///
Before
After
Figure 2.3 Average Employment Per Store, Before and After
Pice
A. Change in Teenage Wage Rates
0.4
0.35
0.3
Change in Mean Log Wage 1989-92
0.25
0.2
0.15
0.1
0.05
0
-0.05
0
0.1
02
0.3
0.4
0.5
0.6
0.7
0.8
Fraction Earning $3.35-$4.24/hour, 1989
B. Change in Teenage Employment Rates
5
0
Change in Teen Employment Rate, 1989-92
-5
-10
-15
-20
0
0.1
0.2
0.3
0.4
0.5
0.6
0.7
0.8
Fraction Earning $3.35-$4.24/hour, 1989
Figure 4.5 Interstate Patterns of wageard Employment Growth,