The Department of Labor ignored pleas from the military, small businesses, and other agencies to push through President Obama’s minimum wage hikes on military bases.
The department published the final rule implementing President Obama’s executive order to mandate a $10.10 minimum wage for federal contractors on Tuesday. The agency dismissed concerns from many military suppliers who argued that increased wages could lead to mass closures of businesses operating on military bases.
Russell Beland, deputy assistant secretary of the Navy for military manpower and personnel, sent a letter to the Labor Department in April asking them to exempt military eateries from the 40 percent wage hike, according to the Army Times. Beland said the increased costs could shutter nearly 400 businesses and eliminate nearly 6,000 jobs. The department estimates that the new rule will cost businesses $100 million by 2015 and $501 million by 2019.
The Department of Labor said that the lost jobs would be offset by gains in efficiency. They cited claims made in President Barack Obama’s executive order as proof that businesses will not suffer under higher labor costs.
"The Order states that raising the pay of low-wage workers increases their morale and productivity and the quality of their work, lowers turnover and its accompanying costs, and reduces supervisory costs," the department said. "Overall, the Department believes that the combined benefits to employers and the Federal Government justify the costs that would be incurred."
The Navy was not alone in raising the issue to the department. An Obama appointee at the Small Business Administration said that the agency had fielded a number of complaints from entrepreneurs and franchisees operating on military bases. Military eateries are not permitted to raise prices to compete with off-base franchises, making layoffs the only viable option, according to an SBA newsletter published in July.
"[The executive order] would cause a severe financial impact on their businesses and force them to fire workers, eliminate positions, and reduce hours. One restaurant owner said based on his calculations, the wage increase would certainly put him out of business," the SBA report states.
The Labor Department dismissed those concerns, saying that businesses could close the gap by renegotiating rents and profit sharing with the federal government.
"The assertion that a franchisee must terminate workers or close businesses due to the Executive Order minimum wage requirements thus overlooks the benefits of the Executive Order wage increase as well as alternatives available through contract renegotiation," the department said in its rule.
Michael Saltsman, research director at the Employment Policies Institute, said that the department has placed its ideological ambitions over protecting jobs on bases, many of which are held by relatives of service members.
"Unfortunately, a good day's work for this Labor Department means a bad day for entrepreneurs and job creators," he said. "It's not enough to force an unworkable mandate on businesses who are constrained by law in how they can adapt. The Labor Department's far-left bureaucrats have added insult to injury by suggesting that they understand these businesses better than their owners do."
The new policy is expected to affect about 200,000 workers, according to the final rule—down from the department’s original estimate of 300,000 workers. The department has had a hard time determining exact figures. When business groups pointed out that the order would "nearly quadruple" labor costs for hiring tipped employees, the department responded that "there is no credible data source that allows the Department to estimate the number of tipped employees covered by this Executive Order."
Obama is pushing for a nationwide $10.10 wage, despite the fact that the non-partisan Congressional Budget Office estimates that it would eliminate up to 1 million jobs. Saltsman said that Obama’s executive order could backfire. If businesses start closing on military installations, it will provide the public with a preview of things to come under a national wage law.
"It will be up to the Labor Department to explain how hundreds of closed businesses and thousands of lost jobs fit in its mission of advancing ‘opportunities for profitable employment,’" he said.
The executive order will go into effect on Jan. 1.