What is the problem with federal contracting?

Far too often, the federal government contracts with companies that pay very low wages, provide very few benefits, and have a history of breaking the law. Estimates indicate that one in five workers on a federal contract doesn't earn enough to keep their family out of poverty. Not only is this bad for the workers who do things like build roads, provide building security, and sew military uniforms, but it's also bad for taxpayers and for high-road businesses. That's because, in effect, taxpayers pay a subsidy when workers are poorly paid, providing things like Medicaid and food stamps. Companies that tend to shortchange their workers also tend to shortchange taxpayers by providing low quality goods and services.

How should federal contracting be reformed?

To ensure that taxpayers get their full value and that workers are fairly treated, we need to do two things. First, we need to ensure that the federal government screens out companies with a history of violating the law, in effect setting a floor. Second, we need to raise standards up, and the government can do that be evaluating bids based in part on the wages and benefits companies provide to their workers.

How will this help? Is there evidence this will work?

Well, responsible contracting increases competition, improves performance, and helps avoid shifting the hidden cost of low-wage jobs onto taxpayers. When the state of Maryland required its public service contractors to pay a living wage, it found that bids on contracts increased by 25 percent. And that was because high-road employers were willing to bid when they weren't being undercut by economic bottom-feeders. When the San Francisco airport began requiring its employers to pay living wages, it found that turnover among security screeners fell from 94 percent to only 18 percent. And half of the employers covered by the wage requirement said that employee morale and customer service had improved.

Finally, when contractors pay poverty wages, taxpayers pick up costs, because employees have to rely on Medicaid, EITC, and other public benefits just to get by. A major study in California found, for example, that in 2002, low-paid workers actually accounted for roughly half of the $21 billion in public benefits that taxpayers were paying for. By encouraging employers to pay decent wages and benefits, responsible contracting helps to remove some of these hidden costs of low-wage jobs from the contracting process and assures that taxpayers really get the best value for their dollar.