Reforming the Federal Sweatshop

The White House is holding a summit Monday, June 23 on working families. The summit is intended to call attention to the fact that President Obama wants to raise wages and job opportunities for working Americans, especially for working women. This is a welcome initiative, though there is a great deal that the President could do by executive order without waiting for a deadlocked Congress to act.

The grotesque income inequality in our economy has at last some in for some overdue attention. For the vast majority of working Americans, there is only one source of income -- wages and salaries.

Since the late 1970s, earnings for most working people have been flat, while the economy's productivity and the pay of corporate and financial industry executives has soared. The pattern only worsened after 2000.

Trends that were unacceptable long before the financial collapse of 2008 have intensified in five years of a feeble recovery. About 95 percent of the economy's income gains during the past three years have gone to the top one percent.

Though higher minimum wages, more social supports and a far more progressive tax code would help, the deeper problem is the structure of wages and salaries. We can never redistribute enough income to compensate for a power shift that has allowed corporate America to systematically underpay its workers.

One of the tricks that corporations use to batter down wages is to contract out work, so that the true employer is not accountable to its workforce. What is shocking is that the most influential employer that resorts to this device is none other than the federal government.

At landmark federal buildings such as the Pentagon, the several museums operated by the Smithsonian and the Ronald Reagan World Trade Center, food and janitorial workers nominally employed by private contractors are paid poverty wages. Some two million such workers are ultimately working for the federal government, through intermediary contractors on construction sites, in concessions at national parks, government installations, the medical-industrial complex, and other employers ultimately paid with taxpayer dollars.

According to a new report, "Underwriting Good Jobs," by my colleagues at Demos, about eight million U.S. workers are in substandard jobs financed by about $1.3 trillion in federal contracts for goods and services. The Demos report calls for the Federal government to lead the way back to a high wage economy by demanding that all of its contractors respect workers' rights to bargain collectively; provide living wages and good benefits including paid family leave and predictable work schedules; comply with all federal workplace laws and protections; and limit executive pay to 50 times the median salary paid to employees.

All told, the federal contractor workforce accounts for about nine percent of GDP. Amazingly, there are large numbers of workers on federal contracts whose wages are so low that they qualify for food stamps, Medicaid, and other safety-net protections financed by taxpayers. In effect, one arm of the federal government saves money by allowing its contractors to underpay employees while other parts of the government subsidize the private contractors and the income shortfall through transfer payments to the same workers.

Presidents dating back to Martin van Buren in 1840 have used the government's contracting power to improve worker treatment by private corporations. During World War II, if a corporation had a war production contract, it had to respect the right of its workers to organize or join a union. That order, issued by President Franklin Roosevelt, even more than the 1935 Wagner Act, enabled unions to raise standards throughout industrial America.

And in the early 1960s, when Congress was deadlocked on civil rights legislation, Presidents Kennedy and Johnson issued executive orders requiring corporations that bid on federal contacts to cease racial discrimination in hiring and promotion, and to take affirmative action to overcome the present effects of past discrimination.

President Obama has declared that with Congress unwilling to raise the federal minimum wage or to move to reform collective bargaining rights, he will use his executive authority to raise living standards. He made a start by issuing an order requiring all government contractors to pay their workers at least $10.10 an hour, the proposed increase in the general minimum wage backed by Obama but blocked by Republicans in Congress.

But Obama could do a great deal more. Private employers that profit from government contracts should not just do the bare minimum. The government has the authority to demand that they be exemplary employers, if the president chooses to use that power -- in all employment affected by what the Demos report calls the federal purchasing footprint. According to the report, woman make up 71.2 percent and minorities 44.7 percent of low-wage workers in the federally dependent workforce.

With Democrats facing a tough mid-term election and Obama's legacy in question, the administration has sponsored largely symbolic initiatives to demonstrate that the president is on the side of working families. This is politically useful in showing the costs of Republican blockage. How much better if would be if Obama made the symbolism real.

The deep structural changes in the economy that are harming today's workers are mainly the result of a corporate economy that tries to pay labor as little as possible in the absence of countervailing institutions of worker power. The federal government should be part of the solution, not part of the problem.

Robert Kuttner's new book is Debtors' Prison: The Politics of Austerity Versus Possibility. He is co-editor of The American Prospect and a senior Fellow at Demos, and teaches at Brandeis University's Heller School.

Like Robert Kuttner on Facebook. Follow Robert Kuttner on Twitter.