As President Obama searches for ways to improve the wages of American workers by giving them a boost in bargaining for better job quality with their employers, he is limited by the dysfunctionality of Congress, which because of Republican opposition is unlikely to help even with a minimum wage increase. But the president, who manages the vast amount of work the government does through private contractors, should consider what he can do to set reasonable standards for the pay and compensation of the millions of employees of those federal contractors.

As EPI has estimated again and again, far too many people working for private firms— but for the benefit of the federal government, with their wages ultimately paid by the taxpayers—are likely working for poverty wages. This is unacceptable; it is damaging to those workers and their families, and it hurts the economy by reducing demand for goods and services—currently a problem of crisis proportions.

In November 2000, an EPI briefing paper by Chauna Brocht, The Forgotten Workforce, estimated that 162,000 federal contract workers earned less than the then-poverty level wage of $8.20 an hour (by poverty-level wage, we mean a wage for a full-time, full-year worker that would not lift a family of four out of official poverty). Most of the low-wage employers were large businesses and most were defense contractors.

In Outsourcing Poverty, an update published in 2009, EPI researchers Kai Filion and Kathryn Anne Edwards found a huge increase in the total number of federal contract workers and estimated a large increase in the number and share of them who worked for poverty wages. More than 400,000 workers, nearly 20 percent of contract employees in 2006, earned less than the poverty threshold for a family of four, which at the time was $9.91 an hour. By comparison, only 8 percent of federal employees earned less than the poverty threshold; contracting out had the effect of increasing the poverty of employees who did work for the federal government. Contract employees were also far less likely to receive health benefits or pension coverage.

Filion and Edwards called on the federal government to choose one of two important policy changes to address this growing impoverishment:

1. To give preference in federal contracts to employers that pay a living wage and provide pension and health benefits; or
2. To require that every contract include a provision requiring the employer to pay wages above the poverty threshold.

The government needs to change the way contracts are awarded, to insure that taxpayer funds are not used to create an ever larger workforce that is unable to escape poverty and support a decent standard of living.