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Governments Can Use Purchasing Power to Reset Labor Standards

Almost half of working Americans are underpaid. Wage standards for companies that receive government funding could help change this.

Working on light rail in Houston
Laborers working to prepare light-rail track in Houston. (David Kidd/Governing)
In Brief:
  • State and local government purchasing means billions in contracts for private companies.

  • There’s increasing interest in including standards for worker compensation in the requirements for bidders. Federal infrastructure and climate funding programs include such requirements for projects using their funds.

  • A new report from the Center for American Progress offers a concise look at the steps state and local governments can take to raise standards for workers, and offers best-practice policy examples.

  • Unemployment may be at its lowest rate in half a century, but more than 4 in 10 working Americans aren’t paid a “living wage,” enough to stretch beyond basic needs and give them some measure of financial stability. A new report from the Center for American Progress (CAP), a progressive think tank, looks at the ways state and local governments can use their immense purchasing power to help change this.

    State and local governments spend hundreds of billions each year on goods and services from outside suppliers. Karla Walter, senior director of employment policy at the Center for American Progress and author of the report, suggests there's a new level of urgency for cities and states to raise worker standards through their spending programs. This comes in part from requirements attached to billions of dollars in the Bipartisan Infrastructure Law and the Inflation Reduction Act.

    It’s also a matter of improving the return on investment. “When you have high-quality job standards, you end up with an experienced workforce that stays around on the job and provides good services to government that are delivered on time and on budget,” Walter says.

    Present trends mark a move away from past consensus that it is “anticompetitive” to include standards for such things as compensation in bid competitions. Legal scholar Scott Cummings has called this “pre-emption by procurement,” favoring contracts “that promise a low price rather than a broad socioeconomic return on the investment of public funds.”

    CAP’s report, Government on Workers’ Side: How State and Local Policymakers and Advocates Can Raise Standards for Publicly Supported Work, was conceived as a concise guide to compensation reform. It highlights key considerations for such changes and includes examples of existing state policies that support them.

    Paying Twice

    The report finds that "jobs created through government spending often pay very low wages, have poor working conditions or do little to ensure that local residents benefit." But there can be benefits to favoring contractors who pay their employees well. If a company is paying wages so low that it forces the worker to go on public assistance, the government’s paying twice. “That’s a bill that nobody sees,” says Walter. Below-market wages are also associated with workforce instability.

    Contractors who underpay have been found to cut corners in other ways. CAP recommends reviewing bidders’ behavior, including their history of compliance with labor and safety law, financial records, proof of licensing and insurance, and record of project completion. “Responsible bidder” ordinances, termed “protection plans for taxpayers” can set requirements for such reviews and are in place in some states.

    The “Good Jobs Principles” from the federal Department of Labor offer another way of looking at both employer behavior and standards for government contractors. They cover recruitment practices, benefits and working conditions. (They also encompass the right to form unions and practices around diversity, equity, inclusion and accessibility, politically charged topics in some places.)

    Several entities offer varying calculations of the living wage for a community, meaning that pay at this level would enable a person to cover the costs of living there. MIT’s Living Wage calculator offers hourly pay rates by state and county.

    The concept of “prevailing wage” is the most widely accepted standard for fair pay. This refers to the wage ordinarily earned by workers doing similar work in a community. In some states, it can be tied to a wage established through a collective bargaining agreement. Reflecting varying perspectives on unions and the free market, some states are seeking to weaken prevailing wage laws, while others hope to strengthen them. A study conducted after Wisconsin repealed its prevailing wage law found that construction worker salaries went down, but the cost of public construction projects did not.

    There’s room for more innovation around contracts for service workers as well as public works, Walter says. This could improve the lives of those who work in jobs such as food and airport service, building maintenance or security.

    “We see blue and red states equally embracing the competition for discretionary grants that prioritize good jobs,” says Walter. That’s not the only motivating force. There’s also research showing that when local jurisdictions abandon standards for contracted workers, competition for contracts decrease. Living-wage requirements have had the opposite effect.

    Untapped Potential

    Enforcement is an essential element in any effort to improve labor standards, and a consistent theme in Walter’s recommendations. “Often, enforcement is a bit of an afterthought, but without enforcement the policy is just words on paper,” says Terri Gerstein, who directs the newly formed Wagner Labor Initiative at New York University.

    She sees the CAP report as an important resource, with clear guidance regarding policies, steps necessary to implement them and examples of jurisdictions that are doing things well. Decisions about procurement and contracting have tremendous power to lift standards.

    Gerstein would like to see this work accompanied by the passage of labor standard laws that improve quality of life for all workers, whether government contractors or not. “Governments have tremendous untapped potential to protect workers and to improve labor standards broadly,” she says. “The crux of it is thinking creatively about all the different levers within government that can be used.”

    Carl Smith is a senior staff writer for Governing and covers a broad range of issues affecting states and localities. He can be reached at or on Twitter at @governingwriter.
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