Policy: Labor

Obama's work edicts could kill businesses on military bases

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The fight over the minimum wage, which President Obama and Democrats hope to make a centerpiece of this year's midterm elections, comes down to two simple arguments. Obama says low-income working Americans deserve a raise, while Republicans say raising the minimum wage would cost jobs.

It was a mostly theoretical argument until Feb. 12, when Obama signed an executive order raising the minimum wage for employees of federal contractors to $10.10 an hour from $7.25. "This will make a difference for folks," Obama said at a White House signing ceremony. "Right now, there's a dishwasher at Randolph Air Force Base in Texas making $7.76 an hour -- $7.76 an hour. There's a fast-food worker at Andrews, right down the street, making $8.91 an hour. There's a laundry worker at Camp Dodge in Iowa making $9.03 an hour. Once I sign this order, starting next year, as their contracts come up, each of them and many of their fellow coworkers are going to get a raise."

Obama's order does not take effect until January 1, 2015. But there are signs it is already having an effect -- and it is not what the president and his party said it would be.

In late March, the publication Military Times reported that three McDonald's fast-food restaurants, plus one other lesser-known food outlet, will soon close at Navy bases, while other national-name chains have "asked to be released from their Army and Air Force Exchange Service contracts to operate fast-food restaurants at two other installations."

Military Times quoted sources saying the closures are related to the coming mandatory wage increases, with one source saying they are "the tip of the iceberg."

The closures, real and contemplated, are a serious concern to 40 Republican members of the House Armed Services and Education and Workforce committees, who this month wrote Labor Secretary Thomas Perez asking that the mandatory increase not apply to some businesses on military bases.

"Should these policy changes be fully implemented, we are concerned they will eliminate jobs, negatively impact recreational services on military bases, and limit the dining options for servicemen and women on military installations," the lawmakers wrote.

The administration is making it very expensive to do business on military bases, and not just because of the minimum wage. Under federal contracting law, some businesses operating on military installations must also pay their workers something called a health and welfare payment, which last year was $2.56 an hour but which the administration has now raised to $3.81 an hour.

In the past, fast-food employers did not have to pay the health and welfare payment, but last fall the Obama Labor Department ruled that they must. So add $3.81 per hour, per employee to the employers' cost. And then add Obama's $2.85 an hour increase in the minimum wage. Together, employers are looking at paying $6.66 more per hour, per employee. That's a back-breaking burden. (Just for good measure, the administration also demanded such employers provide paid holidays and vacation time.)

And one more thing. Military contracting laws do not allow businesses to raise their prices above the level prevailing in the local community. The fast-food operators can't charge more to make up their losses.

One group perhaps most concerned about the administration's increases is the military itself. Earlier this month, Russell Beland, who is deputy assistant secretary of the Navy for military manpower and personnel, wrote a letter to the Labor Department asking for relief for fast food contractors.

"Given the business model typical in the fast food industry, this increase in the cost of labor dramatically disrupts the profitability and viability of food service operators" on military bases, Beland wrote. "The increased labor burden resulting from the new [wage structure] eliminates any profit the operator might otherwise realize and puts him in an impossible business dilemma."

Beland wrote that Navy exchange officials estimate that 390 fast-food concessions in the U.S. and territories will close because of the increased costs. "Closure of these facilities would result in loss of work for nearly 5,750 contracted concession employees who are currently gainfully employed," Beland wrote.

And that's just for the Navy and Marines. The Army exchange system is much bigger, and including the Air Force, could affect as many as 10,000 more jobs.

The Obama administration knows it is placing a massive burden on businesses that operate on military bases. A few days ago, the Labor Department temporarily rescinded some of the new costs while it "re-evaluates" its actions. But President Obama's executive order is still there, waiting to go into effect.

Under any conceivable scenario, Obama's edict, combined with his administration's policies, will place unbearable new burdens on businesses at military bases and, yes, result in fewer jobs. It looks like the president's critics were right.

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