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Federal Register / Vol. 86, No. 138 / Thursday, July 22, 2021 / Proposed Rules
minimum wages in the future, and the current method is applied to those future years, then estimated transfers might be somewhat lower.
This rule would also increase payroll taxes and workers compensation insurance premiums in addition to the increase in wage payments because these are calculated as a percentage of the wage payment. The Department recognizes that it will be incumbent upon contractors to pay the applicable percentage increase in payroll and unemployment taxes. The Department has not factored these costs into its analysis, but requests comment that may facilitate quantification in the final regulatory impact analysis.
b. Spillover Effects
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Employees earning above $15 per hour, at affected firms, may also see wage increases. Employers often increase earnings of workers earning above the minimum wage to prevent wage compression. Consider a scenario where a supervisor makes $15 per hour and now his or her supervisees receive pay increases to $15 per hour. The supervisor will likely receive a pay increase to maintain a premium over the workers reporting to them. Ashenfelter and Juraida 2012 find evidence of this spillover effect as a method to retain workers in limited-function restaurants.72 Cengiz et al. 2019 also found modest spillover effects up to $3
over the new minimum wage, even at higher levels of minimum wages.73
Nguyen 2018 estimates that by increasing the Federal minimum wage from $7.25 to $10.10 up to a third of the work force other than minimum wage earners would also see their earnings increase, such as supervisors who had earned $10.10 and now would see an increase in salary. 74 Dube and Lindner 2021 find spillover effects up to about the 30th percentile of the wage distributions.75
workers reporting wages that were less than the state minimum wage. However, state minimum wages are reflected in the Departments estimate of workers earning wage rates in the affected range because workers in those states generally report earning at least the state minimum wage.
72 Ashenfelter, O., & Jurajda, S. 2021. Wages, Minimum Wages, and Price Pass-Through: The Case of McDonalds Restaurants. IRS Working Papers, Report No. 646. https dataspace.princeton.edu/
bitstream/88435/dsp01sb397c318/4/646.pdf .
73 Cengiz, D., Dube, A., Lindner, A., & Zipperer, B. 2019. The Effect of Minimum Wages on LowWage Jobs. The Quarterly Journal of Economics, 1343, 14051454. doi:10.1093/qje/qjz014.
74 Nguyen, L. C. 2018. The Minimum Wage Increase: Will This Social Innovation Backfire?
Social Work, 634, 367369. doi: 10.1093/sw/
swy040.
75 Dube, A., & Lindner, A. 2021. City Limits:
What Do Local-Area Minimum Wage Do? Journal of
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The Department agrees with this literature that there will likely be wage increases for some workers earning about $15 per hour. However, the Department has not quantified this change.
c. Disemployment The Department next reviews evidence relevant to this proposed rules potential to have disemployment effects.
Disemployment of low-wage workers occurs when employers substitute capital or fewer more productive higherwage workers to perform work previously performed by larger numbers of low-wage workers. Although economists have studied the size of this potential disemployment effect of increased minimum wages for decades, the consensus among a substantial body of research is that disemployment effects can be small or non-existent.76
Therefore, the Department believes this proposed rule would result in negligible or no disemployment effects.
Manning 2020 found no significant impact of increased minimum wages on employment through comprehensive literature reviews.77 Wolfson and Belmans 2019 conclusion as a result of a meta-analysis of 37 studies found a small disemployment effect, but the effect has decreased over time.78 Some authors even found positive effects on employment as a result of minimum wage increases Ahn, Arcidiacono and Wessels, 2011.79
Ashenfelter and Jurajda 2021 found that increased minimum wages does not inherently facilitate automation in lowwage, low skill jobs, though this research only studied limited-service restaurants.80 Lordan and Neumark Economic Perspectives, 351, 2750. doi:10.1257/
jep.35.1.27.
76 Dube, A. 2019. Impacts of Minimum Wages:
Review of the International Evidence. https
assets.publishing.service.gov.uk/government/
uploads/system/uploads/attachment_data/file/
844350/impacts_of_minimum_wages_review_of_
the_international_evidence_Arindrajit_Dube_
web.pdf.
77 Manning, A. 2020. The Elusive Employment Effect of the Minimum Wage. Journal of Economic Perspectives, 351, 126. doi:10.1257/jep.35.1.3.
78 Wolfson, P., & Belman, D. 2019. 15 Years of Research on US Employment and the Minimum Wage. Labour Review of Labour Economics and Industrial Relations 334, 488506. https doi.org/
10.1111/labr.12162.
79 Ahn, T., Arcidiacono, P., & Wessels, W. 2011.
The Distributional Impacts of Minimum Wage Increases When Both Labor Supply and Labor Demand Are Endogenous. Journal of Business &
Economic Statistics 291, 1223. https
econpapers.repec.org/article/besjnlbes/v_3a29_3ai_
3a1_3ay_3a2011_3ap_3a12-23.htm.
80 Ashenfelter, O., & Jurajda, S. 2021. Wages, Minimum Wages, and Price Pass-Through: The Case of McDonalds Restaurants. IRS Working Papers, Report No. 646. https dataspace.princeton.edu/
bitstream/88435/dsp01sb397c318/4/646.pdf.

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2018 81 found that low-skilled workers were more likely to lose their jobs to automation because of minimum wage increases, and workers are able and likely to shift sectors to retail or service as a result. Meanwhile, higher-skilled workers saw increased job opportunities with minimum wage increases.
The Department welcomes comment on whether there are any additional papers in the employment effects literature that could be helpful to review in a qualitative discussion of the potential for disemployment effects and whether extrapolations might vary across affected contracts procurement and non-procurement.
d. Reduction in Benefits or Bonuses Increased wage rates could potentially be offset by reductions in fringe benefits, bonuses, or training. The Department believes these impacts will be small. First, service employees on SCA-covered contracts generally are entitled to be paid pre-determined fringe benefit amounts. Second, the increased costs to employers are very small as a share of contracting revenues less than 0.4 percent, see section IV.C.5..
4. Benefits The Department did not quantify benefits of this rulemaking due to uncertainty and data limitations.
However, the Department discusses many benefits qualitatively as indicators of the efficiency and economy gained in government procurement. These include improved government services, increased morale and productivity, reduced turnover, reduced absenteeism, increased equity, and reduced poverty and income inequality for Federal contract workers. The Department notes that the literature cited in this section does not directly consider a change in the minimum wage equivalent to this proposed rulemaking e.g., for nontipped workers from $10.60 to $15.
Additionally, much of the literature is based on voluntary changes made by firms. However, the Department believes the general findings are still applicable although the impacts are likely smaller than those measured in these studies. The Department welcomes comments and data on the benefits of increasing the minimum wage specifically for Federal contract workers.
81 Lordan, G., & Neumark, D. 2018. People Versus Machine: The Impact of Minimum Wages on Automatable Jobs. Labour Economics 523, 4053.
https doi.org/10.1016/j.labeco.2018.03.006.

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