Nearly 400,000 federal contractors will get paid $15 an hour starting this weekend. Biden's labor secretary says there's 'no question' it'll cut down on labor shortages.

"It's a good worker policy, and it's a good investment," Secretary of Labor Marty Walsh told Insider.

• Federal contractors will get paid a minimum of $15 an hour starting this weekend.
• That new wage comes from an executive order that President Joe Biden signed to give workers a pay bump.
• Labor Secretary Marty Walsh told Insider the higher wage will help with turnover and cut down on labor shortages.

The $15 minimum wage is becoming a reality for some workers this weekend.

It comes after President Joe Biden signed an executive order in April 2021 saying the wage for federal contractors must go up to $15 by March 30, 2022. In November, the Department of Labor finalized its regulations and said that the raise would go into effect on January 30, 2022. 

The left-leaning Economic Policy Institute estimates that up to 390,000 federal contractors will get a pay bump, with an average annual increase of $3,100.

"It's a good worker policy, and it's a good investment," Secretary of Labor Marty Walsh told Insider. People's "hard-earned tax dollars" will be going towards "making sure people get paid with some dignity and respect."

As businesses across all industries struggle to hire and retain workers, Walsh thinks that the higher minimum will reduce turnover and absenteeism — and will send a message to the rest of the business community that it's time to raise all wages.

"Today, we have a lot of people with the so-called Great Resignation, people leaving their job. A lot of it's driven by wages," Walsh said.

With the new minimum, "there's no question that this will cut down on some people looking to leave for better wages." Walsh said it also sends a message to the business community about raising all wages.

Raising wages can have what's called a "spillover" effect

In areas where big companies like Amazon set up shop — bringing their $15 an hour wage — wages at nearby businesses end up rising, according to a working paper from economists. In states with prevailing wage laws, which essentially set a minimum wage for workers on government contracts, wages were higher for all workers.

"Anytime you have an increase in the minimum wage, it will help us in other sectors as well and other companies looking," Walsh said. "I think we're seeing a lot of that right now, where companies have just automatically raised the minimum wage for their employees."

Prevailing wage laws also disproportionately raise wages for workers of color. That's true for the new hike to the federal contractor minimum: Half of the contractors impacted are Black or Hispanic, according to EPI. Those workers will get an average $3,500 increase in annual pay.

"How do we continue to build and create a stronger middle class?" Walsh said. "The majority of those folks that we want to do this for are women and people of color that have been left out in so many different stimulus packages and investments over the last 50, 60, 70 years in this country. This time has to be different." 

But while this new contractor minimum wage will give hundreds of thousands of workers a raise, it's still a far cry from raising the federal minimum for all workers. The country's minimum wage has been stuck at $7.25 since 2009; a provision to hike it to $15 through Biden's first stimulus package was tossed out by the Senate parliamentarian last year. 

"We still now gotta keep working to get the $15 an hour minimum wage, the national $15 minimum wage, through the United States Senate," Walsh said. He said that $15 an hour is a "baseline."

"I am a firm believer in increasing wages is good for our economy, and really good for our American families," Walsh said.

But he sees the federal contractor wage raise as a "great start."  

"We need to continue to respect the workers in our country — and we need to continue to help them build strength and wealth in their families."