Texas, Louisiana, and Mississippi sued the Biden administration for raising federal contractors' minimum wage to $15 an hour

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President Joe Biden's executive order of April 2021 saw minimum wages for federal contractors rise to $15 an hour in January. 

AP Photo/Patrick Semansky

Three states have sued to overturn the Biden administration's wage hike for federal contractors.

The lawsuit by Texas, Louisiana, and Mississippi officials said it would cause unemployment and inflation.

It said the increase in the minimum wage to $15 an hour would lead to "economic disaster."

Three states have sued President Joe Biden's administration for raising the minimum wage at federal contractors.

The multi-state lawsuit, filed Thursday by the attorneys general of Texas, Louisiana, and Mississippi, seeks to have a court overturn the mandate that brought contractors' wages up to $15 an hour, arguing that it will cause unemployment, inflation, and a drop in consumption.

The three states and their residents will suffer "significant hardship" from the policy, which was introduced "with little apparent regard for the widespread havoc on the economy that will result," the lawsuit, led by Texas General Attorney Ken Paxton, says.

The minimum wage at federal contractors was hiked from $11.25 to $15 an hour under Biden's April 2021 executive order. The contractors also have to pay staff overtime wages if they work more than 40 hours a week, and tipped employees must be paid a cash wage of at least $10.50 an hour.

The wage increase came into force on January 30, 2022, and will be subject to potential annual hikes based on inflation.

"States will be burdened with higher unemployment benefits claims and a deteriorating economy, and young, less educated workers could bear the brunt of this economic disaster," the lawsuit says.

It referred to a report by the Congressional Budget Office, which found that employment would be reduced by around 1.4 million workers by 2025 and that goods and services would cost more if the federal minimum wage – not just for federal contractors – was hiked to $15 an hour in 2021.

The new wage increase means contractors' staff collectively get paid around $1.7 billion more a year over the next 10 years, the Department of Labor said. The lawsuit says that these costs "would either be passed on to consumers or would lead to companies going out of business."

But some studies show that raising wages would benefit workers. A study by the Economic Policy Institute found that raising the federal minimum wage would have a significant impact on reducing the wage gap for women and people of color, and Labor Secretary Marty Walsh told Insider there was "no question" that hiking the wage for contractors would help solve the labor shortage by reducing quit rates.

The Department of Labor estimated that more than 300,000 workers at federal contractors would see their wages rise.

The lawsuit also accuses Biden of "dictatorially" imposing the policy with help from the Department of Labor and called it an "abuse of their authority." It referred to how Congress had voted against raising the federal minimum wage to $15 an hour, and said that the Department of Labor "did not provide any substantive justification" for the wage hike.

"With full awareness of the negative economic impact of artificially raising the minimum wage, and despite his failure to persuade Congress, President Biden chose to ignore the will of our federal legislators and instead forced a raise in the minimum wage through executive fiat," the lawsuit says.