Why is Polly whining about Downton Abbey?

La Toynbee is whining about Downton Abbey. How it shows the appallingness of old English society and how we're coming back to that masters and servants type world again. Hmm:

To control history by rewriting the past subtly influences present attitudes too: every dictator knows that.

Well, yes, quite.

What we never see is bedraggled drudges rising in freezing shared attics at 5.30am; slopping out chamber pots, heaving coal, black-leading grates, hauling cans of hot water with hands already made raw by chilblains and caustic soda. We never dwell on the hardship of scrubbing floors, or scrubbing clothes, or scouring grease; in pre-detergent days, they were up to their elbows all day long. And yet they had virtually no water or time for washing themselves. Servants were often sooty and dirty. They smelled strongly of sweat, with few clean clothes, says Dr Lucy Delap, author of Knowing Their Place: Domestic Service in Twentieth-Century Britain. She says they used patchouli oil to cover the sweat, the identifying aromas of hard service. In Mrs Woolf and the Servants, Alison Light records Virginia Woolf observing “Mabel sweats when she is making jam”. Even the somewhat more enlightened and sometimes embarrassed Bloomsbury set wrote of their “inferiors”, Woolf talking of “that poor gaping imbecile, my charwoman”.

True.

Modern capitalism promotes the myth that we are all masters of our fate and birth is not destiny, as proof that swelling wealth at the top has been earned.

And that's where it jars. For it is modern capitalism that has stopped people having to carry water in chilblained hands. Stopped the scrubbing over the boiling laundry, the wrestles with the mangle. This is what both Hans Roslin and Ha Joon Chang, quite correctly, refer to as the technology of the washing machine. It's possibly the outstanding achievement of modern capitalism that it has managed to mechanise all of these domestic chores, freeing up large portions of the human race to do something more interesting and less exhausting.

The bits that are left out of Downton Abbey are exactly the bits that justify capitalism itself: the reduction in human drudgery. And no, socialism didn't do this: your humble author has been the less than proud owner of a Soviet washing machine and it did not remove said drudgery. This is exactly what is meant by the complaints that the Soviets concentrated upon heavy industry rather than consumer products.

There is, of course, something else that Polly's left out. Historically, in Britain at least, being a servant was more akin to an apprenticeship than anything else. Something done between puberty and marriage for the vast majority of those who did it. Only those who went on to become the senior servants (housekeeper, butler and so on) were likely to make a "career" of it. Being in service was, for most, a phase, not a life sentence.

No, we most certainly don't want to bring back mass service. Quite apart from the fact that the capitalist technology makes it irrelevant as an institution. But perhaps we could do without those who try "To control history by rewriting the past"?

To Polly the populace are just the milch cows of the State

Polly Toynbee is bemoaning the manner in which UK wages aren't rising:

On Wednesday Steve Machin, research director at the LSE’s centre for economic performance, laid out to a meeting of economists the collected evidence on the nature of falling pay – and warned that this is beginning to look not like a slow recovery in wages, but a permanent, structural feature of the UK economy. He showed how the group-think of economic forecasters has consistently and wildly over-estimated an expected increase in wages: the OBR forecast for March this year was a wage rise of 4.3%. What happened has been a continuing real fall.

“There has been a startling and unprecedented lack of wage growth as unemployment falls,” Machin says. The “herd mentality” of forecasters is always to expect things to improve, but there is no sign they are right. This begins to look like the new permanent, as flatlining real median pay began back in 2003, long before the crash. Nor, finds Machin, is immigration a cause of falling pay: areas with high or low immigration saw pay fall equally.

Polly does at least pay lip service to the idea of being a Keynesian but I'm sure she would be surprised to find that Keynes would have been fully supportive of all of this happening. If people are unemployed then those people have to be priced back into work: and it was exactly Keynes who pointed out that people get very touchy indeed about falls in nominal wages but will put up with falls in real wages if they're lightly disguised by a bit of inflation. Further, the Phillips Curve comes out of very much the same sort of thinking. That there's a trade off between the unemployment rate and the inflation rate. We reach NAIRU (the non-accelerating inflation rate of unemployment) and if unemployment dips below that then inflation will rise. If it's above it then inflation will fall. And if we're seeing ever-falling unemployment and no sign of wages rises then we can conclude that NAIRU has fallen: which is absolutely great, for it means fewer people have to be consigned the the scrap heap of unemployment in order to keep inflation at bay in the future. We've had a favourable change in the basic structure of the economy.

However, the real shocker to us here is this:

Low pay is not just unjust, it’s crippling the country’s finances.

That's dangerously close to insisting that the populace are just the milch cows there to pay for the State, the sheep to be shorn of their incomes to pay for public employees. Actually, given that it's Polly saying it that's not dangerously close, that's what she means.

There's no such thing as a free minimum wage hike

Paul Kirby, who was head of the No. 10 Policy Unit until last year, has a long post calling for a “dramatic, historic increase" to the minimum wage, bringing the levels from the current £6.10/hour to £10/hour in London and £8/hour in the rest of the country. It’s a bold post, but ultimately most of his arguments fail. In this post I try to address the key points he makes in favour of a hike.

Low wage earners are, overwhelmingly, providing services for domestic consumers within the UK economy. They work in shops, cafes and hotels. They cut our hair, they clean our houses, they look after our kids and they care for our elderly.  They are not  in manufacturing, competing on the price of their labour with other countries. What they do has to be done in this country. Nor is it tradable with other countries. If the Minimum Wage increases, it impacts equally on all of an employer’s competitors, so there is no disadvantage.

Even though nobody can switch to a cheaper hairdresser in India, they can get their hair cut less often, or have their homes cleaned less frequently, or send their children to creches with fewer minders per child or their parents to care homes with fewer carers. Kirby is assuming that demand for domestic services is inelastic – that is, it does not change much according to price. Obviously, this may differ between different services, but in without evidence to the contrary (Kirby gives none) it does not seem reasonable to assume that people’s demand for services will stay the same even if the prices of those services rise.

Bear in mind that a minimum wage increase would only affect the bottom of the market, where you would expect customers to be the most price-sensitive. The economic evidence suggests that increases in the minimum wage lead to slower job growth, particularly for young workers and in industries with a high proportion of low-paid staff.

Raising the lowest wages does not mean that employers simply have to, or will, just cut jobs or working hours to keep the wage bill constant. The evidence is clear that employers find a variety of solutions.  Firstly, they restrain pay growth for their better paid staff. Secondly, they increase prices to consumers. Thirdly, they improve productivity and get more out of each hour that they are paying for. And then they squeeze their profits. Through productivity gains, they either earn more revenue or cut the amount of labour they need.

Employers do not try to ‘keep the wage bill constant’. They try to make a profit on the labour they hire. If hiring an extra manager led to extra profits, it wouldn’t matter that doing so also increased the overall wage bill. A minimum wage imposes a price floor on labour, so any worker whose total productivity is less than the minimum wage floor represents a net loss to their employer – which a profit-maximising firm will respond to by firing the worker. It makes no difference whether or not that firm has ‘restrained pay growth’ for its other workers: if an employee is loss-making at the lowest wage a firm can pay them, a profit-maximising firm will fire them. (Or simply not hire additional workers who would be loss making on net.) Even if firms can only tell the average productivity of their workers, because of information problems, they will demand less labour in total.

On the possibility of raising prices to make the worker profitable, see the previous point: if demand for the service is price inelastic, this might work, but it’s quite a claim to say that this is the case for most minimum wage-supplied labour.

Wages are not the only cost of labour to firms, either. Firms may reduce costs in response to minimum wage increases by cutting back on perks like lunch breaks and sick leave, as Starbucks did after it agreed to pay additional corporation tax in 2012.

Increasing low pay has a limited impact on the overall costs of most businesses. In some sectors, very few earn less than the living wage, e.g only 6% in manufacturing. Even in hotels and catering, which is one of the biggest sector for the Minimum Wage, only 17% of jobs are below the living wage and raising the Minimum Wage to the Living Wage would only add 6% to the wage bill. This is the highest impact for any sector. More importantly, labour is only a proportion of all costs, e.g. 25-35% for restaurants.

Is a 2.1% increase in costs for labour-intensive firms not something to be concerned about? The fact that ‘most businesses’ would not be affected seems beside the point. (The reverse of this is true too: if Kirby’s other points were correct, would his suggested minimum wage hike be a bad idea because it would affect “only” 17% of workers?)

There is no real evidence of any minimum wages in the world adversely effecting employment levels.

This is totally wrong. In 2006 Neumark and Wascher reviewed over one hundred existing studies of the employment impact of the minimum wage. Of these, two-thirds showed a relatively consistent indication that minimum wage increases cause increases in unemployment. Of the thirty-three strongest studies, 85 per cent showed unemployment effects. And “when researchers focus on the least-skilled groups most likely to be adversely affected by minimum wages, the evidence for disemployment effects seems especially strong”.

Few people stay on low-wage jobs for their whole lives: minimum wage work is usually a stepping-stone to something better where employees can acquire human capital. There is evidence that suggests that minimum wages deter young workers from acquiring these skills that allow them to get better jobs in the long run. Note also that minimum wages have been used explicitly to kick away the ladder for minorities: by whites in pre-Apartheid South Africa; by anti-Hispanic campaigner Ron Unz in California; and by, er, Polly Toynbee in a recent Guardian column.

Tyler Cowen reminds us to make sure our views of sticky wages and minimum wages are consistent: if “worker-imposed minimum wages” (sticky wages) lead to unemployment, as most Keynesians (among others, including me) believe, why would “state-imposed minimum wages” not also do so? (“Have you no respect for the law (of demand)?”, asks Will Wilkinson.)

Given that we know that minimum wage increases usually cause some unemployment, why take this chance when we could just give money to poor people directly? As we’ve been saying for years, the difference between the current pre-tax minimum wage and the post-tax “living wage” is roughly as much as a minimum wage worker pays in income tax and national insurance: in other words, if that worker didn’t pay tax, they would be earning a living wage. It looks as if the personal allowance will soon rise to the minimum wage level, but the national insurance contribution threshold needs to rise too.

But let’s go even further: if we replaced the tax credit and welfare systems with a Negative Income Tax (or Basic Income – call it whatever you want), we would top-up the wages of low-paid workers directly. Jeremy Warner calls for this in the Telegraph today, and I outlined something similar a few weeks ago. Yes, I’d like all the standard supply-side deregulations as well, but a Negative Income Tax would act as an insurance policy against the potential down-sides of such deregulations, strengthening workers’ bargaining power and addressing the fears of those who worry that deregulations will hurt some workers.

I understand that many Conservatives are coming to see a minimum wage hike as a political ‘free lunch’ – a popular and surprising way of showing an interest in the welfare of the poor that does not affect the government’s balance sheet. I hope this is not true. Contrary to Kirby’s claims, there are good empirical and theoretical reasons to think that raising the floor on the price of labour will cause more unemployment. And unemployment destroys lives. There are lots of things we can and should do to help the poor right now. Raising the minimum wage isn't one of them.