I had hoped Easter would allow me a break. But when I sat down, hot chocolate in hand two Sunday evenings ago, I didn't think I would re-learn an old lesson.
"I am not a magician sir, I cannot conjure wages out of thin air. The men must wait!" declared the capitalist.
This capitalist is named Francis and is a protagonist in the BBC drama Poldark. Based on Winston Graham's historical novels, Poldark is set in the late 18th century; a period that hallmarks the Scottish Enlightenment and an epoch of deep thought and intellectual progress. During that time Adam Smith wrote the Wealth of Nations, which defined economic thinking for a century. His messages on labour are as relevant now as in 1776. Within the book Smith asserts that in return for worker's 'toil and trouble' should be a living wage; to afford the earner basic necessities was a just reward thought the early philosopher.
A reality faces Britain that forces us to confront what our forefather taught. Wage growth has been slow and, until recently, has placed below the rate of inflation meaning on average the worker has been getting worse off. This truth has defined Ed Miliband's penchant for claiming that Britons suffer a 'Cost of Living Crisis', as well as his solution.
The difference between Poldark and the real economy is that Mr Miliband could conjure a wage rate out of thin air. In September last year Labour answered worker's calls when they announced a large uprate in the national minimum wage to £8 should they get into power. The plan is to make work pay once more, but Mr Miliband stresses that a higher national wage would also consolidate the welfare state. Low paying employers had caused the government to spend "billions of pounds subsidising employers who are paying low wages, billions of pounds in benefits, tax credits and housing benefit" he says, and expects the new legislation to shift this burden. Rather than the state propping up poor pay, employers will be forced to burden the gap.
In many ways his ideas draw on what 18th and 19th century philosophers believed. Mr Miliband hopes that Ricardo was right, that higher wages hit profits rather than the worker. This is what played out in the 1990s when the country had a very similar discussion over the first minimum wage. Back then economists were convinced of the trade-off between wage and unemployment. Many had said that unemployment of 80,000 would result over three years following the legislation, but the reality was very different and a succession of reports showed that the minimum wage legislation had had no significant effect on employment.
With this latest announcement, a similar outcome has been assumed. In 1999 the economy was not recovering from recession, but just like in 1999 it has been thought we will reap all the benefits with none of the costs. There are important concerns. Not everyone is employed by large corporations. Politicians rehearse that small businesses are the backbone of the economy and it is our backbone that might be the one to suffer. CBI Deputy Director general Katja Hall recently explained "the minimum wage is set at the highest rate it can be without putting job creation at risk at the moment". If Miss Hall is right, the scenario is very different.
The economic perplexity from 15 years ago has since been understood. In 1999 the minimum wage acted to correct underpayment and firms had looser margins so when costs rose employers had little incentive to cut jobs. Today, it may be clear that workers are suffering low wages, but it is not clear whether this is due to underpayment or due to business simply not being able to pay anymore.
The concerns aren't limited to business. One report from the Institute of Economic Affairs showed this proposal might be more of a poisoned chalice then a silver bullet. The poison would affect those most vulnerable says the IEA, disproportionately affecting young people, the unskilled and the long-term unemployed. Their conjecture is a worry for young people explaining that if forced to pay higher wages firms may replace low skilled workers with older and more experienced workers.
While others propose tax cuts as a cost of living lifeline, perhaps the best option is to do nothing at all. George Osborne has been revising his philosophers too. Alongside their belief in a subsistence wage, the early philosophers thought the wage rate would increase as the economy grows. One of the ideas behind Smith's 'invisible hand' was that there is a tendency for the economy to move to prosperity, wages would grow in tandem with the wealth of a nation. The economy is forecast to grow at between 2-3% according to the Bank of England and the Chancellor suggested last January the minimum wage would rise to £7 concurrently.
The wage experiment is a worry when the economy might tilt either way. Though Mr Miliband is convinced he has a silver bullet, there is a degree of risk and missing the target is difficult to afford amidst a recovery. So perhaps Labour politicians should take a note from Poldark, have a little more faith, and ask the men to wait.Suggest a correction