David R. Henderson  

Minimum Wage: Charles Murray Surrenders

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As co-blogger Bryan noted earlier today, Charles Murray advocates requiring that internships pay the at least the minimum wage, currently $7.25 an hour at the federal level. Is this because he, a perceptive and economically literate analyst, does not understand the damage the minimum wage does to young people's job prospects? Is it because he does not understand that the traditional proponents of the minimum wage, labor unions, want to price out their competition? No and no. It's because he does understand the damage and he wants the damage. And he wants the labor unions to win. Here he is in his own words:

For one thing, we should get rid of unpaid internships. The children of the new upper class hardly ever get real jobs during summer vacation. Instead, they get internships at places like the Brookings Institution, the American Enterprise Institute (where I work) or a senator's office.

It amounts to career assistance for rich, smart children. Those from the middle and working class, struggling to pay for college, can't afford to work for free. Internships pave the way for children to move seamlessly from their privileged upbringings to privileged careers without ever holding a job that is boring or physically demanding.

So let the labor unions win this one: If you are not a religious organization and have more than 10 employees, the minimum wage law should apply to anyone who shows up for work every day.


Although Murray uses the term "privileged" incorrectly, he's right that unpaid internships are easier for "children" from higher-income families to take because those from lower-income families need to earn some money over the summer. I was one of those people from a middle-income family, which is why I took a job in a nickel mine one summer.

But there's a simple solution that I have proposed earlier (here and here): allow internships to pay less than the minimum wage. It's a pretty screwy world in which the government says to an employer:

You can pay the minimum wage or more, or you can pay zero, but don't let us catch you paying anything below the minimum wage and greater than zero.

But wouldn't employers have an incentive to label jobs as internships and pay less than the minimum? Yes. And I would hope they would take that opportunity. The minimum wage law doesn't make only bona fide internships more scarce. It makes more scarce all job opportunities for low-skilled workers who want on the job training.


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CATEGORIES: Labor Market



COMMENTS (10 to date)
Nathan Smith writes:

Well duh.

visose writes:

If working for free on an particular internship guarantees a good paying job, children from poor families should be able to get a loan to help them live through the internship and pay it off once they get the good paying job.

ken B writes:

There's a related effect in Ontario Canada. For years now I have heard the same litany:
- we have a shortage of skilled trades
- too bad there aren't many apprenticeships to fix that
- we need to raise the minimum wage

Woe betide you if you connect these dots.

Cmot in Chicago writes:

"allow internships to pay less than the minimum wage."

We already have that.

Most prestige outfits that do pay interns class them as 'management' employees not subject to hourly wage rules and, when dividing pay by actual hours worked, usually are effectively paying them less than local min wage.

The prestige outfits Murray mentions hire college grads at salaries in the low $20k's, and expect them to work much more than 2000 hrs a year, effectively putting them below minimum wage in DC and NYC. Same for journalism & publishing and other 'prestige' gigs that the elite grads tend to gravitate to.

Actually, given that these outfits are going to recruit the elite no matter what, they are mostly to select the most dedicated and motivated employees, and weed out the ones just there for the resume polish.

Sort of the same thing happens in lines for late night talk shows. Since the tix are free, there could be a lot of people in the audience who aren't terribly excited about being there. By giving away many more tickets than seats, they ensure that audience will be full of people who were willing to stand in line for hours, and thus are huge fans of the show.

David, I agree with you usually, but in this case I think you are suffering from consultant-itis: mapping all the problems onto your pre-existing solutions.

Michael Hamilton writes:

I think you're missing something:

Internships are a mechanism that allow organizations to pay less than the minimum wage.

Many places offer a monthly stipend that would fall far under the minimum wage if converted into hourly pay.

blink writes:

The asymmetry between sub-minimum wage work (illegal) and unpaid internships (legal) looks like a good example of interest group politics. Although I would rather see unrestricted labor contracts, perhaps we would do better to outlaw internships as well. At least then elites would feel the sting of the minimum wage laws along with the young and working class.

steve writes:

Just to add to those above, internships are already not subject to the minimum wage. These help explain.

http://www.ed2010.com/advice/asked/2008/10/shouldn-t-i-be-paid-minimum-wage-my-internship

http://www.dol.gov/whd/regs/compliance/whdfs71.pdf

Steve

bobzchemist writes:

But...here's the problem, as I see it. I work in QC at a small manufacturing company down the street from a small, local college. It takes a long time to train lab techs, and we don't offer jobs to full-time students because we need reliable employees with fixed schedules and the ability to work overtime. We are also operating on a razor-thin profit margin. If the company has to pay minimum wage to an intern/summer employee, I can guarantee that person will need to be working on the production line - we can't afford to spend 8 or 9 weeks training someone only to have them leave after the summer's over.

On the other hand, our local college has a good proportion of local students. If they live at home, their expenses will be minimal. If I'm not paying an intern, I can afford to take some time out of my schedule for training, and they will learn much more working in the lab than they will on the production floor. Additionally, if the intern isn't being paid, I can be flexible enough about scheduling to allow for a part-time job where they are paid. This becomes a win-win solution - I get some free help in the lab, the intern gets training and experience and references that would otherwise be unobtainable before graduation. And yes, in today's economy, having some prior technical experience, even unpaid, is crucial when looking for a technical job.

This isn't an experience restricted to the 1%, although I can see where someone who requires the income from full-time employment over the summer wouldn't be able to take advantage of it. But my point is that if I have to pay an intern minimum wage, this opportunity simply goes away - it's not like there will be fewer internship opportunities here - there won't be ANY.

Yancey Ward writes:

One may as well ask why colleges and universities aren't paying their students for attending class.

Bill writes:

As someone who is currently under a DOL investigation for our internship program, let me throw my 2 cents in the ring.

Our program typically lasts 3-4 months, and gives interns a monthly stipend of $250 to help with living expenses. Our case is somewhat in line (but not entirely) with Murray’s concerns over the well-to-do getting the internships. The kids in here are typically in graduate school or have recently completed grad school. From my biased observations, the kids that complete our internship typically rave about it as one of the best around, and helps them get better jobs in their field. Also, maybe 5% of the interns eventually end up working for our company.

Now, here’s the rub. Our program is viewed as great because the kids actually get hands on experience in the process. The view of the DOL is that if a company gains “benefit” from the work done by an intern, they have to pay them. So. What does benefit mean? Are interns allowed to do anything except sit on their hands without benefiting the company, and if that was the case, what kind of value would the intern get from the internship? And if they determine that only 20% of what they do benefits the company, do you still have to pay them for 100% of the hours they're here?

The big question relvolves around whether “benefit” means a gross benefit, or a net benefit. Sure, the interns do things that add some value to our product, but at what cost? We have a middle manager on staff (salary + benefits in the $50,000 range), the vast bulk of who’s time is dedicated to running the intern program. We have higher level employees ($80-$120k) who spend some time each day showing interns how the process works. So, what is the real benefit, and who gets it?

If, as I expect, the DOL will come back and say pay them, we will most likely scrap the program and reassign duties, without adding staff. So who loses in this scenario? From the business side, it would certainly be easier on me as I could cut capital costs for the equipment that interns work on (computers mainly) and fewer bodies around here would be easier to keep track of. The bulk of the downside really falls on the interns as they would lose this program, and not have the opportunity to add to their resumes. The company does lose the opportunity to see who the really sharp interns are and loses the chance to hire them, but I think that just makes the industry more cut-throat where we poach each others employees with proven work histories. It does eliminate one item from the interns resumes and makes it tougher for the kids to find that first good job.

But if the DOL says we cannot do it, we will have to back down because it is cost prohibitive to fight them (I've already dropped $5k on labor lawyers). In the end, I think everyone loses other than the DOL investigator who can put a notch in his gun - and the labor lawyers, of course.

And BTW, our city does have a living wage law, so the cost would be extra prohibitive.

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