David R. Henderson  

Are Unpaid Internships Immoral?

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Derek Thompson at the Atlantic blog argues that unpaid internships are immoral. His case? The essence of it is that because the employer gets valuable services, the employer should pay for them. Of course, the employer does pay for them, if not in money, then in the form of training and work experience. But that doesn't satisfy Mr. Thompson. The following toward the end of his post summarizes a big part of his case:

The broader effects of unpaid internships are (a) a tendency for employers to take advantage of young labor by offering the currency of experience in lieu of actual currency, and (b) a widening of the social inequality gap as lower-income students are implicitly barred from this so-called "educational" experience, which is their gateway to full-employment in the field of their choosing.

So his basic argument is that because lower-income students are at a disadvantage in that competition because they need to make money during the summer, that form of contract is immoral. Most of his argument is about why unpaid internships are immoral, not about why they should be illegal. But he seems to imply the latter. After admitting that unpaid internships are mutually beneficial for both sides, he writes:
But not every mutually beneficial relationship should be legal, and not every one is. An easy example is: It is mutually beneficial for a 17-year old to offer money to a bartender in exchange for a vodka shot, but we have collectively decided that this sort of thing ought not to happen, because we don't want to live with its broader effects.

So Mr. Thompson seems to be getting at the idea that unpaid internships should be illegal too.

He's right that students from lower-incomes are at a disadvantage. I was one of those. As far as I knew, unpaid internships weren't even around, or at least weren't common, when I was an undergrad between 1967 and 1970. But even if they had been, I wouldn't have taken one because I needed to make money every summer.

But I wouldn't have regarded it as immoral for kids from higher-income families to work for free for employers who wanted their services. And I certainly wouldn't have wanted a government to threaten people with fines and, ultimately, harsher penalties, for having unpaid interns.

Mr. Thompson says that if "internships are indistinguishable from education," then it's "perfectly permissible that they be unpaid." It seems as if we're getting somewhere. It seems that it would follow that if they're better than education, then for sure it's permissible that they be unpaid. But after admitting that some internships are better than college, he writes, "that's not a good reason to deny millions of workers salaries just because they're young." That's confused thinking. The argument he was addressing was whether it's permissible not to pay because of internships' educational value. But then he switches reasons in mid-sentence, saying that it's "just because they're young." But it wasn't just because they're young. It was because employers are getting something in return.

A little economics would have gone a long way in helping Mr. Thompson, who, according to the bio on the Atlantic web site, "oversees business coverage for the website." Consider this excerpt from his case:

Plenty of entry-level positions better prepare people for work than college. If it is relevant that an unpaid internship is "useful", does it follow that only useless internships should have salaries? Of course not. Utility and salary have nothing to do with one another.

Actually, utility and salary have a great deal to do with each other, as economists from Adam Smith on have pointed out. The more disutility there is on a job, then, all other things equal, the higher the pay on that job. Economists call this difference in pay a "compensating differential." Here's what Adam Smith wrote on the issue in The Wealth of Nations:
First, The wages of labour vary with the ease or hardship, the cleanliness or dirtiness, the honourableness or dishonourableness of the employment. Thus in most places, take the year round, a journeyman taylor earns less than a journeyman weaver. His work is much easier. A journeyman weaver earns less than a journeyman smith. His work is not always easier, but it is much cleanlier. A journeyman blacksmith, though an artificer, seldom earns so much in twelve hours as a collier, who is only a labourer, does in eight. His work is not quite so dirty, is less dangerous, and is carried on in day-light, and above ground. Honour makes a great part of the reward of all honourable professions. I.10.5

What's missing from Mr. Thompson's reasoning is the concept of equilibrium. There's a reason that some jobs pay the minimum wage or more and other jobs pay zero. It has to do with the pluses and minuses of the job (from the worker's viewpoint) and the pluses and minuses of the worker (from the employer's viewpoint). The price (wage) is what equates the amount of labor supplied and the amount of labor demanded.

Is there a way around this so that more young people from low-income families could find internships? Yes. Allow them to be paid internships but allow the pay to be somewhere between 0 and the minimum wage. As I wrote in 2011, "The government is saying, in effect, you may pay $7.25 an hour or more or you may pay 0 an hour but don't let me catch you paying more than 0 and less than $7.25."

If an internship paid, say, $4.00 an hour, then some kids from lower-income families could more easily afford to take such jobs. That would solve some of the problem that Mr. Thompson identifies. But it would do so with a reduction in coercion, not the added coercion that he seems to advocate.

UPDATE: Belated HT to Ken B.


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COMMENTS (32 to date)
Bob Murphy writes:

Thompson wrote: The broader effects of unpaid internships are (a) a tendency for employers to take advantage of young labor by offering the currency of experience in lieu of actual currency, and (b) a widening of the social inequality gap as lower-income students are implicitly barred from this so-called "educational" experience...

Don't those reasons contradict each other, or at least clash? He is saying the unpaid internships are bad because the employers take advantage of the young workers, and they are also bad because poor workers aren't being taken advantage of, as much as rich workers.

Tom West writes:

I think the fear is that the natural clearing wage for young people may well be about $5K/year, a sustainable wage when most young people can fall back on support from parents, etc.

Unpaid internships are a natural way for the market to work around legal restrictions that prevent paying $5K/year by essentially de-facto requiring hires to work unpaid for some length of time.

However, there are many who feel that establishing a new baseline for the the "worth" of labor may not produce the sort of society they'd like to live in, so they're going to attempt to find ways to prevent these work-arounds.

John Fast writes:

Why is this posted here, where everybody is already smart enough to understand the flaws in Thompson's argument, instead of at The Atlantic where it might do some good?

I will also add that when Bryan Caplan /s/a/r/c/a/s/t/i/c/a/l/l/y/ ironically asked "If minimum wage laws are good, then shouldn't unpaid internships be illegal?" he was probably expecting people to move away from minimum wage laws, and not for them to suggest outlawing unpaid internships.

David R. Henderson writes:

@Bob Murphy,
Don't those reasons contradict each other, or at least clash? He is saying the unpaid internships are bad because the employers take advantage of the young workers, and they are also bad because poor workers aren't being taken advantage of, as much as rich workers.
Wow! Good point. I totally missed that.

@John Fast,
Why is this posted here, where everybody is already smart enough to understand the flaws in Thompson's argument, instead of at The Atlantic where it might do some good?
Because at the Atlantic, it’s likely to get lost in the weeds.

justin writes:

His reasoning also seems to lead to making education illegal too. Taking an unpaid internship will build human capital or signal something to employers, but the poor face a higher opportunity cost in choosing this option. Analogously, spending time in college will build human capital or signal something to employers, but the poor face exactly the same dilemma- if they didn't spend that time in college, they could have spent it making money on a job. What is the difference?

andy writes:

An easy example is: It is mutually beneficial for a 17-year old to offer money to a bartender in exchange for a vodka shot, but we have collectively decided that this sort of thing ought not to happen, because we don't want to live with its broader effects.

I thought the main reason is "we" have decided the 17-year olds aren't mature enough to make these decisions for themselves and such bad decision may have some bad consequences later in their future life (actually, the 17s mostly ignore the law anyway...and we live with these effects...is this really a good example?). Anyway, is he suggesting that people taking unpaid internships aren't mature enough to make these decisions for themselves and that such a bad decision would make them suffer for the rest of their life?

stuhlmann writes:

To me the problem with internships, paid or unpaid, is that the intern is at a disadvantage. The employer knows what he is getting out of the deal - free or low cost labor, and he knows the value of that labor. And the employer gets that value today. The intern has less knowledge about the value of the training or experience that he is getting, and he has to wait to learn what that value actually is. What useful or marketable skills will he learn, and what will their worth be in the job market in the future? What value will the internship have in dressing up a resume?

At least with an old-fashioned apprenticeship, the employer had a legal and moral obligation to train the apprentice in whatever craft, say plumbing. The apprentice knew that in exchange for his low cost labor, he would be taught a marketable skill. What are the employer's obligations toward a modern intern?

Steve Sailer writes:

Unpaid internships have enormous disparate impact on less well off ethnic groups. For example, the movie and TV industry is centered in Los Angeles County, which is home to about 4 million people of Mexican descent, yet, Mexican-Americans (i.e., people raised in the U.S.) are extremely rare in Hollywood at any level, including the blue collar jobs on set. There are a lot of ways that white people keep the good paying, fun Hollywood jobs for themselves and their kids, such as unions. But a big one is that unpaid internships are a way to get your foot in the door, and Mexicans hate to work for free. If Hollywood wasn't such a big fundraiser for the Obama campaign, you might see the EEOC go after Hollywood on disparate impact grounds.

Devil's Advocate writes:

Free Markets can solve many problems, but not all of them. Some matters, such as those involving ethics/morality, should be addressed with regulations. All of Prof H.’s arguments are based upon economic theory; however, this is a matter of morality. Here is a hypothetical. Is it fair to compare internships with slavery? Maybe. Although slavery was coerced with public laws and internships are not, didn’t the slaves receive some return for their efforts? Food, a place to live, steady work, etc… Don’t internships receive something for their efforts? Experience, intimacy with the employer, steady work, etc… Is it fair to call an internship for a young college student who wishes to have a “good job” in the future a form of “soft coercion?” Upton Sinclair (http://en.wikipedia.org/wiki/Upton_Sinclair) may have some thoughts on the matter.

NW writes:

Internships don't pay 0, they are paid a negative amount since you have to pay the school for the credit hours. The school makes you pay them money for credit hours that don't require any work on the part of their teachers. HAHA.

PoachedWonk writes:

[Comment removed for supplying false email address. Email the webmaster@econlib.org to request restoring this comment. A valid email address is required to post comments on EconLog and EconTalk.--Econlib Ed.]

Mike L writes:

If unpaid internships are possibly even more valuable than the education as is being suggested here, then isn't this logic backwards? If the student is actually receiving something of value - shouldn't they be paying the employer - just as they are paying the school for the pleasure of being assigned home"work"?

I can't believe the exploitative nature of these schools, assigning work and then charging for it!

Derek writes:

Hi David,

Thanks for taking the time to read and respond to my piece.

Let's start where everybody on this page can agree. We can all agree that there are strong, crystal-clear, and undeniable economic reasons for unpaid internships to exist. It is really, really useful for interns who can afford to work for no pay to get work experience. It is sometimes even superior to a formal education. It is profitable for companies who can find productive workers, whatever their age, and pay them as little as they have to. I'm not debating the concept of equilibrium. The economics of unpaid internships aren't in dispute.

I'm disputing the morality, the broader social implications of free work. I admit that morality is a wobbly branch for an economics writer to tip-toe on and that it often devolves into "I think X" "Well, I think Y" and we agree to disagree.

But from personal experience, from anecdotes from hundreds of reader comments, and from, well, intuition, it seems to me that the legacy of unpaid internships in industries like government, research, and journalism creates unequal opportunities by offering invaluable experience only to those who can find sources of subsidy for the duration of the internship. Asking families and schools to indirectly pay companies for intern-level work that is often indistinguishable from paid-work strikes me as the kind of thing we should discourage more strongly.

Your solution is intriguing, and I'm sensitive of course to your, Caplan's, and others' comments that high minimum wages can take jobs from young low-income workers -- exactly the kind of people likely to be interns. I consider your compromise a step in the right direction.

Thanks again for reading,

D

Ted Levy writes:

The whole idea seems silly to me.

You work as an intern to gain some benefits--job experience; skill; knowledge; business contacts--which are very similar to the reasons people seek out education (pace, for the moment, the signaling theory; to the extent the signaling theory is true, it strengthens my argument below).

If you're getting an education YOU pay the educator.

If the argument some make above to the effect that an internship is BETTER than an education, the argument shouldn't be about whether such internships should be unpaid; the argument should be about how much the interns should be paying the hard-working mentors who train them.

What would opponents of unpaid internships say if employers simply announced, "We no longer offer unpaid internships; we now offer education, and its extremely competitive in its pricing."?

drobviousso writes:

Derek said "The economics of unpaid internships aren't in dispute. I'm disputing [...] the broader social implications of free work."

Based on this, you both dispute the economics of internships, and reveal that you do not know what economics is.

I thank God you were never around to protect me from my internships.

David Henderson Author Profile Page writes:

Thanks, Derek.
Wow! You stated the case for internships even more strongly in your comment above than in your original post.
So our agreement on that means that there’s one other thing we can agree on: that you went astray when you wrote, "But that's not a good reason to deny millions of workers salaries just because they're young.” That made it about exploiting young people rather than what you said above, which is essentially that young people who get internships get something very valuable.
Bob Murphy, in his comment above, pointed out the contradiction that I had missed.
So the problem comes down to the one I granted you: that people from low-income families have more trouble affording to take an unpaid internship. I’m glad also that you see a relaxation of the minimum wage law as a partial solution for this.
Thanks for the tone of your response also.

Ken B writes:

Derek Thompson:

it seems to me that the legacy of unpaid internships in ... creates unequal opportunities by offering invaluable experience only to those who can find sources of subsidy for the duration of the internship.

The same can be said of a summer spent in Beijing learning Mandarin or dozens of hours a week spent learning the violin. Wealth affords the leisure to learn, but you are not criticizing unequal wealth but opportunities to learn. To be consistent you should ban summers in China, and violin practice.

Derek writes:

@David
Yeah, I do want to make clear, as I did in the post, that I don't come to this conclusion easily because I acknowledge that the economics of it are pretty clear cut. In fact, my original column on the topic was "The Murky Ethics and Crystal-Clear Economics of Unpaid Internships."

I actually don't see a discrepancy in those sentences, although I may have misstated. It's not hypocritical to say that unpaid internships both offer value and are inaccessible to those who might benefit from their value the most.

@Ken
Hah, that's sincerely a great point! Rich people can afford lots of things that poor people cannot. I think the law's role here should be to intervene where the market creates negative externalities. There is no negative externality to my going to Beijing. My paying for violin practices has no negative consequence for anybody. Somebody poor simply cannot afford that service, and the violin instructor ought be paid for her services as well. But the vast majority of internship are not services. They offers work that is otherwise done by salaried employees. I find that relevant, problematic, and worthy of intervention. If you disagree, then that's cool. Like I said above, I don't think this is an easy question.

Ken B writes:

Derek: Thanks.

You also write this:

But the vast majority of internship are not services. They offers work that is otherwise done by salaried employees. I find that relevant, problematic, and worthy of intervention

I don't believe that is an externality; I hope DRH will take the trouble to correct one of us.

Lots of things are done for free, displacing salaried employees. Elevator buttons displaced attendants, TV killed off the last remnants of vaudeville, I might rescue a child from a burning building rather than wait for the appointed salaried rescue worker. I suspect you get most of your mail electronically, to the disadvantage of postal workers, Western Union, and pony express riders. Is your conscience troubled?

Emily writes:

@Derek: That's not how "negative externality" is used. A negative externality is much more specific than "something that negatively affects someone else." But if it were that broad, the violin example would be one. By giving your kid violin lessons (or other pricey types of enrichment), your kid is more likely to get into an elite college, making someone else less likely to get in. Immoral? Negative externality?

Glen Smith writes:

Mike L,

Well, what you are describing is what drives many employer-employee relationships. In many relationships (like mine) the employer is basically paying me very well to something similar to what I'd be doing anyway if I didn't need work for someone else to live. This is probably representative of most who post here were the opportunity cost of their job is very low compared to what they earn.

Shawn writes:

This is an example of how business men, who make real economic decisions that matter, differ from the ivory tower economist.

To businessman an unpaid position clearly is a scam/legal fraud. There is no way, unless the company is a startup with little money, that a company would have a tag-along person who provides no future value to them.

In the real world, somebody will try to rip you off if the can get away with it. Example, http://www.nytimes.com/2012/05/06/business/unpaid-internships-dont-always-deliver.html?pagewanted=all

A business person, or writer as Mr. Thompson is, cannot takes things at face value, as Mr. Henderson appears to me to have done.

Jeremy H. writes:

Ken B.:

I don't believe that is an externality; I hope DRH will take the trouble to correct one of us.

It is an externality, but a specific kind: a pecuniary externality. Economists generally agree that pecuniary externalities imply no role for government. This is for a simple reason: they are a result of the market process, and show up in market prices. The role for government only arises when externalities do not show up in prices.

For more: http://pfr.sagepub.com/content/29/4/304.abstract

Shawn writes:

P.S.

Moral decisions are made not by what is legal or economically efficient. Adam Smith knew that.

That unpaid internships are legal, or even economically good does not mean that mean they are noble or moral acts. But I'm not saying that they are immoral either, just that the morality of something should be judged independently from other factors.

Ken B writes:

@Jeremy H: I thought that those were not real externalities as the effects are communicated by prices. I am willing to do job X for less, affecting the price your employer offers you. The effect is transmitted via prices.

Thomas Sewell writes:

Derek, if you ban unpaid internships, what you are in effect doing is making it so that any internship where the employee contribution while an intern is worth less than the minimum wage won't be offered.

There may be some previously unpaid internships that turn into a paid internship because there is enough benefit to the employer there, but I'd guess that the vast majority (especially in the current job market) would either vanish completely, or turn into a lower paid job for someone with a little more experience to do instead.

So if the consequences of banning unpaid internships is to make it so that some people can no longer participate in them, _without_ even making "paid" internships available to people who couldn't otherwise afford them time-wise, would you reconsider your position?

What makes you think these unpaid internships would magically turn into paid internships for the inexperienced? Have you considered that the calculations on the part of the employer have to change after your law preventing unpaid internships?

I think it's pretty immoral to prevent people from doing something mutually beneficial just because other people don't have the same means to do the same deal.

The logic of this is like banning car wash businesses because some people can't afford to pay someone else to wash their car. It's not going to make poor people's cars any cleaner, it'll just make society as a whole poorer and dirtier.

Derek writes:

@Thomas

"Derek, if you ban unpaid internships, what you are in effect doing is making it so that any internship where the employee contribution while an intern is worth less than the minimum wage won't be offered." Yes. I understand that is the trade-off of any minimum wage. But I do think that it's precisely because so much intern work is the equivalent of salaried work that companies would be willing to pay a couple dollars an hour to have it done.

Derek writes:

@KenB
Again: awesome clever analogy. So, why are unpaid internships and elevator buttons different? Banning one is designed to protect a group defined by income and banning the other is designed to protect a group defined by vocation. It's the difference between egalitarian and industrial policy. I am not troubled by my email, nor by lives saved by civilians, nor by the lack of vaudeville performers because, to protect these jobs, we would have to adopt specific industrial policies or otherwise adopt a law that no human action in any way deprive somebody else of an opportunity to earn a salary. That is, we can agree, a horrible rule. Removing an obstacle for lower-income students to compete for unpaid internships strikes me as a less horrible, if ultimately imperfect, alternative.

Emily writes:

How do we test these predictions? Is there some way to test to what degree intern work overlaps with paid work, and how many unpaid internships would become paid jobs if unpaid internships became illegal (or even just if current labor law were enforced?)
The other thing I'd want to look at would be how those non-intern jobs would be given out in the absence of use of unpaid internship experience. Because all of the people who were willing to be unpaid interns before now are competing for the paid jobs, and so are some people who didn't want them before, and now there are fewer jobs. There's a significant shortage at the going (artificial) pay rate. If you pick people via additional educational requirements or family/school connections, rich kids will also be advantaged.

Errant Academy writes:

As someone who is a PhD student (former intern) of Economics and a business owner, I have to say that I do not condone unpaid internships. They should not be illegal, simply because students have the choice to go or not to go.

I believe that the heaviest burden lies with the employer. Someone who has someone else do a task should expect quality, correct? If interns are willing to trade their energy for experience, the employers better have lots of experience to offer, otherwise the intern will start questioning what the point is.

No one can or houdl guarantee a diverse job with lots of new things every day, not can they guarantee a great shiny letter of reference. Unless you can truly offer a great employment experience, give these poor souls some money, or do the job yourself!

Dave from http://www.errant.ca - Economics and Statistics tutoring service (everyone here is paid well, and they do a great job!)

Ken B writes:

Derek:

Removing an obstacle for lower-income students to compete for unpaid internships strikes me as a less horrible, if ultimately imperfect, alternative.

Banning them is removing an obstacle? We're back to summers in China then. Only the rich can afford them; they promote learning a valuable skill; banning them would remove this particular barrier for the poor.

I think you're wiser to take up DRH's suggestion and argue against a minimum wage law. This would create competition for better interns, leading to at least some remuneration. My 'best' rarely involves bans of any sort, not even Celine Dion, but I think in terms of your goals you are letting the best be the enemy of the good here.

gardner writes:

In addition to allowing a payment between $0 and the minimum wage to encourage entry level jobs and/or internships, we must also allow anyone to work more than eight hours if they wish to work longer but at the same rate.

Time and a half pay only makes sense if the employer needs the work done faster and imposes that need on the worker; if the employee wants to work longer to earn more money, he should be allowed to do so but at his same hourly rate. Now, laws prevent that initiative by forcing the employer to pay more which is a disincentive for him to allow the worker to earn more money by working longer.

In other words, some labors laws are working against labor these days.

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