David R. Henderson  

The Morality and Legality of Unpaid Internships

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In the comments section on my recent post on unpaid internships, there was a lot of good discussion and the argument did advance somewhat. To his credit, Derek Thompson engaged in the debate in a positive way as did many of the others who debated him. So I want to sum up where we are in the debate and where Derek still has not joined the debate.

Simply Immoral or Should be Illegal?

In my post, I wrote:

Most of his [Derek Thompson's] argument is about why unpaid internships are immoral, not about why they should be illegal. But he seems to imply the latter.

In the comments, Derek writes:
I find that [the fact that much work by interns is otherwise done by salaried employees] relevant, problematic, and worthy of intervention.

I think it's pretty clear in context and from his original post, that Derek is advocating that unpaid internships be illegal.

Do Unpaid Internships Provide Valuable Experiences for Interns?

In his original post, he said they often do. In a comment on my post, he said so even more strongly. He wrote:

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.

Later in the same comment, he called the experiences "invaluable." That's pretty strong.

Do Young People from More-Affluent Families Have an Advantage in the Competition for Unpaid Internships?

Absolutely. This is one of Derek's most important points and I agreed with it from the getgo.

Is There a Contradiction Between Derek's Tone About Unpaid Work and his Claim that the Work is Often More Valuable than College?

Yes, I think there is. Bob Murphy spotted this and I agreed. Derek thought he was addressing that point when he wrote:

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.

But this doesn't address Murphy's or my point. First, I was not accusing him of being hypocritical; I was saying that he was contradictory. Indeed, I think the words "hypocrisy," "hypocritical," and "hypocrite" are thrown around way too much. I did a check on the number of times I've used either of those three words in almost 4 years of blogging and almost 1,200 blog posts. The total number: 2. And in one case I used it, I was defending co-blogger Bryan from the charge. In the other case, I was explaining that I didn't necessarily think that Christina Romer was a hypocrite.

Second, Derek misunderstood the charge. He's right that not only is it "not hypocritical to say that unpaid internships both offer value and are inaccessible to those who might benefit from their value the most" but also it's not even contradictory. The contradiction was between his saying that lower-income kids miss out on this value and saying that the interns are taken advantage of. He didn't use the word "exploited," but there was that tone in the following sentence in his original post, one that Murphy highlighted:

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,

If Thompson Thinks Unpaid Internships Should be Illegal, Why Shouldn't Students' Trips to China be Illegal?

Ken B made this point. First, he quoted Derek Thompson (in italics below) and then replied:

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 replied as follows:
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.

That raises the next question.

When Some People Work for Free, Does That Create a Negative Externality for Others?

Derek says it does. But the externality, as commenter Jeremy H. pointed out, is a pecuniary externality and is not a market failure. The example I like to give when I teach externalities, which I think I got originally from either David Friedman or George Stigler, is one of a doctor who moves to a town. He increases the supply of doctors' services slightly so that the price of a doctor's visit falls by $1. The negative pecuniary externality is on the doctors who were already there: on each visit they earn $1 less. But there's an offsetting gain to the patients: on each visit they pay $1 less. The net effect: a wash.

Derek has not replied to Jeremy H. yet.

Should the Minimum Wage be Abolished or Reduced?

I argued that it should be and Derek surprised me positively by writing:

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.

Does Banning Unpaid Internships Remove Obstacles to Lower-Income Students?

Derek argued for a ban by writing:

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

Ken B disagreed, challenging the idea that banning things removes obstacles. I lean in Ken B's direction.

What Do We Know Empirically about Substitution Between Unpaid Internships and Paid Work?

Emily quite rightly raises this issue. My guess is that we don't know much. To me, the answer is not crucial because I advocate letting people do anything that's peaceful. So the answer to that question doesn't matter much to me. It should matter a lot to Derek, though.

Should Uneasy Questions Be Settled With Force?

Derek wrote:

Like I said above, I don't think this is an easy question.

So Derek thinks it's alright to settle this particular uneasy question with force. I don't.

Comments and Sharing

CATEGORIES: Labor Market , Regulation

COMMENTS (10 to date)
Collin writes:


Is it immoral or destructive? No

Is there (33%) who truly benefited from? Yes...I suspect it has impact like the Georgia unemployment programs. (Where to get checks you need to work for free...I think about ~18% of the people actually get hired. Again it works some of the time.)

Is a giant signalling with little economic value? Probably as I expect most interns learn how to use the coffee machine.

Do I like it? No...It just means US companies don't care to train, invest, or pay their employees. In the long run, I believe there will be a decrease in productivity growth as employees will not develop skills as well within organizations nor learn to trust employers outside of wages.

mdb writes:

I never click on his articles at the Atlantic. I don't know if this the first article by him that you have read, but it is very representative of his reasoning on most subjects. It can be aggravating to read his articles and then his comments that he aggressively screens for dissent.

Bill writes:

No...It just means US companies don't care to train, invest, or pay their employees.

Well, what about my company? We run 4-5 interns through here at once (stipend for living expenses, but no pay). Of those, we hire maybe 5%. The other 95% will go forth to get a paying job in the industry somewhere else (or they don't). We do this as a service to the industry.

The DOL is investigating the program right now. If we cannot convince them that the program is legit, we will dump the program and re-direct the efforts of the current employees. We have one full time person running the program, plus many hours are contributed by other employees and managers to provide input to interns. There will be no net loss of productivity to the company - just a loss of valuable training to those interns who participate in the program.

Matt writes:

If one calls into question the morality of voluntary unpaid internships, where does that leave expensive schooling (at all levels, some of which are not voluntary) of dubious long term value?

Ken B writes:

Matt writes

If one calls into question the morality of voluntary unpaid internships, where does that leave expensive schooling (at all levels, some of which are not voluntary) of dubious long term value?

I think, and it's a lovely wicked thought, the kind I like best, that according to Derek's viewpoint we should encourage wasteful education for the rich -- the more wasteful the better -- as a leveller.

Of course I think Bryan Caplan argues that this is actually happening ... :)

David Friedman writes:

"The example I like to give when I teach externalities, which I think I got originally from either David Friedman or George Stigler"

That one is mine. Of course, I can't swear George didn't also use it at some point.

Bryan Willman writes:

What about the context of the firm?

The org is a non-profit startup which cannot afford to pay anybody any real money. Is gathering up enough money to pay room and board but no wages to interns evil when:
a. It absolutely can NOT displace paid jobs
b. The people involved are fully informed of what they are getting into
c. The experience appears to have value to them

Likewise, I (retired) volunteer for the org. Should this be banned? I am depriving some employer of my once valuable (probably still valuable) services, depriving the IRS of tax revenues on the money I don't earn, etc. I'm not displacing any paid labor because the org has no money to pay. Is this somehow immoral? (Again, this is all clear - I have no illusions of some great payback later. And I don't need the experience.)

I don't know that I buy the displacement argument for interns who aren't paid in large orgs - would they really hire somebody instead of the interns? Or would they just not do the function at all?

Put another way, why do we allow colleges to charge people for all the work they do in college? Shouldn't it be a requirement that all college students get paid at least minimum wage for their efforts?

Barry McDonald writes:

As China is growing and developing very first and there are lot of internships for student and fresh graduate available in such cities.

Ghislain writes:

If working for free (voluntarily, not slavery) should be banned because of negative externalities, what about open source software? Some smart people work everyday to produce code that others can use freely.

Should open source software be banned also? In this case, google, facebook, oracle, and most internet companies would never have existed. Even microsoft is using some open-source software.

Unintended consequences?

pyroseed13 writes:

I challenge the assumption that unpaid internships are a form of "exploitation." Based on my own experience, I found that my employer did not have an active role in maximizing my productivity. While some of the tasks I performed were purposeful, others were busy work. Sometimes they wouldn't even provide me with enough work to cover my shift. I left with the assumption that if they felt that my unpaid work was actually valuable they would have been willing to pay for it.

Collin also raises the point that unpaid internships may really be about signaling. I happen to agree.

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