Limiting Unpaid Internships: One Unintended Consequence
By David Henderson
If you have been following the news on unpaid internships lately, you will have noticed that they’re becoming increasingly at risk legally. Here’s an excerpt from a recent news story in USA Today:
The controversy over unpaid internships escalated recently when a federal judge in New York ruled that Fox Searchlight Pictures violated minimum wage and overtime laws by not paying interns who worked on production of the 2010 movie “Black Swan.”
The decision by U.S. District Judge William H. Pauley III may lead some companies to rethink whether it’s worth the legal risk to hire interns to work without pay, some experts say.
Instead, I want to point out a consequence of severely limiting, unpaid internships. I think it’s unintended.
But to see the irony, you need to understand one particular argument of many of those who argue against unpaid internships. One critic, Derek Thompson, wrote that unpaid internships cause:
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.
Although Thompson’s use of quotation marks around the word “educational” suggests that he was being snarky, in the discussion on my first post, he admitted that such internships are often educational. That, in his view, is what helps cause the problem: because people from lower-income families have more trouble working without pay, they have a disadvantage.
Here’s the interesting new thing, a point I didn’t raise in the first discussion because I didn’t think of it. Let’s say that people like Derek Thompson get their way and that offering unpaid internships becomes legally very risky. What happens next?
One big advantage of a free market is that it brings together people who are strangers. So, for example, a major business can offer an unpaid internship to someone who has no connection with the firm. But if the business fears getting sued later, it will be much more hesitant to offer that internship. In what situation would the business be at less risk? When it offers an unpaid internship to someone that the firm’s owners or managers know, someone in their social circle. Why? Imagine that I offer an internship to the daughter of a good friend of mine. If the daughter accepts, then I am not as fearful that she will sue later. I know something about her ethics from knowing her father. And even if she is inclined to sue, her father will, because of our friendship, be likely to talk her out of it.
So the ironic unintended consequence is that making unpaid internships legally risky gives the person who has social connections to the business an added advantage in the competition for an unpaid internship. If it’s the case that the people offering unpaid internships tend to be higher-income and that the people they’re connected with tend to be higher-income–as I think it is–then making unpaid internships legally risky will help exacerbate the very problem that Derek Thompson and others have with unpaid internships.