Adam Smith (Institute) weighs in on unfair internships

Liam Ward-Proud at the Adam Smith Institute (“The Adam Smith Institute is the UK’s leading innovator [NDLR: I believe this is self-assessed] of free-market economic and social policies.”) has a very engaging and articulated post (rare thing) about one of the premises behind this blog’s position, namely that interns should be paid because employers benefit from their work.

“The basic principle alluded to is completely false.”

You may be surprised to learn that I almost agree with him. Here’s my comment, in case my readership is not already reading Liam regularly.

Thank you for taking the time to review the basic principles behind worker’s wages that UnfairInternships.com puts forward. You’ve certainly refined my own thinking, as the owner of the blog, on the nature of the wages and the morality of unfair internships. What you haven’t done though is to change my view that unfair internships are unfair.

You win: “A wage is a price at which a worker is prepared to sell her/his labour, this price is defined as the equilibrium between what the employer is prepared to pay and the labourer is prepared to sell at.” Of course, you acknowledge that the expected productivity is part of the calculus, so “completely false” was a bit exaggerated. My description was incomplete.

You actually bring in an interesting principle though: the power relationship between the employee and the employer. I dare say that as long as there is unemployment out there, supply exceeds demand and this relationship is in favour of the employer. Actually, regardless of the mechanism, it is plain to see, through the spread of unfair internships, that interns are losing the race to the bottom, accepting to work without pay. This is why there are mechanisms that level the playing field by setting minimum standards and collective bargaining mechanisms. The interns are rarely, if ever, part of a collective bargaining system and, while they should, it seems that they are not yet protected by standards that protect the rest of the labour force.

Which leads us to the idea “workers should be free to value their own labour”. This is true to an extent, the limit being once the individual choices are detrimental to the group. I am not saying anywhere on my blog that unfair internships are not beneficial to the individual interns. They are as beneficial as making a personal sacrifice gives a leg up to the individual. But it also forces everyone else to make that same sacrifice to level the playing field. This competition is all good, but there are minimum standards that offset the lower bargaining power of the interns and they should be enforced for them as for the rest of the labour force.

So your argument is not in favour of unfair internships, it is one against minimum standards and bargaining power. I have no doubt that this blog believes that such standards are detrimental, but it is a debate that your side is not winning in the real world at the moment.

The idea that internships opportunities would disappear if internships had to be fair is actually a good thing. Speed would increase if speed limits were removed, robbery would increase if it wasn’t punished, etc. The idea that the mere existence of something makes it desirable rests on weak moral ground.

Once again, an honest thank you for your coverage and analysis. It was a bit snarky, but I deserve it and it’s all in good fun.

What do you think?

A milestone: Fact Sheet #71

The US Department of Labor issued the Fact Sheet #71 this week: Internship Programs under the Fair Labor Standards Act. So what does it say? Same old, same old:

The following six criteria must be applied when making this determination:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment;
2. The internship experience is for the benefit of the intern;
3. The intern does not displace regular employees, but works under close supervision of existing staff;
4. The employer that provides the training derives no immediate advantage from the activities of the intern; and on occasion its operations may actually be impeded;
5. The intern is not necessarily entitled to a job at the conclusion of the internship; and
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship.

This fact sheet says nothing new. It is just a reminder of the law – a fact sheet, not a new legislation. Still, it is a milestone. This blog was started almost four years ago because there were no other resources on the web covering this issue. The law existed but what apparently ignored. Since then, many blogs and websites have been started, there’s been interesting movement in the UK and the mainstream media has started to take an interest in the issue. And now, State governments are cracking down on these scams. So this fact sheet from the federal government is a major shift in that it shows that the authorities are finally paying attention to a scandal hidden in plain sight for too long already. We can only hope that the effort will be sustained and will lead to a real change. Those who are annoyed by this blog may even start hoping that it will be suspended as it becomes useless.

There’s something interesting in the fine prints, at the end of the fact sheet:

The FLSA makes a special exception under certain circumstances for individuals who volunteer to perform services for a state or local government agency and for individuals who volunteer for humanitarian purposes for private non-profit food banks. WHD also recognizes an exception for individuals who volunteer their time, freely and without anticipation of compensation for religious, charitable, civic, or humanitarian purposes to non-profit organizations.  Unpaid internships in the public sector and for non-profit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible. WHD is reviewing the need for additional guidance on internships in the public and non-profit sectors.

I’ve never cared much for this exception for the public sector. I think that politicians and the government should lead by example and carving themselves an exception is no way to gain credibility in enforcing this law. I don’t yet see the rationale. Because the government is not-for-profit? Anyway, if someone knows, please share in the comments.

What’s interesting is that last sentence: they are reviewing the need for additional guidance. Could it be that the spirit of this exception will finally be explained?

Stephen Colbert on unfair internships

“They’re called ‘unpaid internships’, that’s why you don’t pay them!”

The Colbert Report	Mon – Thurs 11:30pm / 10:30c
Unpaid Internship Crackdown
www.colbertnation.com
Colbert Report Full Episodes Political Humor Fox News

WSJ: Getting Logic Wrong

The Wall Street Journal editorial staff takes up unfair internships again:

The fear seems to be that dishonest employers will use unpaid interns to do the work that salaried entry-level staffers used to do. Not only does this displace jobless workers in a down economy, it also exploits the college students so desperate for work that they’ll do menial jobs for free. That’s the theory, anyway.

The reality is different, as we can both attest. Horror stories do circulate, but our much more ordinary experiences offer a reality check: In general unpaid internships end up being useful experiences—and serve several important functions in the labor market.

Did you see that? The logical jump? Theory wants that employers are replaced by unpaid interns BUT in reality internships are useful experiences.

Who said internships were not useful experience? They point themselves at a different problem, which is replacement of paid workers with free labor.

WSJ: Getting Economics Wrong

As a follow-up to the NYT article, the Wall Street Journal posted an opinion piece: what’s wrong with working for free? How unexpected of them.

What amazes me is the basic misunderstanding of economics. The idea that work should be compensated in proportion to productivity is not a socialist principle, it is at the core of capitalism. The more productive you are, the greater pay, goes the principle. If a company benefits from the work of an employee (intern), that means the employee (intern) should to be paid.

Then why aren’t they?

Because the interns have no other choice. It is not because their work is not worthy. It is not an economic decision, it is a power decision. Because the employers can.

The reason why a company pays an employee is, at the core, not because of regulation. It’s to attract the best and the brightest. Higher pay, higher talent (remember that when you hire unpaid interns). In this context, companies refuse to pay certain employees by calling them interns because they consider these employees interchangeable – not because they do not contribute to the bottom line. Young entrants in the labor market are isolated and have very little bargaining power. They compete against each other, as they should, but should be protected by minimal regulation to restrict abuse. And this is what the minimum wage laws and Fair Labor Standards Act are for.

But in a country where bankers can run their companies and the national economy into a wall and still be generously compensated (in performance bonuses, no less!), it may be a principle difficult to understand.

——

Update (April 29): The Adam Smith Blog helps me to refine the mechanisms through which wages are decided, but fails to demonstrate that unfair internships are fair.

NYT: Growth of Unpaid Internships May Be Illegal, Officials Say

The New York Times published an important article about unfair internships last week-end. Important because it takes the right perspective – they are likely illegal and unfair – and because this paper is influential (just look at some immediate coverage). Important also because the public is eager to hear about this issue, as evidenced by the 2nd position in the list of the most emailed articles today – two days after it was published – and most emailed for the business section.

So, what’s in there? Mostly, some enlightenment from the mainstream media that millions of people are being exploited in the workplace. Good for the NYT. But what’s most interesting is the section about the Labor Departments finally taking action, at the state and federal levels.

The Labor Department says it is cracking down on firms that fail to pay interns properly and expanding efforts to educate companies, colleges and students on the law regarding internships.

About time. We will cover some of these cases soon. Also, there are some interesting statistics.

In 2008, the National Association of Colleges and Employers found that 83 percent of graduating students had held internships, up from 9 percent in 1992. This means hundreds of thousands of students hold internships each year; some experts estimate that one-fourth to one-half are unpaid.

It’s really too bad that it ends with the vague “some experts”. I’m not asking for a private eye report nor an academic quote, but the NYT ought to source better its statistics.

We speak often about the role of regulators, employers and interns to end this practice, but those who publicize internships – legitimizing the postings and increasing competition among interns for a given position, among other things – also have a constructive role to play. While some listing websites take a hands-off approach, washing their hands from their role for promoting an illegal and unfair practice, but others are not so shy.

“A few famous banks have called and said, ‘We’d like to do this,’ ” Ms. Steinfeld said. “I said, ‘No way. You will not list on this campus.’ ”

Sometimes, it’s so obvious that an employer is trying to take advantage of the system, one ought to refuse the listing. Actually, any listing website should commit to apply the FLSA rules, if only to remain legal.

The story also quotes a business lawyer that pleads in favor of her clients:

Camille A. Olson, a lawyer based in Chicago who represents many employers, said: “One criterion that is hard to meet and needs updating is that the intern not perform any work to the immediate advantage of the employer. In my experience, many employers agreed to hire interns because there is very strong mutual advantage to both the worker and the employer. There should be a mutual benefit test.”

Mutually beneficial arrangements are not illegal at all, they are even encouraged. They are called “jobs” and the are usually paid a legal wage. If the intern is “beneficial” to the company,it means that they are profitable and hence they are entitled to a paycheck. This is certainly not an age-old principle that we want to overturn.

Media coverage of the NYT coverage

The New York Times had an article about unfair internships yesterday (Growth of Unpaid Internships May be Illegal, Officials Said) and suddenly the media realizes that it exists. Not that it’s all original and articulated reporting, but still, it’s a little jolt, a minute of attention for such a widespread illegal practice.

“If you’re an unpaid intern or the employer of an unpaid intern, don’t be surprised if you hear from the Labor Department soon.” Labor Department to Rescue College Kids From Illegal Unpaid Internships, New York Magazine

Let’s hope so.

“I’m alarmed about the increasing number of unpaid internships.  Unless an internship is with a nonprofit organization or qualifies for at least three college credits, all interns should be paid. ” Tough Choices: Paid, Unpaid or Purchased Internships, Chicago Blog

Not so sure about the credit solution, but well-intentioned. It’s not about being credited, it’s about being a trainee.

“Have you had an unpaid internship? Did it break the laws outlined in the article? Should the Department of Labor continue to crack down on unpaid internships and will this make finding summer work harder?” Unpaid Volunteer Interns of the World Unite?, The Daily Princetonian

I really wish the student newspapers would do more to cover this issue than link to the occasional and rare NYT article.

“Wealthy corporations and organizations take advantage of the highly competitive job market, which now resembles a pack of lions fighting over the carcass of a wildebeest, and exploit the fears and ambitions of college students and recent grads to create a slave labor situation that not only betrays the foundational spirit of internships, but may also violates labor laws.” Battle to end slave-internships more important than it seems, True/Slant

This is a nice explanation for those who think that unfair internships are “voluntary”.

“The New York Times reported Saturday Oregon, California and New York are among those states where investigations have been launched.” Business News: Unpaid internships under scrutiny, UPI.com

No new reporting other than quoting “the Times said”. Their tag line: “100 years of quality journalism”…

“One of the most despicable sides to these false no-/hypolow – pay “internships” is that the colleges and universities are colluding in it. Nay, even pushing and promoting it.” Commenter on Students Said to Be Among Victims of Boom in Unpaid Internships, The Chronicle of Higher Education.

Speaking of, shouldn’t they be covering this issue more than the NYT?

“Check out the largest (and often, smallest) radio station groups. As an executive, I was told to hire new intern(s), and use them for as long as possible. I was then told to let them go, and never offer a job, asa the position would then be filled by the next intern. Totally free labor, and more money to be enjoyed by the ownership. By the way, I didn’t comply, and had to resign to maintain a measure of dignity. This policy is probably marginally legal, but highly unethical. Another of the many problems with broadcast media across the nation.” Commenter on Crackdown on Illegal Internships, from The Daily Beast

Thank God for the commenters because the Daily Beast did nothing but quote the Times. Same thing at the Huffington Post.

Now let’s see: how long will it last? Let’s hope that this week-end coverage will not be seen as the gollden age of media coverage of unfair internships, but the beginning of a movement.

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Updated, because it’s too funny.

“Which companies have unpaid internships? Well, the NY Times, for one.” Come And Get Your Unpaid NY Times Internship, Le·gal In·sur·rec·tion

Ha !

Time: Working for Free

Time magazine has an article about unfair internships with a lead about people who take them many years after they graduated. As one of the people quoted in the article said, the rules are the same regardless of age, so this blog has never paid closer attention to this phenomenon.

The article has an interesting source to measure the increase in unfair internships:

But in the Great Recession, with employment rate hovering near 10%, job-search sites like CareerBuilder and Monster.com are reporting increases in the number of postings for internships.

I had a look on Monster.com and there are about 1,000 internships available at the moment, many of which appear like normal jobs at for-profits companies. Someone is playing with fire:

Companies are often eager for the extra set of hands. Michael Schmidt, an employment attorney in New York City, has seen an uptick in recent months in private employers calling him to find out if they can bring in unpaid interns as a way to cut costs. His answer: volunteering at for-profit companies is, legally, a no-no.

At least, these companies are checking whether it’s too good to be true. Yes, it is. Some nevertheless go for the deal, despite the illegality, the unfairness, the downsides for themselves and the social damage.

Of course, there’s little incentive for employers or interns to blow the whistle, says Robert Trumble, a management professor and the director of the Virginia Labor Studies Center at Virginia Commonwealth University. Workers want experience and the connections that come along with it. (…) The perceived value of that kind of experience helps explain why there’s little organized resistance to unpaid internships in the U.S.

And what will the interns do on their own anyway? Actually, there are things that they can do. The laws need to be enforced.