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.


7 Responses to WSJ: Getting Economics Wrong

  1. Aaron says:

    Interns ARE interchangeable because they have no practical skills. Young emplyees have no bargaining power for exactly this reason. These days there are pools of thousands of people with the same skill sets applying for a small number of jobs. Grade inflation, over supply of college grads (in large part due to easy credit), and general unemployment are the real culprits here. Making “some” non paying internships illegal simply makes the labor market much worse for college grads.

    • Jennifer says:

      You say that interns AND young employees are interchangeable to a company because they have no practical skills.

      Personally, I find it interesting that you compared the two. Employees, who get paid a minimum wage, and interns, who do not. This goes to the heart of the issue, which, for me, is “what makes a position an internship instead of a paid position?”.

  2. exintern says:

    Thanks for engaging.

    If interns have no practical skills, why are they hired by companies then? Charity?

  3. KC Truby says:

    The unintended consequences of forcing business owners to pay Interns, less interns. Fewer college kids will get a chance to experience real world life. New regulations will do more harm then good.

    • exintern says:

      It is not unintended.

      If you eliminate all internships (not my goal, but still), “college kids” will still enter the job market at some point.

  4. KC Truby says:

    The logic of your reply escapes me. If you are an intern and are in San Diego looking for an entry into marketing. We are a well established business with several thousand customers and 65 ‘at home’ staff working on a virtual platform. I need 8 hot dog go getters this summer. No pay, but I will give you the lap top and 22″ 2nd screen at the end of 10 weeks. 4 hours a day, on the beach, take the PM and go surfing if you like.

    • exintern says:

      To simplify further my response: college kids will experience the “real world life” when they enter the job market and are paid for their work.

      Also, feel free to recruit on this website. I’d be curious to see if you would get the kind of employee that is more likely to report you if your employment practices run afoul of the law.

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