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Bryan Caplan asks:

1. If the minimum wage is a good idea, shouldn't unpaid internships be illegal as well? If not, why not?

2. Name the main arguments in favor of the legality of unpaid internships. Aren't all of them equally good arguments for allowing people to work for wages greater than zero and less than the minimum wage?

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PeakTrader said...

The question should be:

Should univeral minimum labor standards be set for employers and be met by employees?

If the minimum wage is set at $10, shouldn't employees meet that standard with at least $10 worth of work?

Unpaid internships are unfair. Some people can afford to work for nothing, but others can't.

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PeakTrader said...

The Dangers of an Unpaid Internship

A 2007 student at Colgate University, Will Batson, worked a full-time internship at WNBC, whose parent company General Electric has a net worth of $200 billion.

Batson spent his summer on couches and floors, was “constantly short on cash,” always fearing that he would have to quit because of these facts.

However, since Batson was receiving college credit for the internship, he didn’t receive any monetary help from college or company.

One-third to half of interns will not be paid, according to the Intern Bridge research firm.

While internships have increasingly become the norm for many college’s graduation requirements, labor law activists agree that changes need to be made that will make access fair to all students and force traditional college, online colleges and employers to rethink their definition of unpaid internships – perhaps provide reasonable living stipends.

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Walt G. said...

PeakTrader,

Someone at the college is supposed to be writing the internship agreement, see the agreement is signed by all parties, and hold everyone accountable to fulfilling the agreement. If students are paid, the college loses control of the learning outcomes of the internship.

If the internship is not meeting its learning/teaching outcomes, something is wrong and needs to be changed, but that does not necessarily mean the program should be ended.

The reasonable living stipend is usually some type of existing student aid at the college.

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PeakTrader said...

Walt says: "The reasonable living stipend is usually some type of existing student aid at the college."

Are you saying students who take internships get more financial aid than students who don't?

What about a student working full-time (above the minimum wage) and attending school full-time?

When he takes a full-time internship over the summer either for no money or paid between zero and the minimum wage, will he be compensated for the difference?

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Walt G. said...

No, PeakTrader. I am saying you have to declare any money you get paid from any source to federal and state programs that students are receiving money from to attend college (there are a ton of these). That money can be taken away from any financial aid received, so it can be a wash.

We had a student disqualfied from TRA/TAA? this spring for accepting a Christmas bonus from his internship sponsor (these are not employers according to the Fair Labor Standards Act (FLSA)). He tried to give it back when he found out it would cause a problem, but it will be fall before it is straightened out so he can come back to college after using a lot of administrative resources from the college.

I don't know all the rules. I sign attendance and performance papers from at least 6 different federal and state training programs. Everyone's case is different. We just started a bachelor's degree in the program for fall 2011, and I have a contract to administer that, so I am afraid I will be learning a lot about federal and state training programs. I'll add my input like I usually do where and when I can

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James said...

I have no doubt that the minimum wages hurts more people than it helps. I also doubt that the macroeconomic harm is significant. The absence of a minimum wage would increase GDP but not by much. How much different is the minimum wage from the market clearing wage?

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PeakTrader said...

James says: "I have no doubt that the minimum wages hurts more people than it helps."

It's uncertain if the minimum wage "hurts more people than it helps.":

"Survey of labor economists...split exactly 50-50 when asked if the minimum wage should be increased.

The different policy views were not related to views on whether raising the minimum wage would reduce teen employment (the median economist said there would be a reduction of 1%), but on value differences such as income redistribution (e.g. from profits to wages)."

It may help the macroeconomy. I stated before:

A rise in the minimum wage has little or no effect on employment (e.g. from labor economists and empirical models).

However, if it has a negative effect, the laid-off workers would receive unemployment benefits, while the employed workers receive higher wages.

So, raising the minimum wage would have a stimulative effect on economic growth.

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PeakTrader said...

"2. Name the main arguments in favor of the legality of unpaid internships. Aren't all of them equally good arguments for allowing people to work for wages greater than zero and less than the minimum wage?"

1. Employers can hire more people when they can pay them little or nothing.

2. Working for almost nothing is better than starving.

3. Employers can add even more profit to their lofty profit levels.

4. Workers can live with their parents or share apartments with other low paid workers.

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Buddy R Pacifico said...

I am encouraging my kids to take internships at best of breed firms. There is a lot to be learned at real life business settings. It would be better to ask a lot of questions, observe and not have the pressure of job performance with pay. The non-paid intern interval has to be shorter, but the purview can be much broader then the paid slot.

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PeakTrader said...

Buddy, yes, it could be more in the form of field trips to various types of businesses.

Field trip: "a visit (as to a factory, farm, or museum) made (as by students and a teacher) for purposes of firsthand observation."

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Ron H. said...

"Unpaid internships are unfair. Some people can afford to work for nothing, but others can't."

Higher education is unfair. Some people can afford it, but others can't.

Ferrari is unfair. Some people can afford them, but others can't.

Life is unfair...

You should be aware that people working in "unpaid" internships ARE, in fact, being paid, just not with dollars. Many consider it more valuable than their formal schooling, for which THEY have to pay.

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Ron H. said...

"1. Employers can hire more people when they can pay them little or nothing."

This is a good way to reduce unemployment, no?

"2. Working for almost nothing is better than starving."

No argument here, although that's a hypothetical, as "starving" doesn't actually happen in this country anymore..

"3. Employers can add even more profit to their lofty profit levels."

Here we disagree. You assume that interns provide more value to employers than the other way around.

If you have ever trained a new-hire, you can understand that there is a period of learning that often costs the company much more that the new-hire produces. And, they are paid wages on top of that!

"4. Workers can live with their parents or share apartments with other low paid workers."

If they don't have the necessary skills to be productive, then yes. When they have acquired more valuable skills they will be paid more, and can afford to live independently.

Many are able to begin successful careers or businesses in this way, as they don't have the notion that the world owes them something.

I would encourage you to read the story of F. W. Woolworth who left the mind and body destroying drudgery of farm life at 15 to seek his fortunes in the city. He worked for a period of time for no pay in exchange for an introduction to the retail business. He was so grateful to the man who had given him this opportunity, he later hired him as a high level manager in his successful retail business.

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Andrew_M_Garland said...

A wage is only an easily observable transfer during employment, among other transfers and unstated benefits. So, measuring wages is inexact and possibly misleading.

Colleges place students in unpaid internships as part of work-study programs. The companies pay nothing, and students even pay the school for the opportunity. Clearly the students are receiving more than nothing in this process. Part of their compensation is the knowledge and experience they get at the company.

Absent a minimum wage law, people might work for "nothing" directly for an employer. Of course, they would be receiving training of value greater than or equal to the wage they could receive at some other company. They would be implicitly paying the company for that training, without a college as the middleman.

So, life is complex, dependent on individual preferences and situations, and very hard to measure. It is arrogant to step into the business relations between people (absent force or fraud) and tell them that they can't make the arrangement they want. Instead, parts of the arrangement have to suit some ideological requirement.

Is it unfair to give internships to the people who can pay a school, or survive without an income? That is like saying it is unfair to pay for receiving knowledge and experience.

Liberals say "I can measure your cash wage, so I am going to place restrictions on that wage, so that I can assure myself that you are either getting a 'fair' deal (as I see it, in the abstract) or no deal at all." That is unreasonable and throws the least productive people out of work, such as teenagers and people of low experience/ability.

Minimum wage legislation did not arise from a noble effort to help the poor. Senator and future President John F. Kennedy of Massachusetts spoke at a Senate hearing for the minimum wage: "Having on the market a rather large source of cheap labor [hundreds of thousands of black workers] depresses wages outside of that group, the wages of the white worker who has to compete."

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Ron H. said...

"However, if it has a negative effect, the laid-off workers would receive unemployment benefits, while the employed workers receive higher wages.

So, raising the minimum wage would have a stimulative effect on economic growth."

So, let me make sure I understand this: Reducing total production by causing worker layoffs, but then paying MORE in total wages and unemployment benefits, is considered economic growth?

The mind boggles.

How is paying people to not work an improvement over paying them to work?

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Walt G. said...

Peaktrader #3

Students are not supposed to add value to the sponsor during an unpaid internship. That's why they are legally not paid. If a sponsor wants to be an employer they need to hire an employee or they are violating the FLSA. All parties are supposed to follow the written internship agreement. The instructor who gives credit has to have a witten report from both parties before credit is given for the course (usually a log and a report).

These programs are monitored by state and local agencies and college accreditation agencies.

Minimum wages laws for employees and student education and training courses such as internships are not the same thing legally or functionally.

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Buddy R Pacifico said...

Peak Trader's response to pushing my kids on internships:

"Buddy, yes, it could be more in the form of field trips to various types of businesses."

No, not field trips Peak Trader. Actually working and being involved with projects. This is a great opportunity be part of the process that brings success to an enterprise. Then, you have participated, learned and started networking for a professional career.

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PeakTrader said...

Ron, yes, life is unfair. Without higher education entitlements, many students wouldn't be in school.

And not everyone can afford to work only for college credits, knowledge, or experience.

Demand can increase from higher wages and more unemployment compensation. The country has a demand problem.

Corporate America is hoarding $2 trillion in cash and some people seem to believe paying workers nothing is in the employees or country's best interest.

Interns can also add value to firms, which will make it fair for students who can't afford to work or be trained for free.

Field trips to various types of businesses can provide more knowledge, opportunities, and flexibility for students, to make better individual choices.

When an employer believes a student is interested in the work or a project, why not hire him at minimum wage, as an investment?

Why should the student pay the business for investing in himself?

Also, many interns are paid below the minimum wage and they add value to firms.

It's possible, at some firms, below minimum wage internships allow them to stay in business.

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Ron H. said...

"Why should the student pay the business for investing in himself?"

Why should the student pay the school for investing in himself?

You imply that on the job training, as in an internship, has no value to the student.

As I've said, training an intern may actually have a cost to an employer rather than a benefit. Hasn't anyone ever provided you with any skills or training without paying you at the same time? Those who won't go to work to learn new skills unless they are paid for it, are likely in the best job they will ever have.

Would you like fries with that?

"Ron, yes, life is unfair. Without higher education entitlements, many students wouldn't be in school.

And not everyone can afford to work only for college credits, knowledge, or experience."

What is your point?

"Also, many interns are paid below the minimum wage and they add value to firms."

Reference please. And, not just opinions, but data.

Internships seem like an excellent way for both interns and employers to evaluate each other for possible future employment.

"Demand can increase from higher wages and more unemployment compensation. The country has a demand problem."

This is Keynesian nonsense.

"Corporate America is hoarding $2 trillion in cash and some people seem to believe paying workers nothing is in the employees or country's best interest."

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PeakTrader said...

Ron, if someone can't afford school, he can't pay for it without assistance.

It seems, you want to exclude all poor Americans, e.g. the bottom third, because they can't afford to pay for or compete for skills.

I've never said job training has no value, and most interns aren't worthless at work.

The facts remain.

1. Unpaid internships are great for some students, but unacceptable for other students.

2. Unpaid internships do not have a stimulative effect on the economy.

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Ron H. said...

Peak,

Peak, if someone can't afford a ferrari, he can't pay for it without assistance.

It seems, you want to exclude all poor Americans, e.g. the bottom third, because they can't afford to pay for or compete for a Ferrari.

Is there any reason to believe that people are entitled to higher education?

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juandos said...

"A rise in the minimum wage has little or no effect on employment (e.g. from labor economists and empirical models)"...

Hmmm, I think it depends on which kind of economist is asked...

Obviously a Keynesian economist will have a different point of view of one who doesn't buy into the Keynesian philosophy...

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PeakTrader said...

Juandos, sometimes theories don't work, because each economic period is different.

One theory is prices will fall to spur demand.

However, take a look at new home sales, new auto sales, or the goods market in general.

Prices have not fallen enough to spur demand enough.

The economy needs tax cuts or wage hikes to stimulate demand.

Also, I may add, FDR didn't lose because of the minimum wage:

"From 1933 to 1937, the United States economy expanded more than 40 percent, even surpassing its 1929 high. But the recovery was still not durable enough to survive Roosevelt’s spending cuts and new Social Security tax. In 1938, the economy shrank 3.4 percent, and unemployment spiked."

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