Friday, February 5, 2010

Unpaid Internships: The New Sweatshop? (and we are not talking emerging markets)

Sweatshop paints an ugly picture, so let's start with what we are not writing about – an airless room in an emerging market country filled with seamstresses making subsistence wages, or less. We are not writing about students who are working for college credit (and in many cases wages too) as interns in a supervised educational program, like the co-op program pioneered by Northeastern University. We are talking about an office in a fun, creative glamorous business like publishing, entertainment or fashion; an office in a city like New York, San Francisco or Boston - in other words, the kind of office in which a lot of college students and recent grads would like to work so much that they are willing to work for free.

Consider a basic point, – employers don't get an exemption from minimum wage laws just by calling an employee an intern. Federal law does include a minimum wage exception for trainees and The US Dept. of Labor uses a six part test to distinguish between trainees and employees.

Most of today's expanding crop of unpaid internships fail at least one of the six tests – because the interns are regularly doing actual work, and a lot of it, for the benefit of the employer, not primarily learning. If you have any doubt about this, check the job boards for internships in any creative field. The skills required to even land one of these internships qualify the intern to handle a lot more than closely supervised photocopying. While the larger companies and NGOs, the ones that actually check with a lawyer once in a while, are often careful, the entrepreneurs sometimes go to town with an office full of unpaid interns who produce much of the regular work, maybe not all that different, in theory, from that emerging market sweatshop.

So what. Illegal doesn't always equal immoral or unsustainable. The interns are bright people who generally understand what they are getting. The on-the job-learning and the credential building are real, even if the hope of a paid position down the line might be exaggerated at times. Many of the employers are start-ups working on a shoe string who could not hire a single extra paid employee at minimum wage if they had to scrap the unpaid internships. Some employers might not even have a sustainable business without free intern labor. The basic theory of supply and demand suggests that any minimum wage retards job creation at the entry level and the Chicago School economists regularly advise emerging market countries against adopting minimum wages. Maybe slack minimum wage law enforcement during a recession is better than the kind of vigorous enforcement that would send these interns home to sit on the couch and drive their parents crazy.

Or maybe not; slack minimum wage law enforcement has some problems. First, some employers could and would create minimum wage jobs if they could not get free labor from interns. Second, only the reasonably well off interns can count on family support while they work for free. As the unpaid internship becomes a prerequisite to a creative career, doors close for the less fortunate. In an extreme case, companies have been known to auction unpaid internships off to the highest bidder with proceeds going to charity. Third, and most problematic, the unpaid internship seems to be spreading – presenting a slippery slope for minimum wage enforcement just in time for the Winter Olympics. The unpaid Summer internship morphed into the just graduated four or six or twelve month internship. The use of free labor also seem to be creeping out from the creative businesses. (Although we can stop banker bashing for one column. Investment banks still pay their interns more than minimum wage -before you ask, the banking interns do not make millions). Will the tide of unpaid internships ebb when the recession ends, or is this trend here to stay unless law enforcement tightens up?

If slack enforcement still sounds good to you, consider – wouldn't it be better to change the minimum wage law to something you would want to enforce? Maybe create some additional minimum wage exceptions for low revenue employers in creative fields who would clearly hire no one if they lost their unpaid interns? Possibly limit the number of free interns in relation to the size of the employer to make sure there were enough trainers to actually teach the trainees, not just exploit them. Maybe even limit hours for unpaid interns to part-time, so the intern who can't afford not to work can hold down a paying job too. What would you do: Abolish the minimum wage altogether; Enforce the minimum wage and effectively abolish the unpaid internship that produces serious work product for the employer; or, Change minimum wage laws to accommodate more legally unpaid interns, while addressing some of the problems this creates. Let me know, here or at Justmeans.

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