Are Unpaid Internships Fair?
Yes, of course. Don't mess with free exchange.
The New York Times Magazine did an "Ethicist" column last week asking if unpaid internships were fair. The gist of it is that Ariel Kaminer, the columnist, argued that internships must be compensated unless they are "purely educational," that is, "to the exclusive benefit of the intern." Ms. Kaminer also had two significant ethical concerns: the exploitation of the unpaid interns and the unevenly-distributed benefits of unpaid internships to the wealthy.
This is one of the most common, but most economically ill-informed, views I've ever heard.
First, basic economics implies there can never be an internship to the exclusive benefit of the intern. What incentive would there be for any firm to provide such an internship? None. It doesn't and won't exist. All voluntary economic interactions are mutually beneficial (excluding market failures, and this isn't one). Any internship which can legally qualify for unpaid status must be somehow providing a benefit to the hosting firm -- either in labor, in heightened access to a labor market, or in something more concealed, like a social payoff.
Second, those internships which cannot qualify as "purely educational" should not be required to pay at minimum wage. The intern is already being compensated, probably at hourly rates well above the minimum wage, in non-monetary forms: the value of the line on the résumé, the reference contact, the experience, etc. This is what interns are demanding as compensation, as they know correctly that it gives them significant advantages in the labor market when they seek paid employment.
Third, the government interventions in the market for unpaid and low-paid internships is causing much of the problems Ms. Kaminer discusses. The regulations on work activity lead to inefficient allocations of labor -- employers cannot legally put unpaid interns to productive use. Those on compensation are a binding price control on intern wages, I believe sharply curtailing the supply of available internships. This, in turn, creates a large surplus of available intern labor, which reduces the bargaining power of the individual intern and increases the likelihood that the employer will pick their interns to increase its non-monetary benefit (for example, hiring the children of the wealthy or the politically well-connected).
This is one of the best examples for why I think we need serious reforms of the minimum wage: eliminating it. Or, as the Times put it itself in 1987, the right minimum wage is $0.00:
[T]here's a virtual consensus among economists that the minimum wage is an idea whose time has passed. Raising the minimum wage by a substantial amount would price working poor people out of the job market...[an increase] would increase employers' incentives to evade the law, expanding the underground economy. More important, it would increase unemployment: Raise the legal minimum price of labor above the productivity of the least skilled workers and fewer will be hired...hose at greatest risk from a higher minimum would be young, poor workers, who already face formidable barriers to getting and keeping jobs.Full disclosure: I was for two summers an unpaid intern for a local news website called RedBankGreen -- see my articles here -- and this summer my plans are to work for pay in a restaurant.