Sunday, May 29, 2011

Two Great Questions from Bryan Caplan

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?

38 Comments:

At 5/29/2011 9:50 AM, Blogger KipEsquire said...

Um, unpaid internships ARE illegal.

https://www.nytimes.com/2010/04/03/business/03intern.html

Just saying...

 
At 5/29/2011 10:01 AM, Blogger 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?

 
At 5/29/2011 10:04 AM, Blogger PeakTrader said...

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

 
At 5/29/2011 10:13 AM, Blogger Walt G. said...

To answer question 1:

The program I work in has a 120-hour unpaid internship requirement. Many of the students in the program are in financially-supported programs, and they would lose that support if they were paid, so essentially, even after figuring in the hassle of the required paperwork for a short four- to six-week program, they would not be getting paid because their support could be reduced by the amount of the pay or they could be disqualified from the program.

We have a requirement that students document what they learn from written student learning outcomes and sponsors support that process, so students and employers are not supposed to be in an employee-employer relationship. We would never allow people in the cooking program to peel potatoes all day or in the construction industry to dig holes all day.

We have paid co-op programs where students get paid to work in their chosen field as employees, and that program allows employers to treat students as employees in job assignments. After all, the employers are paying them, so they get to call the shots. If the program does not like how they operate, they are removed from the program. Many students end up working at the places where they served their internships and co-op experiences. It’s a good deal all the way around.

PeakTrader: This is not work. It is considered structured learning outside the classroom--big, big difference in the dynamics.

I'll let someone else take a stab at answering question 2.

 
At 5/29/2011 10:23 AM, Blogger 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.

 
At 5/29/2011 10:33 AM, Blogger 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.

 
At 5/29/2011 10:37 AM, Blogger 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?

 
At 5/29/2011 10:48 AM, Blogger PeakTrader said...

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?

 
At 5/29/2011 10:58 AM, Blogger 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 :-)

 
At 5/29/2011 11:27 AM, Blogger 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?

The Republican Party missed a once in a lifetime opportunity to demonstrate that a minimum wage was unnecessary. While they were in charge they prevented a minimum wage increase long enough that the market clearing wage should have become higher then the minimum. That did not happen because they looked the other way when employers hired illegal aliens and backed guest worker programs. Those actions kept the market wage below the minimum. Welfare subsidies for employers free trade for American workers.

 
At 5/29/2011 11:53 AM, Blogger 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.

 
At 5/29/2011 11:58 AM, Blogger Scott A. Robinson said...

1. The premise is wrong. Wage floors are not a good idea. There is correlating evidence that shows minimum wage actually costs jobs (tiny.cc/minwage).

2. An internship can be a practical learning experience rather than a work experience. Most good employers offer paid internships anyway. If you whine that it is not fair that some internships are not paid, then do not accept and unpaid internship.

 
At 5/29/2011 12:29 PM, Blogger 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.

 
At 5/29/2011 12:38 PM, Blogger 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.

 
At 5/29/2011 1:10 PM, Blogger 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."

 
At 5/29/2011 1:22 PM, Blogger 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.

 
At 5/29/2011 3:04 PM, Blogger 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.

 
At 5/29/2011 3:08 PM, Blogger 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."

Minimum Wage Prosperity: Using the Minimum Wage to Hamper Your Rivals

 
At 5/29/2011 3:13 PM, Blogger 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?

 
At 5/29/2011 3:28 PM, Blogger Ron H. said...

Peak

If I were a better writer, I might have written what Andrew M. Garland wrote. It says pretty much everything that needs to be said about minimum wage. If you haven't read it, I encourage you to do so.

 
At 5/29/2011 5:25 PM, Blogger 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.

 
At 5/29/2011 5:46 PM, Blogger 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. Th

 
At 5/29/2011 6:59 PM, Blogger 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?

 
At 5/29/2011 7:15 PM, Blogger PeakTrader said...

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.

 
At 5/29/2011 7:59 PM, Blogger 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."

Whose money is it?

 
At 5/29/2011 8:40 PM, Blogger 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.

 
At 5/30/2011 1:07 AM, Blogger PeakTrader said...

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.

 
At 5/30/2011 3:04 AM, Blogger 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?

 
At 5/30/2011 7:22 AM, Blogger Geek Vader said...

It's really more of a status thing. Unpaid internships go to smart kids - smart enough that they're capable of making an informed decision about whether they're being exploited or not.

But most people are mouth-breathing morons, unable to realize when they're being exploited, and their betters must step in and ensure that they are protected from themselves.

Thus, the minimum wage.

 
At 5/30/2011 8:27 AM, Blogger Walt G. said...

I am still surprised that many people here are trying to compare unpaid student internships to employee paid work at any wage (including Bryan Caplan). They are simply not comparable because they have a different scope and opposite objectives.

Employees are supposed to add value to a specific employer and internships are supposed to add value to the student and strengthen the general industry by providing it trained employees in the future. Here's more copied from the college catalog where I work.

If a co-op position is paid and an internship is not, why would I want to do an internship?

All Work Experience positions should be evaluated by the same two criteria:

1. What experience will I receive from this position?

2. What contacts can I make for future employment?

These two points should be considered primary to wages. Other points to consider are:

1. Some employers offer more guidance with interns because they understand that students are volunteering their time to gain hands-on knowledge. In a co-op position, they are paying you and often expect you to be productive with far less direction.

2. You can complete an internship in as little as three weeks; a co-op commitment is 10 weeks. This could allow you to complete an internship during a break between quarters, which may be more convenient for you.

3. If you are receiving any type of financial support that may be jeopardized by your acceptance of a paid position, you will avoid those problems with an internship.

 
At 5/30/2011 12:35 PM, Blogger 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...

PT you might possibly find this bit of history interesting: Minimum Wage Causes Maximum Pain

By DR. BURTON W. FOLSOM | June 1, 1998

Sixty years ago on June 25, 1938, President Franklin Roosevelt signed into law America’s first minimum wage: 25 cents an hour, rising to 40 cents an hour over the next seven years, which is equivalent to almost $5.00 in 1998 dollars. Today, many increases later, Senator Ted Kennedy of Massachusetts is pushing for yet another hike in the minimum wage. Now is a good time to reexamine the origins of this important law and its impact on the job market.

Once the original bill was passed, many economists and politicians predicted that more workers would be thrown out of work and that the Great Depression—already in its ninth year—would get worse. That’s exactly what happened and during the fall elections, Roosevelt lost an astonishing 80 House seats to the Republicans.

It turns out that Ted Kennedy’s Massachusetts is where the impetus for the minimum wage actually began. The working poor struggling to eke out a living were not the driving force behind the 1938 law. New England’s highly paid textile workers were...

There's a bit more...

 
At 5/30/2011 4:36 PM, Blogger 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.

 
At 5/30/2011 5:01 PM, Blogger PeakTrader said...

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."

 
At 5/31/2011 3:18 AM, Blogger Ian Random said...

I have a good job, but I'd gladly sweep floors, clean workspaces or do grunt work for a car customizer or a motorcycle shop for free. I have a degree in electronics and a basic mechanical understanding. I just want to observe how the professionals do stuff. I know in theory how stuff works, but removing a modern dash without breaking stuff even with the car manual and correct tools is hard.

 
At 5/31/2011 3:34 AM, Blogger PeakTrader said...

Ian, why don't you hire someone?

 
At 5/31/2011 7:42 AM, Blogger Bruce Stram said...

stop

 
At 5/31/2011 12:40 PM, Blogger juandos said...

"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 conditions you've stated PT are true enough in and of themselves...

I've noted the price in pick-ups for instance and they're rather decent for the types of vehicles I've been eyeballing...

I don't think merely having price cuts, tax cuts, and wage hikes alone won't do it...

The U6 unemployment rate has doubled since 2000...

I can't help but wonder if this rate has more impact than meets the eye?

From today's LA Times: Consumer Confidential: Confidence drops, food prices to soar, teens get smart

 
At 5/31/2011 2:31 PM, Blogger Ron H. said...

"From today's LA Times: Consumer Confidential: Confidence drops, food prices to soar, teens get smart

Wow! That IS good news. If that Schwab survey is correct, maybe recessions aren't such a bad thing afterall.

 

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