Benjamin Studebaker

These days, many young people find that the competition for entry level jobs is very fierce—so much so that to get a job, you need to already have job experience. But if you need job experience to get the job in the first place, how do you go about meeting this requirement? Increasingly, young people are finding that unpaid internships are the only solution. 60% of employers prefer to hire people who have completed internships. As a result, 55% of college seniors report having worked as interns, more than double the figure from the early 1990’s. More than one million Americans work as interns every year, and about half of those are unpaid. That’s at least 500,000 unpaid interns. If each of those interns worked 40 hours a week for 12 weeks at a minimum wage job, each one would earn $3,480. That’s almost $2 billion combined, and a lot of the work that unpaid interns do is worth more than the minimum wage. What’s going on here?

Employers love unpaid internships. Instead of hiring someone at an entry level wage, they can get desperate young people to do the work for free. For individual businesses and firms, this is a great deal. But for society as a whole, unpaid internships create lots of problems.

People have to do internships because entry level jobs are scarce, and they need to distinguish themselves from the herd. But why are entry level jobs so scare in the first place? By creating unpaid internships, employers are able to reduce the number of entry level positions. This forces young people to compete harder for the remaining jobs, forcing them to bolster their CVs by taking unpaid internships, further reducing the number of available paid positions, and so on in a vicious cycle.

And when you do at long last manage to acquire one of those coveted paid positions, unpaid internships weaken your negotiating position with your employer. Young people are forced to take on debt during school and their internships, making them desperate for any kind of work at any wage. Additionally, employers are able to lowball new hires because they can credibly threaten to get interns instead. Together, these forces put new workers on a lower earnings trajectory, permanently reducing their lifetime earnings.

This all sounds great for the employers—they’re able to raise worker productivity by paying less for the same amount of work. But this is happening all throughout our society, in many different fields and to millions of people. Nationwide, unpaid internships are weakening the negotiation position of workers and harming wage growth for the entire working population. In the United States, inflation-adjusted wages have been stagnant for nearly 40 years, and while internships are not the only cause of this by any means, they certainly contribute:

In our economy, our workers are also our consumers. If we pay most people less, most people will have less money to spend. Less spending means reduced sales, which means slower economic growth and lower living standards for everyone. Our society continues to try to make up for the lack of wage growth by lending workers money at low interest rates—credit cards, student loans, mortgages, and so on. But without wage increases, it’s hard for workers to repay these debts, leading to bubbles, loan defaults, and economic instability. In the long-run, this is bad for both employers and workers. It’s a no-win situation.

When our parents and grandparents were getting their first jobs, it wasn’t like this. Internships were rare, so job seekers could compete for entry level jobs on the strength of their college educations alone. Instead of pushing the cost of training onto young people and their families, burdening them with heavy debts, employers paid to train their own workers.

There are two strategies the government can pursue here:

1. Criminalization–we  can legally require that interns be paid and pass rigorous enforcement legislation.
2. Unionization–we can create new unions and empower ones to protect their members from unpaid internships and the financial consequences that stem from them.

Let’s discuss each in turn.

Criminalization

A short time ago, I had the good fortune to attend an academic workshop on the issue of “wage theft”. Arguably, many unpaid internships are already a form of wage theft–it is difficult to prove that unpaid internships meet all of the existing law’s exemption criteria (you can look at that criteria yourself at this link here if you are concerned that you or someone you know is a victim of wage theft). That said, I see no reason why these exemptions should exist in the first place. The government can and should close these loopholes and prosecute employers who decline to pay their interns the same way they prosecute other forms of wage theft (e.g. not allowing workers to clock in, underpaying workers, etc.). Additionally, the paper presented in the workshop (which has not been published but which was very well-received by the attending academics) presented a compelling argument that the government can significantly reduce the incidence of wage theft by severely punishing employers who engage in it. The most effective law currently in use in some US states is a law requiring wage thieves to pay their employees treble damages. By criminalizing unpaid internships and rigorously enforcing wage theft laws, we can ensure that there’s no longer a financial difference between hiring workers and hiring interns. This forces firms to create more entry level jobs, making it easier for young people to find work and negotiate competitive starting salaries. In the long-run, this empowers workers to spend more, improving employers’ bottom lines too.

Unionization

It may be difficult to get the government to pass the necessary legislation to criminalize unpaid internships. Alternatively, students can cooperate with workers to create and join unions. Unions can collectively bargain with employers to ensure that interns and entry level workers receive sufficient compensation, partially achieving the same outcome.  It’s no coincidence that wage stagnation has coincided with a reduction in union membership, especially among young people:

This needs to be reversed. The government can help by protecting union rights, and schools and universities should educate young people about the benefits of union membership. We need to encourage young students and workers to be aware of their extant legal rights and to exercise them when necessary, not just for their own good, but for the good of the economy as a whole–even for the very employers attempting to low ball them.

Note:

As you may be able to tell by the slightly more conversational, normatively charged vibe of this post, this one is part of the Polished Politics series on YouTube. Here’s the accompanying YouTube video:

This is the second entry in the Polished Politics series. The first was “Why You Should Get a Raise“.