Thursday, March 31, 2011

The Unintended Economic Consequences of Paid Internships

I had a great conversation yesterday with a friend about internships.  Actually, it was a terrible conversation.  Mostly texts back and forth over a ten minute period, but the subject was interesting.  He argued that unpaid internships are a way rich people keep poor students poor.  In many cases you can’t get a paid job without doing a free internship first.  Let’s generalize that not all students with paid jobs are poor, but that all poor students need paid jobs.  If there is a poor student and a rich student, the rich student is going to inherently have the advantage for the future paid “career” job because they had the means with which to work for free beforehand.  An opportunity the poor student could not afford.  If the poor student takes on two jobs (one non-career paid job, one unpaid career-oriented internship) then his work is going to suffer relative to the rich intern, and reflect in future job offers out of the internship.

Makes sense as a theory.  I just don’t think it applies in practice.  If there was a mandate for all internships to be paid, there would be unintended consequences affecting the overall market, not just applicants looking for an entry level position.  Counter intuitively, free internships actually help those that can economically afford them the least while a paid internship will adversely affect them.

Let me agree that the system right now with unpaid internships is NOT fair.  All of my friend’s earlier points regarding this are correct.  However, the systemic problems for this occur well before college internships and need to re-balance at a much earlier stage of education than college internship in order to make a real difference.  So how do we account for correcting this in internship programs?  Unfortunately, the poor student is going to have to work harder for the same result.  Most people I know (myself included) that did unpaid career internships in college also worked part-time at a paying gig.  Cal Convenience Store/UC Berkeley Library desk attendants stand up!  I was able to start my career position two weeks after graduation solely because of my prior unpaid one.  The data point of one is always a dangerous thing to go off of, but most of the interns that I have worked with in my career also had similar success after graduating and the vast percentage had paying part-time jobs as well as school work.  I don’t know why, but we always seemed to recruit Red Lobster employees.  Again, let’s assume that not all Red Lobster student workers are poor, but that all poor students would need to work at a paying job (in this case Red Lobster).   The unpaid internship is treated like vocational school for white collar workers.  No different than a class you would take at University, only more applicable.  No different than going to trade school to learn about engines, except instead of paying tuition for it, you pay in the opportunity cost of not being able to work more at your paying job.

In theory, a mandate for paid internships works because it takes the above scenario and relieves the additional force of Red Lobster for which only one of the two students has to account.  However, the reality is that if companies were forced to pay all of their interns, then it would eliminate the majority of internships.  This happened to one organization with which I was associated.  We went from 4 summer interns to 0 when we switched to mandated pay.  With fewer internships, the spots will go to the students that are the most polished and can help immediately.  This is generally going to favor students who come from affluent backgrounds.  Poor students will still have to get the job at Red Lobster.  The only difference is that they won’t have the training for what they want in a career when they graduate.  Currently, organizations that can hire multiple free interns take more chances on potential since the fate of a project doesn’t rest on the short-term competency of one person.  The same cycle exists, except with fewer paid internships, the poor student finds himself at graduation even further behind than he would in the current system.

Another unintentional consequence is that small businesses will be hurt because they will stretch the employees they already have to do work that had previously been done by interns, while big corporations will be  the only ones able to pay interns.  This will create a competitive advantage for corporations over small businesses that already suffer from great economies of scale deficiencies.  This in turn exacerbates the income gap since small firm owners will be squeezed out of the market.

Basically in a world with unpaid internships poor students are at a great disadvantage, but it is not insurmountable.   Who is hurt the most are students that don’t want to get a career internship in college, regardless of socio-economic background.  From my experience, these are mostly rich and upper middle class students more likely to play during college and not want career track jobs right out of high school.  They are incentivized to freeze the student market for as long as possible.  This leads more into a cultural question about when people become adults and so on.  If I can prolong my childhood through college, then I want a paid internship afterward since my parents/financial aid are no longer going to help out.  If I am forced to think about my career at 18,  like most lower income students have to, then I want as much opportunity to gain experience, regardless of whether it is a second tier internship that leads to a better one next year, or a class that is more practical than fun.  In a world with mandated paid internships, small business can’t compete as well, and the rich students are given an even greater advantage since they are going to be the best candidates for the narrowed internship opportunities.

Distracting background media consumed while typing:  Twin Shadow, Foster the People, Diamond Rings

Next subject: The Real Lesson of ’79: Why Egypt’s Recent Revolution Should Be Embraced by All Fox News Viewers… regardless of their fear of Muslims

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