With Labor Department rules preventing companies from offering unpaid internships, many employers, including publisher Condé Nast, are ending the apprenticeship-like programs.
But with high youth unemployment and declining labor-force participation, young people need internships for work experience. Are we doing young people favors by protecting them from so-called exploitation as unpaid internships and depriving them of professional experience?
Take Sammy, for instance. Sammy’s name is not real but his story is. He’s a philosophy major at one of America’s top universities who plays the guitar and violin, composes and has his own band; he wants a career in the music business. Sammy was overjoyed when, after submitting a dozen applications, he was offered an unpaid internship with a major record company in New York City. But the company said he had to receive academic credit from his university for the internship.
Sammy’s university, like many others, does not grant credit for summer internships. His dean offered to write to the record company, saying the school supported the internship. That didn’t fly with the record company. If Sammy receives course credit for the internship, he is technically a student in a classroom and the record company is exempt from Labor Department rules.
The record company suggested that Sammy enroll in community college for the summer because that would give him course credit. Sammy would have to pay to enroll in college to get the internship, money that he does not have. So he is left playing his violin on the streets of New York and studying recording techniques on his computer.
What a waste. And how unnecessary. How did we get to this?
Over the past four years, the Labor Department has been making it harder for young people to get unpaid internships at for-profit private-sector institutions. New regulations were issued in 2010, and companies such as Fox Searchlight have been sued for violations.
Paying Sammy minimum wage for two months would cost the record company $2,735, including workers’ compensation and Social Security payroll taxes. Many companies cannot afford to pay for what is in essence a training program.
The Labor Department’s six criteria for an internship in a for-profit business are:
• The internship has to be “similar to training which would be given in an educational environment.”
• “The internship experience is for the benefit of the intern.”
• “The intern does not displace regular employees.”
• “The employer derives no immediate advantage from the activities of the intern.”
• The intern is not entitled to a permanent job at the end of the internship.
• The employer and the intern understand that the internship is unpaid.
Those regulations are unworkable, leading companies either to pay or to ask for course credit to avoid lawsuits. Why should interns have similar training to classroom training? Sammy and others want internships for practical experience that they cannot get on campus. What if the students benefit from internships at the beginning of the summer, and then get bored? Must they quit? What if they gain skills during the summer so that by August they benefit the employer?
Of course, like many rules, the government has exempted itself and its supporters. These rules apply only to the “for-profit” sector. Unpaid internships at the White House, Capitol Hill, the AFL-CIO, community organizers and environmental groups are fine. But watch out for anyone such as Sammy who tries to intern for a record company.
When the regulations were issued, the Labor Department admitted that it will discriminate against business in their enforcement. On April 2, 2010, Nancy J. Leppink, the deputy administrator of the Wage and Hour Division at the time, was quoted in The New York Times as saying: “If you’re a for-profit employer or you want to pursue an internship with a for-profit employer, there aren’t going to be many circumstances where you can have an internship and not be paid and still be in compliance with the law.”
A new study shows that the ban on unpaid internships harms job prospects. Economics professors John Nunley and Adam Pugh at the University of Wisconsin-La Crosse, Nicholas Romero of the University of Pennsylvania and Richard Seals of Auburn University in Alabama created 9,400 fake resumes and sent them to employers in the fields of banking, finance, insurance, management, marketing and sales. They found that internships have a greater effect on hiring than academic major. A student is more likely to get a job in banking if he interned at a bank than if he majored in a related field, such as finance. That is because the employer sees the internship as a measure of interest and experience.
Auburn University’s Seals told The Wall Street Journal: “There is a huge return, even years later, to internships.” That is why young people compete to get them rather than taking time off.
Young people who want to spend their summers as unpaid interns at businesses should be praised, not punished. They realize that they have something to learn. The Labor Department should revamp its rules to give students the same right to intern in the for-profit sector as they do to work for the AFL-CIO. And, if anyone knows of an unpaid internship for Sammy in a recording studio, let me know, because summer is ticking by.
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Diana Furchtgott-Roth, former chief economist of the U.S. Department of Labor, directs Economics21 at the Manhattan Institute.
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