Unpaid Internship Regulations: They Don’t Help Us

Last Friday, the New York Times highlighted a recent initiative by one of the Labor Department’s top law enforcement officials, M. Patricia Smith, to crack down on the increasing number of firms that illegally use unpaid internships for free labor.

I’m not sure who Uncle Sam is trying to protect here, but it’s definitely not me. The Dow may be creeping toward 11000 after its 6500 low in March, but the unemployment rate for 16-19 year olds remains at 26.1% and 15.8% for 20-24 year olds. So while labor markets remain tight for those who have little savings and need training, the Labor Department wants to make it harder for people our age to get experience.

The Labor Department’s crackdown is an effort to better enforce the application of its six guidelines for determining whether a worker is a “trainee” or an “employee” under the law. This classification is crucial because an “employee” is subject to the Fair Labor Standards Act (FLSA) and must be paid at federal minimum wage.

But the criteria for determining whether an employer can legally hire unpaid interns are arbitrarily restrictive. For example, the fourth criterion reads, “The employer that provides the training derives no immediate advantage from the activities of the trainees, and on occasion the employer’s operations may actually be impeded.” If firms get no immediate advantage from their unpaid interns, and the long-term payoff to firms is a function of the value of the training during the unpaid internship period and interns’ propensity to return to the firms at which they intern, then firms will have little motivation to offer unpaid internships. This is especially true if, as the guidelines say, on occasion unpaid internships hinder firm operations. Yes, you read it right. The Department of Labor wants unpaid interns to not only not immediately benefit firms but to also occasionally annoy them.

The other criteria aren’t nearly as bad as the above, but since most unpaid internships probably fail these two criterions, then unpaid interns are “employees” in the eyes of the law and are protected under FLSA.

Nevertheless, The Labor Department’s Nancy J. Leppink is serious about her crackdowns, telling the New York Times, “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.”

To be fair, I should concede some internships really abuse their unpaid interns. One N.Y.U. student told the Times that despite having hoped to work in animation, the firm instead assigned her to the facilities department to wipe clean door handles to decrease the spread of swine flu. This story isn’t unique and clearly, no one wants to do that.

But instead of letting students get their foot in the door, no matter what they have to go through to do it, the Labor Department and even some career service offices are trying to limit the opportunities that are available to students.

N.Y.U. Career Service Office director, Trudy Steinfeld told the Times, “A few famous banks have called and said, ‘We’d like to [offer unpaid internships],’ ” Ms. Steinfeld said. “I said, ‘No way. You will not list on this campus.’” Now, it’s possible that Ms. Steinfeld is worried about getting in trouble with the likes of Ms. Leppink. But I wonder whether she should be more worried about getting an earful from aspiring I. bankers for saying no to top banks for what she probably mistook to be their own good.

The Times article critically highlighted how unpaid internships are really only available to students who can afford to make little money in their off time. This is important. But burdening employers with restrictive criteria for the kinds of unpaid internships they can offer isn’t the answer.

Instead it will decrease the number of total internships available. Fewer internships means more competition for limited positions. Since internships are often awarded based on connections and not always strictly merit, a world of fewer internships would only stratify the distribution of affluent and non-affluent interns across internships, with only the well-connected able to pierce the even fiercer competition. While before less-wealthy students had the opportunity to apply for grants to pay for their unpaid internships, the Labor Department won’t have it.

It definitely makes me feel all fuzzy inside to know that people at the Labor Department believe that someone in the world should pay unpaid interns a living wage. But the Labor Department has no business telling young Americans that they cannot exchange free labor for profitable market skills, connections, and impressive resume filler vital for getting that next job.