Limiting Unpaid Internships: One Unintended Consequence
6th July 2013
David Henderson, a Real Economist, points out how busybodies trying to make things better often make things worse.
Let’s say that people like Derek Thompson get their way and that offering unpaid internships becomes legally very risky. What happens next? One big advantage of a free market is that it brings together people who are strangers. So, for example, a major business can offer an unpaid internship to someone who has no connection with the firm. But if the business fears getting sued later, it will be much more hesitant to offer that internship. In what situation would the business be at less risk? When it offers an unpaid internship to someone that the firm’s owners or managers know, someone in their social circle. Why? Imagine that I offer an internship to the daughter of a good friend of mine. If the daughter accepts, then I am not as fearful that she will sue later. I know something about her ethics from knowing her father. And even if she is inclined to sue, her father will, because of our friendship, be likely to talk her out of it. So the ironic unintended consequence is that making unpaid internships legally risky gives the person who has social connections to the business an added advantage in the competition for an unpaid internship. If it’s the case that the people offering unpaid internships tend to be higher-income and that the people they’re connected with tend to be higher-income–as I think it is–then making unpaid internships legally risky will help exacerbate the very problem that Derek Thompson and others have with unpaid internships.