Unpaid Internships Aren't Just Immoral - They Hurt Your Business

business

I have long been morally opposed to unpaid internships. People should be paid for their work, period. But, I argue that unpaid internships hurt businesses that don’t even use them as well.

The Department of Labor has very clear-cut rules on unpaid interns. 1 Rules 3 and 4 are too often violated - unpaid interns are displacing employees or providing an immediate advantage to their employer, for free.

The rule here is fairly simple: If an employer benefits immediately from the work of an intern or uses them to displace an employee, the intern must be paid. This rule is as clear cut as rules can be. And I think that it is a clear moral issue: if you believe that labor has value, you should support these rules.

But unpaid internships have negative impacts beyond just depriving a junior employee of income. So long as there are some bad employers who don’t pay their interns around, good employers who do will be hurt.

Unpaid Internships Hurt Income Polarization and Diversity

Unpaid internships aren’t an option for young workers without support for living expenses. As such, they act as a filter: does your family have a high income? If so, here’s some work experience. If not, too bad! 2

Later, good employers in the same industry are presented with a options between already-advantaged candidates with more experience, and less-advantaged candidates with less experience. The good employer must make an active effort to correct for this filter. If they just hire the most experienced candidate, they will end up hiring the advantaged candidates first.

This exacerbates income polarization by giving jobs to the already advantaged. And, if family income and any diversity metric are correlated3, it will will reduce the good employer’s workforce diversity.

All that is required for this to happen is for the bad employer to exist and the good employer to not make a heroic effort to correct for the actions of their competitors4.

Unpaid Internships can Drive Up Low-Experienced Labor Costs

Or at least, they might. I don’t think that there is a way to settle this argument without a fairly complex empirical study, but consider this argument.

Some of the ‘bad employers’ who aren’t paying the interns they should be paying can’t pay the interns they are hiring. These employers are implicitly compensating their interns in other ways - “resume lines” 5, fun activities, training. If these employers were removed from the market, it would increase the supply of low-experience workers in the market, as those interns seek other opportunities - paid ones. As supply of very low-experience workers increases, it should decrease the total cost of hiring those workers, unless their total cost is already floored by the minimum wage.

I suspect that in many instances, the market-clearing hourly pay of these otherwise-unpaid interns is below the federal minimum wage. But the total cost to the employer might not be. If interns are placing a high value on the experience - on things like the catered lunches, computers, and cachet of working for a cool company that are so commonly used as compensation in the technology industry - then the total cost of compensating them may be far higher than the hourly minimum wage.

Increasing the supply of paid low-experience interns can still decrease their total cost to employers.

Unpaid internships are bad for your business

Even if they occur at other companies. They provide filters you likely will forget to correct for, reducing diversity and exacerbating income polarization. And if you’re not working at a cool startup, they might increase your labor costs. Don’t abide them.


  1. US Department of Labor

  2. This is not an original argument, but I cannot remember who first introduced it to me.

  3. They are.

  4. There is an argument that unpaid internships are better than negative-pay grad school, which may replace them; I am sympathetic but it is out of scope here.

  5. Anyone have a bid-ask spread on a resume line?

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