Why We Shouldn’t Outlaw ‘Unpaid’ Internships

For a new college graduate, finding a job is stressful. That first job is more than a paycheck. The job represents the accumulation of hours of hard work and a start on a stable future. In a job market dominated by resumes, connections and previous work experience, college students will often turn to internships, paid and unpaid, to gain a competitive edge.

While paid internships are usually seen as similar to other jobs, unpaid internships have come under increased scrutiny. Critics contend that since employers know students are desperate for experience, employers can abuse their interns with long hours and poor work conditions, all without compensation.

Two interns who worked on the film “Black Swan” recently sued their former employer, with one claiming that unpaid internships “rob ... people of the value of their labor.”

In light of such concerns, some perhaps well-intentioned critics want unpaid internships outlawed. But there is nothing exploitative about unpaid internships.

The charge that companies exploit unpaid interns is false and misleading. They do receive benefits. Economics teaches us that people engage in exchanges only when each party expects to come out ahead. Unpaid internships are no different. No one forces anyone to take an internship, so students must expect to gain even if unpaid. How so? They expect to learn on the job.

Prohibiting unpaid internships is a bad idea for many reasons. It would make the competition for paid internships skyrocket. An estimated 500,000 to 1 million unpaid interns are employed annually, and there wouldn’t be enough paid internships to go around if unpaid internships were abolished. Many companies may not be able to afford the added expense and wouldn’t hire interns at all. This means many students would miss out on the opportunity to gain work experience.

Moreover, banning unpaid internships may generate or exacerbate racial and other discrimination. With so many people competing for a few paid positions, companies could afford to be extremely particular when choosing whom to hire. While most companies would still want the best person for the job, banning unpaid internships would make it much easier for companies to indulge their prejudices.

Other factors would become more important in hiring as well. As opposed to hiring the candidates most likely to succeed, companies might favor interns with good connections, most likely with parents who have such connections.

A ban would also lower the wages of paid interns. A simple example illustrates why. If a company had one unpaid intern and one paid intern, and unpaid internships became illegal, the company would face two options. It could dismiss the unpaid intern and keep the paid intern at the current rate, or split the wage between the two. Most likely a company would split the wage, since it would still need the services of both. The paid intern, anxious for work experience, would gladly take the pay cut if it meant gaining one of the few internships available.

Another problem with outlawing unpaid internships is that such a mandate would not stop people from pursuing such arrangements under the table, just as prohibiting drugs produces black markets. Parents have reportedly paid for their children’s “unpaid” internships. Banning unpaid internships outright would likely increase these transactions.

Just because a law is put in place does not mean people will comply, especially since the arrangement would benefit both parties. It is, however, likely to make conditions for truly unpaid interns worse. An illegal unpaid intern would likely not report mistreatment by an employer because the accuser might face repercussions. Outlawing unpaid internships would actually make it easier for companies to exploit young people!

While those who deem unpaid internships immoral and exploitative may be well-intentioned, they fail to understand basic economics. Interns expect to benefit significantly from their experiences even if unpaid — or they wouldn’t take the positions. And if unpaid internships were eliminated, paid internships would be more difficult to find, would pay less than at present, and would have worse working conditions.

We should think carefully before taking such a valuable learning tool away from students.

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Federal lawmakers query colleges on endowments

Federal lawmakers are asking the nation’s richest colleges and universities for details about their multibillion-dollar endowments, which have continued to grow even as tuitions increase, and the schools’ benefit from tax breaks because of their “charitable and educational” missions.

Harvard University, which has the world’s largest endowment at $36 billion, and 13 other schools in New England were among those on the list of 56 private institutions with endowments of $1 billion or more that received requests for information last week from the chairmen of two congressional committees.
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“Despite these large and growing endowments, many colleges and universities have raised tuition far in excess of inflation,” said the letter, which was signed by the chairmen of the Senate Finance and House Ways and Means committees.

“As Congress moves forward with efforts to reform the tax code, it is prudent we gather as much information as possible about how preferences in the tax code are applied,” Senator Orrin Hatch, the Utah Republican who chairs the Senate committee, added in a statement.

Lawmakers have raised such concerns before as ballooning endowments have coincided with rising tuitions and student debt.
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US colleges raise record amounts

Harvard University’s money-raising prowess was exceeded only by Stanford University, which raised $1.63 billion, the most ever reported.

College officials defended their massive savings, saying that endowments are designed not only to help pay for current operations — including student financial aid, faculty salaries, and research — but are also meant to generate income that helps to fund their operations.

“The way colleges manage endowments and make financial decisions over time has proven to be very responsible,” said Richard Doherty, president of the Association of Independent Colleges and Universities in Massachusetts.

He said it would be dangerous if lawmakers were to try to force colleges to spend more of their savings.

“There’s not a need for a legislative fix,” he said. “We’ve got a pretty good formula working, a lot of it driven by private dollars, and I think it would be unwise to tinker with that.”

Harvard president Drew Faust recently wrote in a column in Harvard Magazine that endowments are intended to have “vigorous immortality.”

College administrators also say that large chunks of college endowments can be spent only on certain programs because of restrictions set by donors.

The lawmakers’ letter asked 13 endowment-related questions, and requested answers by April 1.

Separately, US Representative Tom Reed, a New York Republican, last month proposed requiring that colleges with endowments of $1 billion or more either spend about 25 percent of their annual endowment income on financial aid or forfeit their tax-exempt status.

The richest colleges have faced criticism for having an inordinate share of the wealth in higher education.

The combined value of the top 1 percent of college and university endowments represents about 72 percent of all higher education endowment dollars nationwide, according to an analysis of fiscal 2014 data from 7,687 schools nationwide collected by the US Department of Education.

“Many universities are overly focused on endowment at the expense of other worthwhile investments,” said Brian Galle, a Georgetown University law professor who has studied college endowments.

Congress should be asking questions “to gently pressure universities to consider their policies with more of an eye to the general social good,” Galle said in an e-mail

New England institutions are some of the wealthiest in the country.

Second to Harvard on the list of colleges targeted by legislators is Yale, which has a $25.6 billion endowment. MIT ranked fifth with an endowment of about $13.5 billion.

Harvard spokesman Jeff Neal said in a statement that the university’s response to legislators will provide “clarity on the strong financial management practices governing the endowment and the positive impact it has for students, faculty, researchers and society.”

Harvard’s Faust said in her column that people who donate want their money to “have an effect on both the present and the future, supporting activities and driving progress forever.”

Officials at Yale and MIT declined to comment.

The legislators identified the colleges targeted in their inquiry by reviewing data published annually by the National Association of College and University Business Officers. Colleges must disclose certain financial details because of their non-profit status and requirements set by the US Department of Education.

The association’s research “showed endowments had an average return on investment of 15.5 percent and an average payout rate of 4.4 percent during the 2014 fiscal year,” the letter from legislators said.

The lawmakers’ list was based on data for fiscal 2014, which ended in June 2014. However, two weeks ago, the college organization released data about endowment figures as of the close of fiscal 2015, which ended June 30.

The new data showed that all college endowments had an average return on investment of 2.4 percent and an average spending rate of 4.2 percent during fiscal 2015.

John Walda, president and chief executive of the group, said in a statement last week that he believes the colleges’ responses to the lawmakers’ letter “will demonstrate the prudent practices through which higher-education institutions manage their endowments.”

“The fact that schools have been able to raise their endowment dollars as state support has diminished and financial markets have turned turbulent is a testament to the endowment managers and others on campus who are doing all they can to meet the needs of students and faculty,” Walda said.

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UK: End limits on faith free schools, says charity

Faith groups should have no barriers to open more free schools, an influential charity has said.

The New Schools Network (NSN), a charity which helps establish new free schools, says the rules for free schools limiting the number of places allocated on grounds of religion should be scrapped. Catholic free schools have not been able to open based on this rule.

Nick Timothy, NSN director, argued the limits are preventing "high-calibre school providers" from opening up.

According to current rules, if a faith group wanted to set up a free school it could only give priority to applicants on the grounds of religion for 50 per cent of its places.

The NSN argues this has been a barrier to faith groups who might want to open free schools, with fewer than a fifth of free schools currently having a link to a religious group, lower than the state sector average.

The charity, which is partly funded by the Department for Education, says that these limited number of faith free schools are the most oversubscribed in the primary school sector.

But the New Schools Network, a key supporter of the government's free school expansion programme, says there is "significant untapped potential" among current school providers.

The charity singled out Catholic schools. It argued that more than 85 per cent of children in those schools in the state sector "are in good or outstanding schools, compared to 80 per cent in all schools".

Catholic schools also have a higher proportion of ethnic minority pupils than average, according to the charity.

Paul Barber, director of the Catholic Education Service said: “We remain open to the idea of Free Schools, but are currently unable to engage with this flagship programme due to the cap on faith-based admissions.

"The cap prevents the Church meeting demands from Catholic parents for Catholic places and could cause schools to turn Catholic families away on the grounds that they are Catholics. To do so contravenes not only Canon Law but also common sense.”

A DfE spokesman said: "The requirement for all oversubscribed faith free schools to make at least 50 per cent of their places available to those of another or no faith helps to tackle segregation and ensures young people will experience the diversity of religious beliefs that make up modern Britain."

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