I did not think my last post would generate such lively discussion – so I propose we refocus and delve deeper into one particular economic aspect of the conversation that I think is critical. While this informal case study I offer is by no means exhaustive, I hope it will be informative to readers interested in arts labor market economics. Having said that, it is rather long for a blog post, so I hope you will all bear with me or bookmark for later.
In discussing whether the proposed legislation of setting a maximum duration/minimum wage for arts internships makes economic sense (in that it achieves its intended effects), we should first review the effects of setting price floors and determine if, indeed, there is an economic benefit to imposing a maximum duration/minimum wage for internships.
According to the economic laws of supply and demand, setting a price floor for wages above the equilibrium wage, ceteris paribus, will do two things:
- Increase the demand from workers for the wage.
- Decrease the supply of the jobs offering the wage. (Hubbard and O’Brien, 2006)
Looking at each of these points individually, we can see that imposing legislation requiring arts organizations to pay interns a minimum wage after a certain period of time would likely result in more interns wanting those higher-paid jobs (point 1), as well as a decreased ability for organizations to offer the jobs due to the impact on their budgets (point 2). As a result, the increase of interns supplied will cause net higher unemployment in the arts, not less. However, it does not seem this is a point of concern for those in favor of the legislation so we will not address it here. Instead, I suggest we focus on the net effect on the poor, since that is what seems to be a main point of contention.
Now, it is likely that point 1 will not be considered significant or negative by those supporting the legislation – as they may consider an increase in potential interns a benefit (perhaps due to the externality of arts appreciation, etc). However, a closer look at the effect can be seen as detrimental in particular to the poor (who the legislation is ostensibly attempting to help obtain gainful employment), due to the fact that flooding the market with additional supply of workers will result in even stiffer competition, with those winning the even better paid positions being those who already have more experience (who we seem to agree are more likely to be those already better off or able to afford the unpaid internships).
As we’ve already agreed thus far, poorer interns are unlikely to have such experience, and as a result they are even less likely to win the paid internships than when they were unpaid. This is because an organization offering work for free is likely to be more discriminating about their intern choice once the same position is offered for pay and can have a positive or negative effect (however small) on their bottom line. Furthermore, we are not talking about hiring relatively unskilled labor where the difference in prior experience is largely irrelevant, such as janitorial services or working in a fast food restaurant. We are talking about serving the needs of arts organizations, which would seek to hire interns with basic proficiency in computer skills, verbal and written communication, and some prior education in the arts for a paid position.
As already noted in the comments, volunteers are more likely to fill unskilled positions like ushering, stuffing envelopes, or posting signage for events, for example. There is no reason to believe organizations offering new paid positions are going to seek less qualified interns to fill them. So, the effect of the legislation will be to price poorer/inexperienced potential interns out of the market altogether, effectively eliminating the bottom rung of the ladder as it were, leaving them with less opportunity to advance their arts careers, not more. Therefore, the effects of the legislation will actually harm those it is purporting to help and simply help more experienced interns get better jobs – which is not in and of itself negative on an absolute basis – but it is certainly not achieving the intended effects of the legislation.
Point 2 is likely to be explained away as it was in an earlier comment as to have a negligible change on the finances of a larger arts organization. This may be true, but it may also not be true – we cannot know without additional information and review of the finances of arts organizations, which are often far more sensitive to changes in allocation of capital due to the volatile nature of their business, so it would stand to reason that imposing additional financial burdens (however small) would affect them on a more than negligible basis*. Furthermore, the point is not only to address the finances of larger arts organizations as they are not the only ones affected by the legislation, but all arts organizations that offer internships, which no doubt span small to large in size of operations.
However, even if we accept a high likelihood of larger organizations being able to afford paid interns (and even if we neglect to perform financial feasibility studies to determine the marginal revenue product of labor – which is clearly more important when paying employees than when letting them work for free), the replacement rate of paid jobs for the previously unpaid jobs is unlikely to be 100%, otherwise there would be no need for legislation and interns would already be paid (that is, if we accept the premise an equilibrium wage rate can and should be found). So, otherwise, under force of legislation would the paid job replacement rate be 90%, 50%, or 10%? Again, we cannot know without additional information.
But even if we accept a generous 90% rate of ability to pay interns providing the same amount and duration of internships (i.e. opportunity) by larger organizations after legislation is imposed, we can then anticipate that rate will decrease in some proportion (more or less) in relation to the decrease in size of an organization’s operations and their particular financial situation. We can probably also agree smaller organization’s finances are likely to be even more volatile than large ones, have less expendable income, and rely more heavily on both volunteers and unpaid interns. As a result, this legislation is likely to more than proportionately negatively affect the operations of smaller arts organizations because it is well-known that small arts organizations struggle more than their larger counterparts to win both private and public dollars. The likely result of forcing them to pay their interns will be less ability to offer positions than their larger counterparts and may require downsizing their operations and offerings, again due to their heavier reliance on volunteers and interns.
It can be seen that the result of the legislation in economic terms is a net loss of opportunity offered by all arts organizations and made available to all arts interns, affecting smaller organizations and poorer interns more than larger organizations and well-off interns**. While economics cannot determine with finality which decisions should be made, it allows the conversation to then inform the philosophical arguments of whether or not more or less opportunity in the arts is beneficial and whether offering more or less opportunity to the poor is good or bad. Clearly those in support of the legislation are not concerned with the net loss of opportunity and are misguided in thinking the poor would be the primary beneficiaries of what positive results (possibly more paid positions) are obtained.
Another correct point mentioned above is that this type of legislation is administratively and logistically laborious to police and punish, if not near impossible. This is another point against it, since the addition of government employees needed to monitor the exploitative behavior will probably not be made due to low priority (since the type of so-called exploitation is hardly as serious as other criminal activity that is far more prevalent and detrimental than the supposed horrors of lengthy unpaid internships in the arts) or monitoring will be unsuccessful due to the ease of participants finding loopholes.
So in reality, this may be glamour legislation that can do little to stop the unwanted and promote the intended behaviors, but may win legislators some votes come election time because it sounds like a nice thing to do according to those who have imperfect information regarding economics. I can only hope what is more likely is that its net effect on actual finances/interns in practice is very small. I imagine there are/will be more “volunteer” opportunities in the arts than “internships” and that hopefully they look just as good on these poor struggling student’s resumes.
* A highly-contested study, Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania (Card and Krueger, 1995) on price floors in labor markets have offered some evidence that the net effect of price floors in the fast food industry has negligible effects in terms of decreasing the supply of labor (and by extension wages set at a minimum) and output of businesses in that industry. However, these studies are not the final word on price floors, and even if they were, they cannot provide us significant insight into the arts industry’s labor market – which is vastly different than the fast food industry whose price elasticity of demand (for labor) is relatively inelastic (meaning when the price/cost of labor increases, there will be little impact on amount supplied to workers), whereas the price elasticity of demand in arts markets is arguably more elastic (meaning when the price/cost of labor increases, there would be more impact). This analysis is only theoretical at this point, and would require further study to determine with finality.
** Which proves my original quick analysis of the legislation was faulty! Since the title of the original post was “Let’s Level the Playing Field by Making Everyone Worse Off” and I have determined that not everyone would be worse off, only the poor would be worse off, I think this has been a valuable exercise.
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Tags: Arts, Economics, Fiscal Viability in the Arts, Labor, Minimum wage, Politics
Hi Milena,
Thanks for continuing this important discussion, and I am glad that you have refocused it on the question of what will happen with the enforcement of a minimum wage rather than jumping straight to what ought to happen.
It should be no surprise to you that I disagree with your conclusions. Before I present my case, though, I want to ask you a question. The “well-documented economic literature” on price floors that you mention, is it based on empirical observation or primarily on theory? It’s hard to know since you don’t cite your sources, but the sense that I get from your writing is that the one instance of empirical analysis that you refer to, the study(ies?) on the fast food industry, actually undercuts one of the central pillars of your thesis (i.e., that firms will higher significantly less if the minimum wage rises). We can all play the theory game – you say the demand for labor in the arts is less elastic (because…?), I say arts organizations, being nonprofits, are likely to be more sensitive to the spirit, not just the letter, of the law than fast food giants and will therefore hire back at higher rates. Neither of our opinions means a hill of beans until someone goes out and tests it.
You say that even if large organizations hire most of their previously unpaid interns, smaller arts organizations will hire at lower rates. Your logic here is fair enough, but I would daresay that an organization that honestly cannot afford to pay an intern minimum wage is most likely an organization incapable of providing a valuable internship experience from a career-building standpoint, especially after taking into account the opportunity cost of the intern’s time. Training, oversight, and professional development require capacity, and if an organization can’t even afford a few hundred bucks a month for the actual work it’s probably going to be too overstressed and understaffed to provide these resources anyway. (Of course, someone may still find the work of intrinsic value, in which case a volunteer relationship would be entirely appropriate.)
So I don’t disagree with you that a minimum wage will result in fewer internships, though I continue to hold that the impact will be much less than you expect it will be. However, the internships that remain will be higher-value on average for the interns, both because they will all be paid and also because they will be at organizations that have the capacity to use intern labor effectively.
(You might rightly point out that this system punishes smaller organizations that could really use an extra set of hands. I’d agree both that that will happen and that that is a bad thing. However, I am not as concerned with this as I believe there are other ways to address the imbalance, such as through more equitable distribution of grant funds.)
You additionally claim that the legislation would actually make things worse for the poor because of the increased competition. Here your argument defies credulity. Your entire analysis rests upon the flawed assumption that organizations hire interns based on experience. But see, the whole point of internships is to get experience; many employers will even go so far as to avoid candidates they see as “overqualified” because they are afraid the candidate will leave for a better opportunity earlier than scheduled. Absent work experience, then, the hiring decision is based primarily on ability – and as I discussed in the previous thread, ability is distributed across all classes. (Even if firms did hire on experience, though, your argument still doesn’t make sense – you’re saying that because poor interns are more likely to win unpaid internships which they couldn’t afford to accept anyway, they’re better off now than they would be if they had a nonzero chance at some paid internships that were not previously available? Huh? The point was that poor people are less likely even to apply for unpaid internships — putting those 20-40 hours a week to other, income-earning use is a better option for them.)
Anyway, if the legislation were enacted, talented but poor aspiring arts administrators and others will choose to pursue internships that they otherwise could not have afforded. The organizations hiring will have a stronger pool of candidates to choose from, simply by virtue of the fact that it is larger. Some of those hired may be upper class, some of those may be poorer, but the choice will not be predetermined by class, which as I read it is the goal of the legislation. (This is without even mentioning that many organizations have diversity directives to hire individuals from socioeconomically disadvantaged backgrounds, a directive honored much more easily if the internship is paid.) At any rate, the poor will not be excluded from the opportunity as they effectively are now. The only poor individuals who may be made worse off by this change are those at the fringe: low-ability individuals who would be left out because of the marginally fewer internships available. So in that sense, yes, some poor people will be worse off—but their being made worse off is incidental to their socioeconomic class, not because of it as you claim.
Finally, you’ve overlooked one of the key benefits of the legislation, which is the benefit to the hiring organizations. By accessing a larger pool of talent driven by higher demand, including a previously unavailable well of poorer individuals who would not otherwise have been on the market, the interns they hire will be of higher quality.
In sum, though I agree the legislation would not be an unmitigated boon to everyone, I do think that it would increase opportunity for the poor without presenting an untenable burden for the large majority of current employers.
Sorry…
“you say the demand for labor in the arts is less elastic”
Meant to write “more elastic.”
Also, “you’re saying that because poor interns are more likely to win unpaid internships which they couldn’t afford to accept anyway,” obviously should read “poor individuals” instead of “poor interns.”
@Ian –
Thanks for your comments and I have included citations in the original post.
While time does not permit me to attend to the bulk of your reply, I will answer the one question you indicated was a stumbling block for you, “The “well-documented economic literature” on price floors that you mention, is it based on empirical observation or primarily on theory?”
I assumed readers familiar with economics would know I was providing the textbook definition and effects of price floors. By invoking ceteris paribus (all other things held constant), I also thought it would be clear I meant theoretical effects of price floors in a static world. Hope that answers your question.
[...] would say so. As I argued in my recent post, subsidizing an otherwise already desirable activity means you will get more people wanting to do [...]
[...] they deal with money and ethics. This type of conventional wisdom was expounded by arts advocate Ian David Moss on this very blog during a conversation about the likelihood of arts organizations following [...]
I’m very late to this party, so if anybody is still around and interested…
I work in a large classical music nonprofit org in a large city, in the finance department. And I have an MBA that included a very strong grounding in economic theory, from a school that demands rigorous empirical testing of theory (despite a reputation to the contrary). At my arts org, we have lots of unpaid interns, and the current situation is that it is nearly impossible to get a programming or artistic job, even entry level, without starting as an unpaid intern. We could probably afford to pay a couple interns, but not as many as we have (I’m the budget guy, I know this).
The person who might benefit from this legislation would be a person like I was when I graduated from college. Someone with pre-existing clerical skills, a degree in theater, therefore knowledge of the art, and heaping mounds of student loan debt. I was situationally poor then, and ended up going into temp office work that bored me to tears, which led to an accounting job and eventually an MBA and back into arts administration in the finance side rather than the creative side. So I’m not exactly fulfilled, and would have appreciated a minimum wage internship in the artistic or dramaturgy department of a theater, but I will survive. And I was forced to develop other skills that are potentially more lucrative than my current job.
The person who would not as likely be helped is the person who is systemically poor. Somebody who is poor because of urban blight, rural blight, or racism and had little chance to go to college (or at least a good one). No music education, therefore no internship at my organization (paid or unpaid). Going farther back, the person who is systemically poor had very few opportunities to study music intensely as a child, and it probably won’t be a surprise when I say that most of our administrators did. If you never studied music as a child, you certainly didn’t major in music if you got to college.
So, who is the legislation supposed to help? I hope it would be intended to help the systemically poor person. But the thing is, it can’t. If you want to increase access for the systemically poor, then you have to work on systemic issues. You have to help improve their arts education, their parents’ involvement, their access to top college programs… This minimum wage floor isn’t going to help. It’s too little, too late. Maybe a few extraordinary people from such a background would be helped, but you can’t set policy for the extraordinary. And if the legislature is actually designed to help people like me who left college with too much debt to pursue the unpaid internship… well, I guess I could have said thank you. But in the end, there is probably more utility to society in my learning other skills.
There is one possibility, hinted at in one of Mr. Moss’ comments, that organizations would see paid internships as an opportunity to fill their diversity hiring goals. That could be. And you only have to be a tiny bit cynical to perceive that if you use your lowest paid, least responsible positions as a relief valve for institutional diversity goals, you are actually doing a great disservice to yourself, your diversity goals, and the people you bring in as your token diverse individuals. Assuming race is one diversity vector here, this actually would reinforce institutional inferiority of people of color. There’s a negative externality for you.
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