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:

1. Increase the demand from workers for the wage.
2. 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.