People respond to incentives. When governments change incentives, people respond in ways that produce unintended results. The law of unintended consequences has come to the fore recently in a discussion over the legal status of unpaid internships. If you subscribe to Arts & Letters Daily, you probably saw a link to this piece, which reviews a recent book on unpaid internships. If you can look past the style that seems to be typical of articles and reviews that view the capitalist process as a plutocratic conspiracy, you see some very important points that remind me of an article I wrote a couple of years ago.
I expect that studies of the early 21st-century labor market will show that the rise of the unpaid internship is a direct consequence of labor market rules and regulations of which the minimum wage is only the most conspicuous example. The author–former Harper’s editor Roger D. Hodge–points out that unpaid internships have replaced summer jobs for a lot of teenagers and college students because a lot of summer jobs have simply disappeared. The reason for this is pretty straightforward. Labor market regulations make teenagers and college students prohibitively expensive to hire, which means that a lot of jobs that would otherwise exist have simply disappeared. In a recent article, I discussed new research by economists William Even and David Macpherson estimating that the 2007-2009 minimum wage increases caused more job losses than the recession among young African Americans.
At first, the fact that people are willing to work for a wage of $0 seems puzzling. When you recognize that jobs offer a lot more than wages, it becomes easier to understand. One of the benefits of having a job when you are young or when you are relatively unproductive is that it allows you to learn valuable skills that can translate into higher earnings in the future. There are a lot of things you can’t learn in school that you do learn by having a job. If you can’t get a paying job that allows you to learn these skills, an unpaid internship might be a viable option.
This raises the question of equal access to opportunity. As Hodge points out, prestigious internships almost invariably go to those who are well-to-do. The children of the relatively wealthy probably have the benefit of accumulated capital that will allow them to work for a wage of $0 for a while or even to invest heavily in competing for prestigious internships. The less fortunate among us are…not so fortunate.
We say that these are “unintended consequences,” but the history of labor market regulation and minimum wages has a dark side. As Thomas C. Leonard shows in his work on the intellectual climate of the Progressive Era, the disemployment effects of minimum wages and other interventions into the labor market were seen as desirable and intended consequences rather than undesirable and unintended consequences.
Earlier this week, I read Timothy Keller’s book Generous Justice, which makes a passionate plea for action by Christians on behalf of the poor. Today, John Tomasi proposed “A Research Agenda for Bleeding Heart Libertarians.” My research and popular writing is at the intersection of these. I’ve referred to Indiana University economist Justin Ross’s characterization of economics as “the art of not killing people with your good intentions;” the link is to a post in which he offers a link to the slides from his lecture “Why We Need Economics to Make Policy: An Introduction on How Not to Kill People.” There are plenty of policies out there that are doing active damage to the poor, often (perversely) in the name of “social justice.” Getting rid of these policies is the place to start.