Devon Merling
Ben Yennie became frustrated with his low-pay internship in the film industry and started his own competing business, Global Film Ventures.

Late one night last November, 26-year-old Ben Yennie got a call from his boss, who needed a last-minute task completed by morning.

As an intern, Yennie was working full-time but making less than $500 a month arranging events for independent filmmakers to learn about production and financing.

When Yennie said he couldn't finish the late-night project, his boss told him there were two choices: get it done or you’re gone. Yennie walked out the door and spent the night singing karaoke with friends, effectively ending his internship. Not long after, he started a competing company, Global Film Ventures, in the same industry. In just a few months, his San Francisco-based business has taken off.

"The internship I did — I would not be where I am without it," Yennie said, crediting the position with giving him the network and contacts to succeed on his own. "It was hard and frustrating while I was doing it, but it was very worth it."

Yennie's low-paid internship is a fixture of America's labor force — 1 million to 2 million Americans participated in an internship in 2012, according to Ross Perlin, author of "Intern Nation," and as many as half of those internships were unpaid or paid less than minimum wage.

While these positions have long been seen as a way to get experience and a foot in the door, unpaid interns rarely obtain more job offers or make more money than their counterparts who do not participate in internships, according to a new study from the National Association of Colleges and Employers (NACE).

Because the Bureau of Labor Statistics does not track internship data, it is difficult to estimate how many internships exist and what their contribution is to the work force. In 2006, Anya Kamenetzi, author of "Generation Debt," did a "quick and dirty" calculation based on the estimate from a Princeton Review report that there were 100,000 internship positions in 2005 — far fewer than the estimated number that exist today.

"Let's assume that out of those, 50,000 unpaid interns are employed full time for 12 weeks each summer at an average minimum wage of $5.15 an hour," she hypothesized. "That's a nearly $124 million yearly contribution to the welfare of corporate America." And given the growth of internships to perhaps over a million, it is likely that number is substantially higher today.

This contribution undermines the ability of entry-level employees to obtain a decent job and places downward pressure on wages, according to Perlin. "Working for free is a way of radically underbidding the competition and promoting a 'race to the bottom' — after all, why should an employer pay for something ever again once it can be had for free?"

Last month a federal judge in New York found that film company Fox Searchlight violated federal labor laws by having interns do unpaid grunt work on the 2010 film "Black Swan," which has caused some experts to question the viability of unpaid internships going forward.

A bad bargain

Internships have been on the rise in the past few decades. According to NACE, 50 percent of graduating students in 2008 held some kind of internship during college.

But not all internships are created equal. In May, NACE released a report on the outcomes of 2013 college graduates. The study found that there was a stark contrast between those who had taken paid internships and those who had interned for no pay. Of those who were paid, 63.1 percent received at least one job offer at the end of the internship. Only 37 percent of unpaid interns obtained an offer, which was slightly higher than the 35.2 percent of students who had done no internship at all.

When NACE looked at salaries, a similar pattern emerged. It found that median starting salary for graduates with paid internship experience was $51,930, far above the median $35,721 salary that those with unpaid internships were making. Those who had completed no internship at all actually fared better than the unpaid intern group, with a median starting salary of $37,087. For recent grads, taking an unpaid internship proved to have little to no value in terms of getting a good job.

And yet these unpaid internships persist. According to Perlin, the pressure for these internships is "coming from all directions: from employers by turn opportunistic, rational, and afraid of being left behind; from a bottomless supply of harried, ambitious students; and from vociferous proponents in the Academy."

But the economic consequences of the elimination of unpaid internships could be worse for young workers, according to some experts. Jeffrey Tucker at the Mises Institute, a libertarian think tank, said that unpaid internships are a way for young workers to get any opportunity in a tight labor market that might otherwise reject them. "The costs of hiring far outstrip the value of new workers to firms," he said. "During a recession, these marginal workers are avoided. There must be some solution that the market provides, if only for young people to not be completely shut out of the division of labor."

But is it legal?

In the wake of the Fox Searchlight decision that the internships violated the Fair Labor Standards Act (FLSA), many companies are re-evaluating the legality of their unpaid internship programs.

Although nonprofit and government institutions have much more leeway in the kind of work their unpaid interns can do, the FLSA restricts for-profit entities to six stringent criteria. The three key provisions are, 1., the internship experience is for the benefit of the intern; 2., the intern does not displace regular employees, but works under close supervision of existing staff; and 3., the employer that provides the training derives no immediate advantage from the activities of the intern and on occasion its operations may actually be impeded.

Although Judge William Pauley ruled in the Fox Searchlight decision that these criteria were violated when unpaid interns did work that the company would have had to hire other paid employees to do, other courts have reached different conclusions. In 2011, the Sixth Circuit rejected the FLSA test in certain circumstances as "a poor method for determining employee status in a training or educational setting." Similarly, a federal judge in the same district of New York as the Fox Searchlight case found that the six-part test was a "framework," but that the "totality of the circumstances" must apply. For a company trying to decide whether or not to take on unpaid interns, it is difficult to find clarity in these differing legal directives.

An uncertain path forward

Since the Fox Searchlight decision, former unpaid and low-paid interns have brought lawsuits against Condé Nast, The New Yorker, Gawker and Warner Music Group. Recently, NBC, Viacom and other media firms have shifted from unpaid to paid internships. Given the shaky legal and economic landscape of unpaid internships, it is uncertain what the future holds for these positions at for-profit institutions.

Ben Yennie doesn’t think unpaid internships in the film industry are likely to change anytime soon. "The thing about a creative industry is your degree means very little," he said. "It’s more about what you’ve done. There are jobs that need doing and there are people who will do them for free, and as long as that’s the case, I don’t think they’ll ever completely go away."

Yennie does, however, have advice for those considering an unpaid internship, given the reality that it may not lead to a job. "If you’re going to take an unpaid internship, do it in something you believe in, whatever that may be," he said. "Because there’s more incentive than just financial. At the very least it’s a cause you believe in. You can take that home with you."

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