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Home Publications Blogs CEPR Blog Young College Graduates: Economic Implications of Unpaid Internships

Young College Graduates: Economic Implications of Unpaid Internships

Written by Will Kimball   
Wednesday, 22 May 2013 15:15

In addition to the legal and ethical concerns with unpaid internships, which I raised in a recent post, unpaid internships also pose a number of economic issues. First and foremost, unpaid internships require a substantial financial commitment from interns. Young adults participating in unpaid internships typically sacrifice time they could spend earning money at paying jobs. Even so, many interns work second jobs at night shifts to make ends meet. As many of the most desirable internships are located in cities, interns often have to endure long, costly commutes or somehow afford housing closer to the city. Some interns even paymore than $12,000 for a semester-long internship placement (includes housing costs) in cities like Washington, D.C.

Some students and recent graduates are fortunate enough to have families that can afford to subsidize these costs. For many students from modest backgrounds, however, their families cannot bankroll their living expenses as they perform unpaid work. It is not possible for these students to work unpaid internships when they need to take paying jobs in order to put themselves through school or cover their living expenses. Without internship experiences, lower-income students will be at a competitive disadvantage when applying for future jobs. In this regard, unpaid internships can reinforce socioeconomic inequalities.

Unpaid internships don't always provide the returns many interns expect. The 2011 National Association of Colleges and Employers (NACE) graduate survey (includes every organization type: for-profit, non-profit, government) found that graduates who had unpaid internships not only performed worse in job offers and starting salaries compared with those with paid internships but they also had worse prospects than those who had no internship experience at all (Eisenbrey, 2012).

The 2012 NACE survey reported that 63 percent of former paid interns got at least one job offer after graduating compared with only 41 percent for unpaid interns. Of course, the inclusion of non-profit and government internships in the numbers skew the results as they primarily increase the sample of unpaid internships. Some unpaid interns will be propelled into full-time jobs after acquiring skills or connections in their program, but it appears that many interns fall into a perpetual intern status. Moving from internship to internship, these young adults struggle to find actual full-time jobs (keep in the mind, recent graduates typically begin paying off student loans six months after graduating). Such a cycle can cause graduates to go further into debt while businesses profit from each new round of interns.

The expansion of unpaid internships also threatens the employees performing the typical duties of an intern. Given the vagueness and lax enforcement of the unpaid intern law, businesses can replace entry-level or less-skilled paid workers with unpaid interns by just maintaining a semblance of a training or educational element. Akin to a race-to-the-bottom, entry-level or less-skilled workers would have to accept lower wages in order to compete with interns who are willing to work for free. 

Finally, it is important to note that the Department of Labor’s six-part test for the legality of an unpaid internship only applies to for-profit businesses. Government and non-profit institutions are exempt and able to use unpaid interns freely. In the same way that unpaid internships in the for-profit sector can institutionalize socioeconomic disparities, unpaid internships in the non-profit or government sectors can restrict “full political participation” to those students of more wealthy backgrounds. Furthermore, assuming that non-profits and government bodies are just as likely as for-profits to replace full-time workers with unpaid interns, it is questionable to allow them to be completely exempt.

Tags: employment | internships | jobs | labor market

Comments (3)Add Comment
written by watermelonpunch, May 22, 2013 8:04
Thanks lots of info I didn't know about here.

Something I wonder about...

graduates who had unpaid internships not only performed worse in job offers and starting salaries compared with those with paid internships but they also had worse prospects than those who had no internship experience at all

I followed the link.

But I don't see any theories about why this would be.

However, I could see the job market has been shifting. It used to be that employers liked job applicants to pester them. That was the big advice, to make it clear you really want their job. Unfortunately older folks will still give that advice to people applying for jobs. But a lot of articles and interviews with hiring managers & business owners now say that's not really a good thing, because they're inundated with that these days, they tend to get ticked off if someone bothers them too much, and they view the applicant as "desperate" and therefore might have some reason to be.

They say that unpaid internships & volunteer work can "fill gaps" in resumes by making it look like "you want to work".
But I think increasingly in our culture, I could totally see a prospective employer looking at someone who worked for nothing, especially for awhile, and think "what a sap fool"... and not hire that person because they must've been so pathetic they had to work for free... and instead hire the person who had a paying job, even if it was completely unrelated... because it would show that person felt they were worth more than nothing, and therefore they might be worth more than nothing, whereas someone who's willing to work for nothing, may seem like that's all they're worth.

But this is just my armchair theory. I wonder if there's any data or opinions on this?
written by Will Kimball, May 23, 2013 10:27
It's very hard to say. I would think that when considering two otherwise identical candidates, an employer would want someone with some career-related or volunteer experience.

My intuition tells me that the number stems from selection bias in that the "most qualified" students will get paid internships while "less qualified" students are sorted to unpaid internships. Therefore, the chances of someone getting a job may be more representative of their innate skills rather than the kind of internship.

Still, it's hard to explain why unpaid interns performed worse than those without any internship experience at all (though I suspect something similar is happening there too).
written by Will Kimball, May 23, 2013 12:10
And I put "most qualified" and "less qualified" in quotations because those could just as easily reflect connections one has through their parents or friends, etc.

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