Unpaid Internship Impact on the Labor Market

Internships have long been a way for young college students to break into a particular field or for older students to take their careers in a new direction. But the dramatic increase in unpaid internships in recent decades has stirred debate about their impact on the labor force, the overall economy, and the interns themselves.

The Concept of an Internship

The internship is an evolved version of an apprenticeship. Historically, apprenticeships date back to medieval days, when an inexperienced person—the apprentice—would work for a length of time learning a trade from a master. In this early version of on-the-job training, the apprentice often lived a meager existence in the home of the master or even at the workplace. Hours were long, pay was nonexistent, and the apprentice was at the mercy of their teacher. After years of working under the master, slowly moving up the skills ladder, the apprentice would one day satisfy their obligation to the teacher and leave to ply their own trade.

An internship is based on the same concept of learning a skill or trade under the direction of a more experienced worker. However, it is more exploratory and less limiting than an apprenticeship—and far less time-consuming. Internships often last for a single summer and rarely for more than six months to a year.

Apprenticeships still exist, of course, but today, the term typically refers to programs that teach technical, blue-collar trades, while internships tend to prepare college students for professional, white-collar careers. They have even become a requirement for graduation at some institutions.

Paid vs. Unpaid Internships

Internships can be paid or unpaid, and the intern may or may not receive academic credit for their work. Even paid internships usually offer low compensation.

The laws governing internships are set at the federal level. However, some states (like California) also have their own regulations, such as requiring that interns receive college credit.

Based on court cases, the U.S. Department of Labor lists a number of criteria for determining if an unpaid internship with a for-profit employer complies with the Fair Labor Standards Act (FLSA):

1. Whether the intern and the employer clearly understand that there is no expectation of compensation
2. Whether the internship, even if it includes the actual operation of the facilities of the employer, is similar to training that would be given in an educational environment
3. Whether the internship is tied to the intern’s formal education program through integrated coursework or academic credit
4. Whether the internship corresponds to the academic calendar
5. Whether the internship is limited to the amount of time that the intern is provided beneficial learning
6. Whether the intern’s work displaces that of paid employees
7. Whether the intern and the employer understand that the intern is not entitled to a paid position at the end of the internship

If the internship doesn’t meet these tests, then the intern is considered an employee and is entitled to both the minimum wage and overtime pay, just like any other employee under the FLSA.

Note that those rules apply specifically to for-profit employers. “Unpaid internships for public sector and nonprofit charitable organizations, where the intern volunteers without expectation of compensation, are generally permissible,” the Labor Department says.

Whether the internship is paid or unpaid, the employer, the intern, and usually the academic institution all benefit in certain ways.

Benefits to Employers

Internships provide numerous benefits to employers at a very low cost. Employers can use an internship program as a recruiting tool and a way to assess which interns to consider for full-time positions after graduation.

Employers often convert interns to full-time employees seamlessly, which reduces or eliminates any training-related costs. Employees who start out as interns also are more likely to stick around than those who did not start as interns.

Interns also bring energy, perspective, and new ideas to employers. An indirect benefit to the employer is that interns keep current staff on their toes. Current employees may work harder when there is a young, eager, enthusiastic intern around with fresh ideas.

Benefits to Interns

Students benefit from internship programs by gaining valuable, real-world experience. They get an insider’s perspective on their desired career field, which can help them in deciding whether it’s a good fit. If they choose to remain in that field, then an internship will provide them with the beginnings of a professional network, which can be valuable for the rest of their careers.

An internship also gives students a head start in the job market, both with employers for whom they’ve interned and with other potential employers. Having an internship (or several) on their resume shows that they’ve had the opportunity to apply and sharpen their classroom knowledge out in the world. They also may be able to work with some types of equipment available only through an employer.

If the internship is a paying one, then it will provide them with income to help pay for college and avoid some student loan debt.

Benefits to Academic Institutions

Colleges and universities also benefit from internships, in part because their student interns tend to bring their real-world experience back to the classroom. The interaction helps keep courses relevant and curriculum up-to-date with current trends. This continual improvement provides a richer learning experience for everyone. Over time, the benefits can include:

• More competitive and employable graduates
• Increased program credibility
• Stronger bonds with alumni
• Stronger links to the connected industry

Internships also can improve graduation rates and make the institution more attractive to prospective students. As high school seniors and parents compare schools, they often will give extra points to programs with a proven track record of converting graduates into employees.

If internships are integrated with the college curriculum, then there also is a financial benefit to the institution, since it collects tuition for semesters when students are away on their internships. And finally, providing a pipeline of capable interns to employers also can help in the school’s corporate fundraising efforts.

Best Practices for Internships

For an internship to be legitimate, according to the National Association of Colleges and Employers (NACE):

1. The experience must be an extension of the classroom: a learning experience that provides for applying the knowledge gained in the classroom. It must not be simply to advance the operations of the employer or be the work that a regular employee would routinely perform.
2. The skills or knowledge learned must be transferable to other employment settings.
3. The experience has a defined beginning and end, and a job description with desired qualifications.
4. There are clearly defined learning objectives/goals related to the professional goals of the student’s academic coursework. 
5. There is supervision by a professional with expertise and educational and/or professional background in the field of the experience.
6. There is routine feedback by the experienced supervisor.  
7. There are resources, equipment, and facilities provided by the host employer that support learning objectives/goals.

Are Unpaid Internships Unethical?

In recent years, unpaid internships have experienced exponential growth. So have questions about the ethical issues surrounding them. In particular, do some companies simply use their internships as a source of free labor, cycling through interns without any intention of ever hiring them on a full-time basis? Moreover, are free interns displacing existing full-time workers and increasing unemployment overall? And do unpaid internships reinforce racial inequalities in the workforce?

For those and other reasons, some students consider it unethical and/or immoral to accept an unpaid internship, and some academic institutions do not support them.

Unpaid internships can exacerbate socioeconomic and racial inequality since they close off opportunities to applicants who don’t come from affluent families and can’t afford to work for free. The racial wealth gap means that Black and Latinx families may be disproportionately unable to subsidize their child’s living and college expenses in order for them to take an unpaid internship. With internships being a gatekeeper to jobs in many industries, that affects not only the careers of those students but also can mean that higher positions in companies will become increasingly less diverse.

Furthermore, research has indicated that unpaid internships are often less effective in providing students with the benefits that internships are supposed to deliver.

For example, a 2016 study from the National Association of Colleges and Employers reported that “unpaid internship participation was negatively correlated to student salary and employment outcomes.” Paid internships also were judged to be “significant to professional skill development,” while unpaid internships were not. Unpaid internships did, however, prove slightly more useful in helping students with “confirming or rejecting career interests.”

Unpaid internships also can have a negative impact on the labor market, particularly in times of recession. When jobs are scarce, students may flock to unpaid internships in hopes of transitioning to full-time paid work. That increased supply of free labor can displace full-time workers and increase unemployment, further contributing to the weak economy.

The displacement of paid workers by free ones also can reduce tax revenues, affecting local, state, and federal budgets.

The Bottom Line

Unpaid internships can be of benefit to employers, students, and academic institutions—though not necessarily as much as paid internships. They can, however, have a negative impact on the labor market and overall economy if employers use them as a cheap replacement for paid full-time workers.