While in the US more unpaid interns are filing lawsuits against their employers seeking compensation for their work, the unregulated unpaid intern economy is thriving in other parts of the world. Many companies are marketing their unpaid internships as if it was a once-in-a-lifetime opportunity. They use a lot of marketing clichés such as The internship is unpaid, but we can promise you X. In many cases, unpaid internships actually mean a lot of qualified work without prospect of getting hired afterwards. Although the Institute on Education and the Economy at Columbia University’s Teachers College has found that the overall quality of unpaid internships is much worse than of paid ones, there are still a lot of people willing to take them. Many of them are unaware of the irony behind them.
1. Unpaid internships are both an outcome and a cause of recession. A tough economic situation disbalances the labour market: there are more job seekers than vacancies. Many companies take advantage of labour oversupply: they replace entry-level vacancies with unpaid internships. For many job seekers, it is still a better alternative than having no job at all so they take them hoping that their good performance will eventually lead to full-time paid positions. However, this is not what many companies have on their agendas: they seek to develop an intern rotation scheme to cut costs. In some cases, the recruitment takes an extreme form: full-time workers are replaced by unpaid interns. In the end, more people end up unemployed.
2. Unpaid interns get hired as often as non-interns. A 2013 student survey by the US National Association of Colleges and Employers (NACE) showed that 63.1% of former paid interns were offered at least one job, while only 37% of former unpaid interns got one or more offers. The unpaid interns were more successful in getting an offer than their colleagues with no internship experience by only 1.8 percentage points. According to a 2013 NACE presentation on intern employment, the hiring rates of unpaid interns and non-interns were similar across these majors: Business Administration, Engineering, English and Political Science. The graduates of Psychology and Accounting who completed unpaid internships had a better chance of getting hired by about 23 and 10 percentage points respectively. Only in the case of Communications, the situation was reversed: the non-intern graduates were more likely to get a job by about 12 percentage points.
3. Unpaid internships can push wages up but with negative consequences. If there are too many unpaid interns, some companies face the challenge of filling some vacancies. In order to attract applicants, they decide to offer a competitive salary. However, higher wage rates only benefit a small number of skilled workers. In many cases, they are lured away from competitors. The situation of unpaid interns does not change much: most of them continue working for free. Paradoxically, higher wage rates can actually discourage some employers from hiring: Why should they hire if they can easily get uncompensated workers? Some of them even decide to terminate some contracts of their old staff to further reduce costs.
4. Unpaid internships cause social exclusion. Interns need to afford to work for free. They need to have enough savings or a family who can support them financially. Some of them decide to take an extra unqualified job, but, in most cases, it is still not enough to cover all their living expenses. “Unpaid internships create a pay-to-play system […]. This ultimately exacerbates social inequality because key professions get filled up with people from privileged backgrounds,” claims Ross Perlin, an author of Intern Nation. Many people from low-income families are excluded from the system: they simply cannot fund unpaid internships. In some cases, they are at a disadvantage during recruitment: some companies prefer to hire candidates with internship experience. This means that certain positions are only reserved for the better-off.
5. Most unpaid interns have limited legal protection. They are not protected enough against discrimination or harassment in the workplace because technically they are not employees. According to the US Civil Rights Act, an employee is only the one who gets “significant remuneration” for his / her work. Many unpaid interns face a legal loophole: they cannot protect their rights in the same way as regular workers.
By May 27, 2015, 6 states had passed bills which extended protection against discrimination and / or harassment to unpaid interns. On January 11, 2016, the Federal Intern Protection Act was approved. It guarantees unpaid interns and regular government staff the same protection rights. However, the situation of unpaid interns has not changed much in the private sector: if they do not live in any of the states which passed the anti-discrimination bills, they are still facing a lot of legal challenges seeking compensation for the violation of their rights. Their situation is still much better than in many other countries which do not have any regulations of unpaid internships.
References:  Nicolas Pologeorgis, Investopedia /  Will Kimball, Center for Economic and Policy Research (CEPR) /  National Association of Colleges and Employers (NACE) via Laura Franta-Abdalla, Mic /  NACE via Jordan Weissmann, The Atlantic /  Blair Hickman, ProPublica /  Samantha Lachman, The Huffington Post /  Jory Heckman, Federal News Radio