Everyone loses from unpaid internships – young people, society, even businesses. Companies that expect young people to work without pay are excluding graduates and school-leavers whose parents can’t afford to support them. They’re also shrinking the size of their potential talent pool and failing to develop a potentially valuable recruitment tool.
Every week, young people contact Intern Aware, a campaign for fair internships in the United Kingdom, telling us they are reconsidering their futures. They worked hard to get the qualifications their teachers and parents told them they needed to get a job. But now there’s an extra obstacle: they must work for free for months on end. In the United States, unpaid internships have been a necessity for young people for decades, but in most other countries they’re a relatively new phenomenon. It is vital that they do not become entrenched during the downturn.
The Great Recession has disproportionately affected young people. In Europe, jobless rates for people under 25 are at worryingly high levels. Over half of young people are now out of work in Spain, while in Italy the unemployment rate for young people is almost four times that of workers aged 25 to 54.
Young people are not just more likely to be unemployed, they are also harder hit by the effects of short-term unemployment. Without a track record of work to show potential employers, it is harder to break into the labour market, meaning that the unemployed 21-year-old becomes an unemployed 23-year-old. This has a “scarring” effect on the individual’s lifetime earnings and presents a huge economic cost in lost potential. Moreover, with constrained budgets employers are less likely to take a chance on young people. Increasingly, they want more than just a high-school or university diploma. They also want to know that young people are ready to work from day one, with a combination of soft skills and industry-specific hard skills.
Internships provide these skills. Less tangibly, an internship on a CV “signals” work readiness in much the same way a university degree signals a level of intelligence. As a result, employers will either directly recruit full-time employees from their own interns or from among former interns at other organisations. The UK’s Commission for Employment and Skills has found that employers regard work experience as more important than academic achievement. A European Commission study on traineeships, citing OECD research, reported that study-related work experience increases the chance of being employed after graduation by 44%. Given the huge demand for every job, many employers do not even interview young candidates unless they have extensive work experience.
So, internships increase employability. But where they are unpaid, they also exacerbate inequality. In the US, it is estimated that a third to a half of the country’s 1.5 million internships are entirely unpaid. This trend is mirrored in Europe, where around half of internships are unpaid, according to a European Youth Forum survey. Of the remaining paid internships, 45% pay too little to cover day-to-day living costs. As such, about three-quarters of European interns are not able to make ends meet, and two-thirds of them must fund their placements through the Bank of Mum and Dad. Young people whose parents cannot afford to support their internships face exclusion from many careers: a recent British poll found that more than two-fifths of young people believe unpaid internships act, or have acted, as a major barrier to getting a job.
Meanwhile, interns are often recruited through closed networks rather than on the basis of merit. For example, a 2010 survey in Austria found that 57% of students obtained their last traineeship through relatives, friends and acquaintances. In countries where professional jobs are concentrated in a few major cities, the problems of cost and unfair recruitment are compounded. Young people from outside these hubs face major housing expenses that cannot be covered from savings or by finding part-time work. They are also less likely to have the social capital needed to know about the opportunities in the first place. As a result, they face unemployment or a skills mismatch, which can damage graduates’ employability if they wind up doing non-graduate jobs.
Moreover, unpaid internships are distorting the overall labour market. Because of the ready supply of unpaid young people, some employers are hiring fewer paid employees. In smaller companies, lower skilled administrative staff are being replaced by a seemingly endless supply of unpaid 21-year-olds. Conversely, in many offices, the only difference between people doing identical work is a title. Some are called staff and receive a wage; some are called interns and receive nothing. In Germany, for example, 81% of trainees stated they were assigned tasks normally performed by regular staff.
Internships have now become too important to be treated as part of the informal economy. They need to be taken seriously – not least by employers. If nothing else, a company that refuses to pay interns needs to realise the damage it risks doing to its reputation. More importantly, it needs to realise what it’s missing out on.
Employers that put fair internship schemes at the heart of their recruitment strategies cut their costs and gain flexibility. By having the chance to trial young people for a few months, employers gain a better understanding of their long-term potential. If they do offer a permanent post to an intern, they’re more likely to be hiring someone who – because they already know the company – is unlikely to leave after just a few months. And, crucially, by paying interns and recruiting on the basis of merit, employers can attract more talented people. Many businesses already recognise this. Liz Bingham, Managing Partner for People at professional services firm Ernst & Young, has stated that “internships are jobs and should be treated as such”, in part to ensure the hiring of the best people from all backgrounds.
For governments, there are broad principles that can be applied. Firstly, where unpaid internships are illegal, the law should be enforced. In the UK, where Intern Aware operates, most interns are legally “workers”, because they are expected to work set hours, perform set tasks and contribute value to their employers. But because these laws often aren’t enforced, we now have to provide legal services to unpaid interns to help them claim wages they are owed. In many countries, interns lack employment rights. Here, a new “intern” employment category should be created, such as the French stagiaire, to give interns formal contracts, including the right to a wage.
Secondly, governments and employer organisations should work together to codify what a good internship looks like. Employers that offer high-quality and fair internships should be allowed to advertise these positions on government websites and receive government subsidies, such as tax exemptions. Wage subsidies for training schemes are relatively common, but this mix of business-government collaboration and government financial support would incentivise good practice at low cost to all.
Promoting fair internships ensures young people can develop the skills they need to get jobs in a tough labour market. Our economies will be weaker and our societies more divided if the next generation of business and government leaders are not the most talented, but rather those who could afford to work for free and had well-connected parents in 2013.
References and recommended sources
Matjašič, Peter (2012), “Europe: Investing in youth”, in OECD Observer No 290-291
OECD (2006), "Bright continent: African jobs”, in OECD Observer No 256 July
OECD work on Employment
OECD Forum 2013 Issues
More OECD Observer articles on labour
Subscribe to the OECD Observer including the OECD Yearbook
By Ben Lyons, Co-Director, Intern Aware
©OECD Yearbook 2013