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Internships: Gateway to Opportunity or an Obstacle for Low-Income Students?

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Ross Eisenbrey, vice president of the Economic Policy Institute, along with research assistant Kathryn Edwards, contributed the following commentary to Spotlight on Poverty and Opportunity, a nonpartisan initiative to promote dialogue and action to reduce poverty and improve economic opportunity. They argue that unpaid internships often create or perpetuate inequalities for students from low-income families. The authors further discuss the implications of unpaid internships on the labor market, and propose solutions to provide equal opportunity to students based on merit rather than the ability to pay.
- Michael Laracy

Education is one key to economic advancement. On average, the more education a person obtains, the greater his or her income. The implications for poverty have been clear: if low-income individuals increase their educational attainment, poverty will decline. But education isn't the whole story. The school-to-work transition can make a huge difference, and internships have become critical to that transition.

But many internships today create or perpetuate serious inequalities, especially for students from families of modest means. Because so many internships are unpaid, the current system favors students from wealthier families. Unpaid internships require students to forego wages and finance a living without a paycheck, putting them out of reach for many low-income students.

Internships are now a standard component of a college graduate's resume. They provide an opportunity to learn new skills, try out a certain industry or occupation, network, and meet professionals in a field of interest. In short, internships provide the crucial bridge between education and the labor market.

Increasingly, internships are a necessary prerequisite to a permanent job. A Michigan State University survey in 2007 revealed that half of all college graduate hires had previously interned at the firm where they were hired. A National Association of Colleges and Employers survey of employers found that 76 percent of firms reported relevant work experience as the primary factor that influences their hiring decisions.

The idea of an "entry-level" job has become something of a misnomer, as workers are expected to bring experience to the table before they've even started working.

The recession has only made internships more valuable: students who have completed internships have a leg-up over other job applicants in a tough job market for young, educated workers. The unemployment rate for college graduates under age 25 has averaged 9.1 percent over the past 12 months, up from 5.4 percent in 2007.

It is therefore critically important that internships be fairly distributed among students of every demographic group.

We estimate that a typical three-month internship in Washington, D.C. costs about $4,000, excluding roundtrip travel. For a family living at the poverty line, that is roughly a fifth of their annual income. It's hard to imagine how a student from that background could afford an unpaid internship in the nation's capital.

Internships should be awarded to those most capable, but the current system is marred by a competing standard -- ability to pay. The well-off get a boost over better qualified but poorer students who can't afford to build a resume with unpaid work.

There are also broader implications for the labor market. The persistence of unpaid internships, and the willingness of students to accept them, encourages employers to replace paid workers with unpaid interns. Why pay a lab assistant full-time wages with benefits if three unpaid interns could do the same job? Interns, looking for experience and an advantage in an increasingly difficult labor market, are providing free labor for firms.

Current law, as established by the Fair Labor Standards Act and Department of Labor regulatory guidelines, has a six-part test to determine whether employers are legally required to pay interns, including that the intern does not displace regular employees, that the employer derives no immediate advantage, and that the intern is not entitled to a job at the completion of the internship. If all six parts are not met, the intern must be paid for his or her work.

Most internships at for-profit firms would not pass the test. Unfortunately, there has been little enforcement, primarily because the Department of Labor relies on complaints from workers to initiate investigations. Interns themselves must be the ones to complain -- but many are ignorant of the law or too intimidated to speak up.

The result is that unpaid internships, though often illegal, are widespread, and students able to afford them get the experience all job-seekers are desperate to have.

Nonprofits and government agencies may lawfully accept unpaid volunteer work, so unpaid internships are legal. But they still disadvantage students from poor families. This is especially troubling when the employer is a legislator or a government agency, since opportunities to learn how government works and to network in political circles could be crucial for future government employment.

The Labor Department recently announced it will devote increased enforcement attention to internships, but until it does, a system that worsens inequality will become more and more entrenched.

There are two solutions to this problem: either all internships should be paid or means-tested stipends should be funded to support poorer students accepted into unpaid internships at nonprofits or in government.

A democracy should strive to provide equal opportunity to all citizens, based on merit rather than ability to pay. Otherwise, what is given with one hand through education will be taken with the other hand by an unfair labor market.

Ross Eisenbrey is the Vice President of the Economic Policy Institute.

Kathryn Edwards is a Research Assistant at the Economic Policy Institute.