As the job market continues to struggle and new university graduates are challenged to find employment related to their fields, unpaid internships are on the rise. On the surface, these employment arrangements benefit both employer and employee. The employer gets to preview potential new hires without having to pay them, and the employee gets invaluable training, experience for the resume and, potentially, a foot in the door for a real job.

Economists and journalists, however, bring to light the dark side of these unpaid positions. Their concern is that it exploits young workers desperate to launch their careers. A more subtle impact is the effect the practice is having on the job market itself.

Are Unpaid Internships Even Legal?
In 2010, the federal Labor Department came out with six requirements for an unpaid internship to be legal. The main requirements are that the intern receives educational training, must not displace paid workers and must not be guaranteed a job at the end of the internship. Also, the employer must not receive any immediate benefit from the internship. This last requirement is vague and it's still possible for employers to get around it. What makes illegal unpaid internships particularly difficult to stop or deter, is the fact that the Labor Department will only investigate based on complaints. Interns are unlikely to report their employers' labor violations for fear of damaging their relationship and future opportunities.

Benefits to the Employer
The benefits of an unpaid internship to a company are transparent. Although not legally sanctioned, it is practically impossible for an employer not to derive benefit from unpaid labor. An intern must actually perform some duties to be able to show that the or she is learning. An intern program can also act like a giant lobster tank, from which an employer can view the selections in the work environment and ultimately choose the best people to keep on for paid employment. It improves the quality of new hires and lessens labor law disputes down the road. An added benefit for employers is that interns who eventually work for the company will require less paid training.

Benefits to the Employee
Proponents of unpaid internship programs also outline the benefits of the arrangement to new graduates. In order to work in many industries, it is almost a standard now to work unpaid and "pay your dues" first. More graduates are fighting over fewer jobs and carry higher education debt. An internship offers relevant experience that gives graduates a better chance of working in their preferred industries.

SEE: Top 15 Interview Tips For Students

Do Internships Lead to Higher-Paying Jobs?
The increase in unpaid internship positions may be detrimental in those industries in which they are common. For interns, it may be a step up in the industry, allowing them to advance more quickly in their fields. Overall, however, unpaid jobs may be crowding out paid positions, reducing the total number of entry-level jobs available in an industry. This creates a cycle of fewer jobs and more job seekers willing to work for free to open the door.

A recent survey by the National Association of Colleges and Employers may back up that concern. Of 20,000 university graduates surveyed, only 38% of those who had participated in unpaid internships during university had received job offers by graduation.

SEE: 4 Ways To Get A Head Start On Your Financial Career

Economic Segmentation
One economic impact arising from the rise in unpaid internships isn't in dispute. In competitive industries where unpaid positions are common, interns, on average, come from a higher socio-economic class. The reason is simple: you have to be able to afford to work for free. Students that have to pay their own living expenses usually cannot afford to do so and have to pass over unpaid internships for paid work, often not in their industry of choice. The long-term impact on employers is that they will not have access to the best available talent on the market. On the other hand, students who live at home rent-free or come from wealthy families can absorb living expenses while working for free.

The Bottom Line
Although it doesn't appear that unpaid internships are going away anytime soon, concerns about the exploitative nature of the practice will continue. University graduates must weigh all of the pros and cons to determine whether an unpaid internship is right for them.

SEE: Internships: Not Just For College Kids Anymore

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