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March of the interns: good or bad for the economy?

Still trying to rebound from the recession, American workers competing for scarce jobs are facing a new enemy: a youthful, eager and educated army willing to work for free.  

In numbers up to 2 million strong, the increasingly dominant presence of unpaid or low-paid interns in the workforce is taking much-needed entry level jobs away from salaried employees.  

"It's not like give and take, it's more like just taking," said Army veteran Eric Ortiz, 41, who worked as an unpaid intern at a publishing company from September 2012 to May 2013. Doing graphic design work in exchange for college credit, Ortiz said the company continually added extensions to his contract with the implied promise of a future paid job.

"They'd say, 'Things are looking up, but we can still use your help,' so I hung around, hoping they'd make me an offer. It turned out to be just a lot of empty promises." 

Ortiz and David Tejada, 29, are both Army veterans who recently found work as computer software testers in a special trainee program for returning veterans. Before that, each endured long bouts of unemployment.

"I was unable to get an entry-level position because [employers] want someone with experience, and the only way to get experience is to work for free," said Tejada. "I couldn't do that. I have a family to take care of."  

Though Tejada said he would have accepted even a low-paying job, he was still unemployed when his son was born. "I volunteered to go to Afghanistan in 2011 to 2012. I did it to support my family."  

It's easy to see why unpaid interns are replacing salaried employees at some companies. Employers know they can fill vacant positions with a virtually unlimited supply of bright, hard-working young helpers, and at the same time try them out risk-free for future paid positions. Many interns said they benefit from the arrangement as well, by obtaining valuable on-the-job training and greater employability.

But a recent survey found the advantage seems to apply almost exclusively to paid internships. The National Association of Colleges and Employers reports that 63 percent of paid interns wind up securing a full-time job afterward (with a median starting salary of $51,930). Unpaid internships, meanwhile, only led to employment 37 percent of the time (with a median starting salary of $35,721.)

Students who worked at unpaid internships were arguably no better off than those with no internship experience at all, who were hired at a slightly lower rate (35.2 percent) but with a higher starting salary ($37,087).

Beyond that, some economists said the prevalence of intern labor in the workplace may be harming the economy at large. Analysts point out that interns who earn little or no wages cannot contribute to economic growth because they have no buying power. Not only are they unable to pay taxes and contribute to Social Security, they drain the resources of parents and supporters who may be financially weakened by the recession themselves.  

"It's slowing the recovery from the recession because people have less money in their pockets to spend on goods and services provided by other businesses," noted Ross Eisenbrey, vice president of the Economic Policy Institute, a liberal think tank. "These young people are delaying their saving for retirement, their ability to accrue capital to buy a home—all of the things a middle-class person does.

"Twenty or 30 years ago, almost everybody in an entry level job was paid," added Eisenbrey. "And the economy is actually richer now than it was then. Per-capita income is higher, our national wealth is greater. There's no reason we can't pay people."

Indeed, the phenomenon has sparked a number of class-action lawsuits, notably in June when a New York Federal Court ruled that Fox Searchlight was in violation of the U.S. Fair Labor Standards Act for its failure to pay interns. A hailstorm of similar lawsuits followed, with media conglomerates like Warner Music Group, Atlantic Recording, Gawker Media, Viacom, Sony, Universal Music Group and Condé Nast suddenly being called to task for non-payment of interns (The companies did not respond to requests for comment). 

The legal actions prompted other media companies, including Atlantic Media and Al Jazeera, to begin paying their interns. Condé Nast suspended its intern program all together.

One of the co-plaintiffs in the Fox Searchlight lawsuit, Eric Glatt, said he was stunned by what he saw on the set of the film "The Black Swan."   

"Interns say, 'I'm just doing this to get my foot in the door of this industry.' But it's not that simple," Glatt said. "We had an unpaid intern picking up performers and driving them to and from rehearsals. Teamsters handle transportation on films. When they found out what was happening, they rightfully reclaimed that job. 

"The interns that are taking out the garbage and sweeping the floor—that's somebody's union job."

Fox Searchlight did not respond to requests for comment. 

Glatt, now a Public Interest Fellow at Georgetown University Law Center and one of the organizers of Intern Labor, said that before his lawsuit no one had paid much attention to the U.S. Fair Labor Standards Act, including the clause that said unpaid internships are illegal. But even if they had known about it, most interns said they wouldn't have risked complaining. And because most employers are not inclined to turn away free labor, the practice continued. 

Of course, for some companies, hiring interns is not about profit but about sustainability.

"I would not have survived as an independent filmmaker if it weren't for interns," said Nicole Franklin, president and senior producer of Epiphany, and co-founder of Midnight Media Capture in New York City. She said she habitually hires unpaid interns as part of her business model but insists there is no exploitation involved. Volunteerism and bartered labor is the lifeblood of the close-knit indie film community, she said. In exchange for work hours she offers mentorship and valuable business contacts.

"Filmmaking is our passion, and these are passion projects," she said. "It's natural for all of us to help each other out." 

Sanjeev Agrawal, founder and CEO of Collegefeed, a new social network dedicated to solving the unemployment crisis for college graduates, maintains that interns are not a threat to existing workers.

"I find it hard to believe they could replace full-time jobs. It's sort of like saying, 'I asked my 9-year-old to clean up her room, so I guess we can fire the housekeeper now,' " Agrawal said. 

Glatt disagreed. "It's unjust. It's robbing people of the value of their labor. The reason paid jobs aren't there any more is because employers have figured out that they don't have to pay anyone if they call it an internship. So young graduates are pitted against each other for what few paid positions there are. It's like the snake eating its tail."