What Interns Tell Us About the Labor Market?

Over the last several decades, interns changed from an uncommon resource for a privileged, connected few to a regular part of the division of labor of most organizations.  Demand for some type of competitive advantage in hiring coupled with financial concerns in organizations, transformed our impression and utilization of interns.  Moreover, current trends point to this change being unlike to change.  For our purposes, I would like to answer to relevant questions related to the transformation:

What do both sides gain?

Both sides gain in the current arrangement and the benefits typically outweigh the costs.

The intern benefits by gaining real world experience, increasing their understanding of what their chosen profession does, and improving their chance of being hired once graduating.  Most employers want to know that a job candidate worked in a responsible capacity before joining their organization.  Specifically, an employer wants to know if the basics of success exist in the candidate: shows up on time, focuses on quality, responds to direction, and respects authority.  A successful internship provides the minimum of proof necessary.  Although some professions like doctors, police officers, and lawyers benefit from glamor of television and movies, a true understanding of their nature requires day-to-day experience.  The increase in employability after an internship is more than an urban legend.  The National Association of Colleges and Employers (NACE) found that 42.3% of graduating seniors who completed an internship received at least one job offer, whereas only 30.7% of graduating seniors without internship experience received an offer.  Moreover, a student that secured an internship reduced their average job search time frame from six to three months.  In today’s job market, this is a sizable difference.

Organizations gain from having a cost effective way of bringing in talent, being able to “test drive” or work with future candidates before hiring them, and shifting lower level tasks to very talented, yet temporary labor.  When an internship includes pay, it typically necessitates 25 to 35 percent of the market rate for comparable skills of a new hire.  This reduction in cost provides many times a qualified as well as productive resource for a fraction of the cost.  Similarly, the temporary nature of internships allows an organization to “test” multiple candidates for a position with low cost and risk.  As an aside, even when an intern does not receive a permanent position, the person joins the network of individuals linked to the firm as potential customers, market influencers, or future hires.  More recently, interns moved from being there to learn to a critical part of work processes.  Some companies, out of a desire to shift tasks lower in the organization to reduce costs have increased the percentage interns in their workforce to more than three percent.

What does this say about the labor market?

Although it is easy to focus on the benefits of the new relationship, this increased need arose from something deeper going on in the labor market.

Focus on rapid readiness of new labor – While organizations were willing to accept that an investment was necessary for a person to reach full competence and expected productivity, most have little patience with investing in a person for several years before reaching the “breakeven” point.  The new view demands that an employee fully integrates into an organization and produces similar to an interchangeable part.

Costliness of hiring of the wrong person continues to grow – Replacing talent only continues to grow in cost with each passing year.  Demographic trends, globalization of jobs, and more specialized needs collectively drive the cost of finding and hiring the right person higher.  Some estimates place the cost of replacing a mid-level employee as high as three or four times annual salary when considering all factors.  When the wrong person is hired and another hiring process begins, the cost doubles and the time to return to productivity increases.

The balance of cost to productivity gains has leveled – Most organizations have exhausted the typical cost reduction approaches for their labor force: re-engineering, outsourcing, contingency labor, off-shoring, and outright reduction.  The next phase of the labor cost reduction cycle appears to be on the horizon and should come more into focus as the economic crisis recedes.  It is doubtful that organizations will decide to let their current workforce go and replace them with interns.  However, closer partnerships with educational institutions, leveraging new skill and job allocation methodologies, and new ways of utilizing more hybrid workforces seem to be upon us.

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