· 2 min read · Features

The evidence is that internships work on the basis of who you know, not what you know

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This is the time of year when thousands of 18-year-olds are busy on applications for university.

This cohort is the first to be liable to annual fees up to £9,000 and the normal anxiety about predicted grades and 'personal statements' is heightened by the prospect of a sizeable debt and a hostile labour market for graduates, as well as for many other young people.

The numbers are scary indeed. The unemployment rate for new graduates had grown to 20% in the third quarter of 2010, the highest rate in over a decade. This was almost double the rate before the start of the recession, when it stood at 10.6%. Graduate unemployment has grown at an even faster rate than in the workforce as a whole.

There are two especially concerning issues. The first is the increased risk of 'underemployment' for graduates over the next few years. The second is the way recruitment - especially use of internships and work experience - is risking a two-tier jobs market for graduates.

In the last recession, there was a not very funny joke about graduates:

Q. What do you say to a new graduate on their first day at work?

A. A Big Mac and large fries, please.

Aside from risking a letter from David Fairhurst, chief people officer Europe at McDonald's, the point of re-telling the 'joke' is that there has always been a fear a proportion of graduates will find themselves doing jobs for which they are over-qualified. This is even truer now: as a result of the higher fees, undergraduates are now encouraged to see themselves as 'customers' of higher education, and enhanced rather than compromised employability is all part of the deal.

For some graduates, getting a job at all remains a bigger challenge. There are stories every day of bright graduates with good degrees struggling to get interviews for jobs. Many more are offering to work unpaid, or fighting for the limited number of precious openings as interns.

Last month, I attended a roundtable at Number 10 to discuss social mobility in general and internships in particular. The session was hosted by Conservative party co-chair, Baroness Warsi, and also attended by Labour MP Hazel Blears, who has cross-party support for an initiative to develop an intern scheme in the Commons that favours young people from deprived backgrounds. There was a real concern at the meeting that too many internships represent a 'back door' to employment, which may be vulnerable to 'nepotism'. This is a concern echoed by Alan Milburn, whose 2009 social mobility report said: "The evidence is that these internships work on the basis of who you know, not what you know."

Campaign group Intern Aware says there is evidence some firms explicitly favour friends and family. It cited a reply from a FTSE 100 firm to an applicant: "The company does not have a structured work experience programme, although, occasionally, arrangements are made for sons and daughters of executives, particularly in the legal or compliance departments."

This is worrying. If internships are used by employers to save money, or as a substitute for permanent employment, or as a way of short-circuiting more transparent recruitment procedures to favour the progeny of friends and family, then the two-tier graduate labour market where meritocracy is replaced by nepotism is guaranteed. Life is tough enough for young graduates as they try to find their way in a bleak jobs market.

Unless we promote 'nepotism for all', this market will exclude the talented in favour of the well connected.