Fresh evidence of the growth in unpaid internships in parts of British industry was revealed today with a new study into agencies in the digital and design sectors.
The IPPR think tank said the country's "faltering" economic recovery was putting pressure on firms to cut costs and reduce staff.
A survey of 500 agency workers showed that most clients in the design and digital industries expected more work for less money, leading to fewer permanent staff and more unpaid interns.
Staff turnover had increased in recent years, with people working for digital and design agencies saying they were feeling the brunt of the "long, slow recovery" from recession.
A minority of those questioned said their agency helped employees deal with stress or rewarded them if they put in extra work.
Kayte Lawton, IPPR Senior Research Fellow, said: "If an intern is doing work for a company, then they need to be paid. It's as simple as that. Employers often mistakenly believe there is a grey area around internships in the national minimum wage legislation that allows them to take on unpaid interns as long as both sides understand it is a voluntary position - but this is simply not the case."
Rachel Fairley, lead author of the research, said: "Digital and design agencies appear to be running on empty. Clients expect more work for less money to make up for budget cuts. Staff have disengaged - they are overworked, undervalued, and fed up of poor leadership.
"More of them than ever intend to change job within 12 months, with far reaching consequences in this uncertain economic climate."
The report follows a warning by Revenue & Customs that fashion companies could be prosecuted for not paying their interns.
In a move welcomed by the deputy prime minister, Nick Clegg, HMRC said it had written to all 102 fashion houses involved with September's London fashion week, warning them about non-payment of the minimum wage of £6.08 an hour for those aged 21 and over.