The New York Times has a good essay on the problems facing college students seeking summer internships. Good as it is, the piece only addresses part of the problem.
There is another dimension to the internship problem — non-student workers who are taking internships, often entirely unpaid, because they cannot find any paid work. I have seen jobs listed as \"internships\" that _require_ extensive experience, 40 hours per week (or more), on-site, with not even a stipend for lunch. Unscrupulous, unethical employers are using the term \"intern\" to justify what is effectively indentured servitude. At least a couple of specialty job listing sites I know have stopped accepting listings for internships because of employer abuse.
All this takes places in a terrible labor market after years of growing employer dependence on contractual or temporary workers who receive no benefits or job security.
Without organized intervention (by government or organized labor) at least some of these trends will persist even once the economy improves (if it does).