Employment in Washington, or "The intern phenomenon"

Forbes published an article in its online magazine this morning that ranks the top 10 cities for finding employment. Astonishingly, Washington D.C. was listed as #1. (Wow, us!) The Washington Metro Region currently boasts one of the lowest unemployment figures in the country at 5.5%, 2.6 points lower than the national average of 8.1%, and it even experienced a small drop of about .3 this past month.


And yet something doesn't seem to fit. Everywhere I go, I meet or run into people that complain about needing to find 'real work' (me included, full disclosure). And understandably! Most of my otherwise accomplished peers are seriously underpaid. After some digging, I think I've found the cause of everyone's dissonance.

According to the Bureau of Labor Statistics - which the Forbes rating is based on (5.5%, #1) - 'employment' includes unpaid work >.> :

"The household survey definition of employment comprises wage and salary workers (including domestics and other private household workers), self-employed persons, and unpaid workers who worked 15 hours or more during the reference week" (BLS Explanatory Notes)

Unemployment excludes unpaid, stipend-based, and underpaid positions (below minimum wage, for example) after 15 hours of work per week. For those of you less familiar with the DC labor market, estimates of local "unpaid" and underpaid interns (which fluctuate by season) are consistently between 20,000 and 40,000 on any given day, and that number skyrockets during non-academic summer terms when student and recent graduates from across the country flood into the District. DC's commercial industries are also very narrow compared to comparable metro-regions and are still largely limited to government and public contracting, telecommunications, computer software and hospitality services.

This intern phenomenon that is concentrated within only a few industries saturates the local labor market with overqualified workers (at least on paper) that are willing to work not just for free, but even at their own expense in many cases. Many of these internships can last up to 6 months, and some even longer. And these are not just clerical positions in which you learn how to answer phones and format documents; many of  my colleagues are effectively in low-level management positions that demand extended hours for program coordination, backstopping or financial services. At a certain point, unpaid 'internships' can begin to sound like unpaid employees.

There are some official limitations on this kind of work, however, and there is a growing movement among legal scholars to press for higher compensation for these kinds of workers. When the companies for which they intern benefit from the extra help at little to no cost, the relationship appears to constitute a win-win. The intern/worker gets training and experience, and the organization gets cheap support of low-skill tasks and potentially new, more reliable qualified labor.

The Fair Labor Standards Act (FLSA) generally requires employers to pay their employees at least minimum wage for all hours worked, as well as overtime for all hours worked over 40 in a week. Internships and training programs are excluded from this requirement in 'limited circumstances'. Because the FLSA prohibits employees from waiving their rights under the law even if they want to, it is only under those limited circumstances that interns may work without compensation. Inside Counsel recently published a good summary of these standards on their website, found HERE.

The DOL created a six-part test that must be applied when determining whether an internship or training program meets the FLSA exclusion. Under the test, each of the following criteria must be met:

1. The internship, even though it includes actual operation of the facilities of the employer, is similar to training which would be given in an educational environment
2. The internship experience is for the benefit of the intern
3. The intern does not displace regular employees, but works under close supervision of existing staff
4. The employer that provides the training derives no immediate advantage from the activities of the intern and on occasion its operations may actually be impeded
5. The intern is not necessarily entitled to a job at the conclusion of the internship
6. The employer and the intern understand that the intern is not entitled to wages for the time spent in the internship

When (and only when) all of the criteria above are satisfied, an employment relationship does not exist between the worker and the employer and an 'internship' can be unpaid.

But I challenge any readers to find an intern in the WMA that has the gall to challenge his/her would-be employer to a legal claim of compensation. Typically, there comes a point when an individual will suggest that they will be leaving the organization unless there is employment compensation, but I rarely see this in workers that are not confident that they will find paid work elsewhere (that, or perhaps they are returning to school or traveling). One intern, or even several, is not enough to change employment practices that benefit the rational interests of organizations seeking free/cheap skilled labor.

In development economics, we call this a coordination failure. It is not rational for one person to protest their condition because they have negligible negotiating power - the would-be employer has fairly easy access to comparable replacements. Fairly quickly this relationship turns into an issue of organized labor, but just try getting interns with the personal ability to live on personal expenses to risk their resume-building positions.

There are currently a host of active lawsuits making their ways through lower courts that could pressure the federal or state government to adopt higher standards of compensation enforcement. The New York Times published a good article on the issue in 2010, and for more information on internship statistics I would recommend the annual Internship Salary Survey released by Intern Bridge last year.