What Nonprofit Wage Deficit?

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The belief that nonprofit workers earn less than their counterparts in the for-profit sector is a long-held cardinal tenet of nonprofit work. Nonprofit workers, goes the standard refrain, are motivated more by mission than by money. Otherwise, they would take private-sector jobs.

Doubtless little in the nonprofit field compares to the multi-million dollar salaries rife in the upper reaches of business, but this deeply held belief that nonprofit workers earn less than their for-profit counterparts turns out to be, at best, a half-truth.

A new picture is emerging from an important new body of data on nonprofit wages and employment that we have extracted from employment surveys conducted by state governments as part of the federal unemployment insurance program.1 While our scrutiny of these data is far from complete, they are already posing a significant challenge to conventional beliefs.

Two broad conclusions flow from these data. The first seems to support the conventional wisdom about the wage disadvantage of nonprofit workers. Average nonprofit wages do lag behind average wages in both the for-profit sector and government.

In ten states for which we have assembled data, nonprofit wages lag an average of 18 percent behind those in the for-profit sector (see Figure 1), and 17 percent behind those in the public sector.

To be sure, these averages disguise a certain amount of variation among the states. Only in Florida, however, does the average nonprofit wage exceed the average for-profit wage; this is a state where for-profit wages are exceptionally low.

Before we jump to the conclusion that these data support the conventional wisdom about relatively low nonprofit wages, however, let us look a little closer. Nonprofit and for-profit organizations are not distributed evenly among different fields. Is it possible, therefore, that the apparent wage gap is really an industry problem rather than a nonprofit problem?  That is, does it result from the fact that nonprofits are concentrated in low-wage industries?

To test this possibility, we compared nonprofit and for-profit wages in industries in which both sectors are significantly engaged.2 The result, reflected in Figure 2 below, shows that the real culprit in the apparent wage disparity is industry mix, not nonprofit status.

Indeed, far from lagging behind their for-profit counterparts, nonprofit workers actually have higher average wages than for-profit workers in industries in which both are extensively engaged. Thus, in nine key fields, from nursing homes to child care, nonprofit wages actually average 4 percent higher than for-profit wages. Moreover, this nonprofit wage advantage holds in eight of the nine fields in which both sectors are actively engaged, ranging from 1 percent higher in nursing homes to 22 percent higher in child care.

By focusing only on aggregate data and failing to compare nonprofits and for-profits in similar fields, past research has created a misleading impression about the real relationship between nonprofit and for-profit wages. Whatever wage deficit nonprofit workers endure turns out to be less a product of the nonprofit character of the organizations that employ them than of the generally low wages of the industries in which they work. In these industries, nonprofit workers are actually doing better than their for-profit counterparts. This is consistent with the widespread belief that for-profits are effectively competing with nonprofits in these fields not by being more “efficient,” but by squeezing labor costs and employing part-time workers, thus potentially sacrificing the quality of their services.

This finding suggests that invidious comparisons between nonprofit and for-profit workers could well give way to joint efforts between the two to boost wage levels generally in their fields. But this will require changes in the expectations both of private consumers and of the public programs and private insurance companies that are largely responsible for setting the reimbursement rates in these industries.

1.  For a more detailed discussion of this data source see: Lester M. Salamon and Sarah Dewees, “In Search of the Nonprofit Sector,” The American Behavioral Scientist, Vol. 45, No. 11 (July 2002), pp. 1716-1740; and the state employment reports.
2. These are industries in which at least 10 percent of the employees are in nonprofit firms and at least 10 percent of the employees are in for-profit firms.

Lester M. Salamon is director of the Center for Civil Society Studies at Johns Hopkins University and director of the Johns Hopkins Nonprofit Employment Data Project, on which this article draws.  He wishes to express his appreciation to Dr. Wojciech Sokolowski for assistance in compiling the data. Note: The original article contained charts not reproduced here.