Nonprofit Pay in a Competitive Market: Wage Penalty or Premium?

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Christian King, University of Central Florida & Gregory B. Lewis, Georgia State University

Do nonprofit organizations overpay or underpay their employees? One theory argues that employees choose to accept below-market pay so that they can do meaningful work for organizations whose missions they believe in. Nonprofits might even intentionally underpay workers so that only highly motivated people will apply.

An opposing theory argues that nonprofits overpay because they have fewer incentives to hold down wages. Nonprofits have tax advantages that private firms do not, meaning that they can create surpluses more easily, and they cannot give any “profits” to owners. Instead, they can share those surpluses with other stakeholders – with customers (through lower costs or higher quality services) and with employees (through higher wages).

We test these theories by examining the pay – and pay differences by race, gender, and sexual orientation – among registered nurses working for nonprofit, for-profit, and public hospitals. Continue reading “Nonprofit Pay in a Competitive Market: Wage Penalty or Premium?”