Photo By Daniel Suchenski
If
you do quick search on-line for ‘non-profits’ you are bound to come across
‘how-tos’ and ‘what to expect…’ websites. For example Joanne Fritz writes in
her article entitles Eight
Tips for Jumping Ship: For-Profit to Nonprofit Career, suggests that you “Make sure that you can accept the likelihood that you will earn less
money. Nonprofit work
can be 5-10% lower for entry-level jobs and mid-level employees. For top
positions, compensation can be as much as 50% lower than comparable corporate
jobs.”[1]
This begs the question, why
do People Working in Nonprofits make less money?
Often times nonprofits, rely on
donations for their revenue and this is not always consistent from one year to
the next. Indeed, many would argue that there is a compensation wage
differential between for-profit and non-profit organizations that leads them to
need to incentivize employees other than wages. Dwight Ueda writes that instead of high paid positions, many
nonprofits employees often receive attractive benefits packages which could
include “generous vacation time and sick pay, low premiums on medical and
dental insurance, good retirement plans, tuition reimbursement, and sometimes a
convenient or flexible work schedule without significant overtime.”[2]
Ueda highlights that many universities are nonprofit entities and they can
typically “offer the use of facilities such as gyms and libraries, and
sometimes membership in credit unions with guaranteed low-interest loans and
other attractive features.”
According to Dan Pollatto “in
the for-profit sector, the more value you produce, the more money you can make.
But we don't like nonprofits to use money to incentivize people to produce more
in social service. We have a visceral reaction to the idea that anyone would
make very much money helping other people. Interesting that we don't have a
visceral reaction to the notion that people would make a lot of money not
helping other people. You know, you want to make 50 million dollars selling
violent video games to kids, go for it. We'll put you on the cover of Wired
magazine. But you want to make half a million dollars trying to cure kids of
malaria, and you're considered a parasite yourself.”[3]
He goes on to say that this is part of the reason why some successful
professionals prefer to make a hefty salary donate a large percentage of it to
charity and then sit on the board thus having money, and helping a charity
rather than being the executive director of the charity outright. Perhaps that
makes sense. Applying the cost-benefit analysis this does seem to be a better
alternative. The for-profit professional is acting rational and is able to
specialize in comparative advantage to the benefit of all.
When
recent college seniors at Cornell University were asked if they would rather
work for the American Cancer Society or Camel cigarettes -all else being equal-
almost “90 percent of them chose the American Cancer Society. When asked how
much more they would have to be paid to induce them to switch to the Camel
cigarettes job, their median response was a premium of $15,000 per year.”[4]
This is another example of a compensating wage differential. As the cigarette
company can’t hope to compete unless they offer a higher salary.
In the end,
there seems to be many reasons why people working in nonprofits make less
money, but a large part of that explanation is due to a suppressed market
equilibrium because there is a glass price cap on salaries and people who
donate to charities don’t like seeing their money going to anyone’s salary. And
in the nonprofit world, donations are king.
[1]
http://nonprofit.about.com/od/nonprofitwork/tp/From-Profit-to-Nonprofit-Job.htm
[2]
http://www.salary.com/advice/layouthtmls/advl_display_Cat14_Ser70_Par149.html
[3]
http://news.rapgenius.com/Dan-pallotta-the-way-we-think-about-charity-is-dead-wrong-lyrics
[4] Robert H Frank
and Ben S. Bernanke, Principles of Microeconomics. 5th Edition. 2013
Mcgraw –Hill, page 342.
