LeadingAge Magazine · March/April 2012 • Volume 02 • Number 02

Not-for-Profit Employment: Are We Holding Our Own?

March 13, 2012 | by David Tobenkin

Johns Hopkins’ Center for Civil Society Studies has published a new report on the past decade’s employment by not-for-profits. We talk with the center’s Lester Salamon about the forces shaping our field and what they portend.

When it comes to public recognition of the not-for-profit sector’s large contribution to overall national employment, the late comedian Rodney Dangerfield’s famed punch line may sum it up best: “I don’t get no respect.” But a new study demonstrates that aggregate employment by not-for-profits is no joke. Rather, the sector is a quiet giant whose key role as employer, particularly during the economic downturn, has been little understood or appreciated.

The study is Holding the Fort: Nonprofit Employment During a Decade of Turmoil, by Lester M. Salamon, S. Wojciech Sokolowski, and Stephanie L. Geller. It provides a penetrating look at the sector, based on 2000-2010 Bureau of Labor Statistics (BLS) data. Key findings:

  • U.S. not-for-profit 501(c)(3) organizations are major employers, providing twice as many jobs as the construction, finance and insurance, and wholesale trade industries, and nearly as many as manufacturing.
  • Not-for-profits have been major job creators, adding jobs at an average annual rate of 2.1 percent, compared to a decline at for-profit businesses of 0.6 percent.
  • Not-for-profits were strong contributors to job growth during the recent recession, growing their employment by an annual average rate of 1.9 percent between 2007 and 2009, while for-profit jobs declined by 3.7 percent a year.

But the study found that those trends appear to be changing, to the detriment of not-for-profits:

  • Not-for-profit job growth has slowed as the economic downturn has worn on, with the growth rate declining from 2.6 percent in 2008 to 1.2 percent in 2009 and 0.8 percent in 2010.
  • Not-for-profits faced increased competition in 2000-2010, with for-profit employment growing faster than not-for-profit employment in several fields including social assistance, education and nursing home care.

Salamon, director of the Center for Civil Society Studies, spoke to LeadingAge about the findings and their implications.

LeadingAge: Why are not-for-profits not better recognized as the major employers they are?

Lester Salamon: First of all, we view this sector through an ideological prism that was forged in some imagined golden era of the past that these are small organizations that largely are financed by charity and supported by volunteers, a sort of Norman Rockwell image that is fervently held by people. They expect the sector to be made up of tiny organizations with no paid staff, and when they hear that it contains enormous institutions with sizable numbers of paid staff they think something must be wrong, so they discount it. That’s a big part of it. The second reason is that we simply haven’t had solid data before on not-for-profit employment. The data source that we tapped for this report has been around for a long time and covers most not-for-profit employment, but [BLS] does not separately identify the not-for-profit employment. We therefore had to find a way to have them identify the not-for-profit employers and pull out the employment numbers just on them. Now that we are beginning to get these data and get them out, my hope is that people’s expectations and sets of beliefs will begin to change. But we know how stubborn beliefs are in the face of anything as weak as mere facts.

LeadingAge: Do nonprofits try to portray the nostalgic version of themselves that the public believes in?

Lester Salamon: I think there is a tendency toward that. Certainly not-for-profits are reluctant to talk a lot about what the real base of funding is because they so much want to preserve the charitable deduction and emphasize the importance of philanthropy. … Not-for-profits don’t want to get painted, if they can avoid it, with the same brush that somehow we have a tendency to paint government with. And I think the other thing is that the way we have delivered services in this country has confused people. People go to a private hospital or nursing home to get their health care or nursing care and they forget that that funding is coming from the government.

LeadingAge: Some of your other reports have looked at the relationship of wages between not-for-profit and for-profit employees. One unexpected finding was that not-for-profit jobs in the same industry tend to pay more than for-profit jobs. Why is that?

Lester Salamon: Average overall wages in the economy as a whole are lower for not-for-profit jobs than for for-profit jobs. But if you compare apples to apples, not-for-profit versus for-profit jobs in the same industry, we discovered the reverse: the average wage for not-for-profit jobs tends to be higher than the average for for-profit jobs in most of the fields. There are two possible explanations. It is possible that there are many more part-time employees in the for-profit field, which would pull the average down. The other possibility is that not-for-profits have always said they are more concerned with the quality of their employees. This may be manifested in paying these employees more to attract a more skilled set of employees. That may explain the disparity we see. It is one of those things people don’t believe because it doesn’t fit their common image of not-for-profits as laggards or as poorly paid do-gooders. But it turns out that the lower average wage for not-for-profits in the economy as a whole is a function of the industries they are in and not a function of their being not-for-profits.

LeadingAge: The study says not-for-profit employment growth exceeded for-profit growth during 2000-2010 and that a major factor was that nonprofit jobs have tended to be concentrated in service sector fields that have grown more rapidly than non-service sector fields. Are there any other factors that help explain the relatively rapid growth of not-for-profit employment during that period?

Lester Salamon: One factor that is more in the nature of a surmise … is that not-for-profits are resilient. Their workers will stay in a field when even the most draconian measures hit them. Many are driven by religious convictions or moral convictions of various sorts, whereas for-profits have a tendency to close shop when profit rates get squeezed. When Medicare rates go down or Medicare reimbursements go down, the for-profits have a tendency to leave the field.

LeadingAge: One exception to the trend of greater employment growth for not-for-profits was that the employment growth rate of for-profit nursing homes between 2000-2010 actually bested the growth rate of not-for-profit nursing homes. Do you know why?

Lester Salamon: First, this was not as exceptional as your question seems to suggest. In fields where both sectors are active, for-profit employment growth rates generally beat not-for-profit ones. I don’t have a complete explanation for that. What historically has been the case, and the factor we have pointed to in our prior work, is that access to capital is a crucial component. This is [a field] that has gone through a lot of changes, including the whole emergence of continuing care retirement communities in the last decade. It seems like not-for-profits are doing O.K. in that field. But it does require capital. So wherever you have a need for capital, the time it takes not-for-profits to generate that capital is longer than for the for-profit market, because for-profits have access to the equity markets: They can issue stock and can quickly acquire or build facilities. …. Anytime there is rapid expansion of demand, the for-profits tend to beat out the not-for-profits, including when demand growth is stimulated by expansion of public sector support, such as in the creation of Medicaid and when government began to support nursing care under the Social Security Act.

This has been an issue in field after field: where not-for-profits innovate, for-profits see profits to be made in the field, and before long the for-profits will have outdistanced nonprofits. I think we may be about to see that in continuing care retirement communities. In some cases, these were pioneered by nonprofits. Certainly nursing homes per se were pioneered by not-for-profits. Then when a spurt of public sector money comes in, the for-profits form companies, issue stock, and take advantage of opportunities. I don’t necessarily see that as a negative, [but] I do think there needs to be a level playing field. To some extent that exists in the nursing home field but it’s [still] not equal by a long shot. We have leveled the playing field in some fields, like low-income housing, by creating tax credits for investments in low-income housing as an incentive to investors to invest in low-income housing. I’d be supportive of a tax credit that does the same for a broader array of not-for-profit fields, including nursing homes.

LeadingAge: The study found that the rate of employment growth for not-for-profits has slowed. Was that inevitable and does it concern you?

Lester Salamon: Any growth in this economy is impressive given the state of the economy, but what we were trying to signal is some of what accounted for the growth is beginning to dissipate. That’s worrisome going forward. My concern … is that the budgetary struggles going on in Congress will have an enormous impact on this sector because so much of the revenue that drove the growth was public sector revenues. We’ve already seen the reductions in public sector employment. If proposals from the Republican Party become law or if we can’t get the modest increases that the administration has been talking about, I think the not-for-profit sector will be hit pretty hard. We wanted to signal that that is already becoming somewhat evident in the data. I think it’s a sign of the wearing out of the stimulus funding that was very important for maintaining the capacity of not-for-profits across a wide front during the recession. That includes the nursing home field because a lot of aid came through the Medicaid channel. Now we see states cutting back on Medicaid. We see pressures at the federal level to drastically reform Medicaid.

LeadingAge: Do not-for-profit executives need to be harder-nosed business people?

Lester Salamon: They are becoming harder-nosed business people. I think frequently they don’t really know the costs of the services they provide. They bundle them together and don’t think of their operations as distinct lines of business, each of which needs to be assessed with respect to revenues and costs. That is an issue. It comes back to the capital issue. To do strategic planning, it’s an investment. Capital is hard to come by, and it’s hard to set the time away and get the people in who can help with that type of strategic planning. But I’m impressed by how savvy many nonprofit executives are, particularly in the elderly services care field. They are running really big operations and are savvier than they are given credit for. What they are reluctant to do—and I can’t criticize them for it—is let financial planning drive out attention to quality service. And that’s a terrible tension to put on anyone. I see strain between the value base of the sector and the commercial pressures they are under. That’s certainly true in elderly care facilities. They are under pretty intense competition from for-profits willing to abide by that market discipline. Not-for-profits have to take account of that. My concern is that we are forcing them to take too much account of it.

LeadingAge: Are there any developments in the issues covered in Listening Post Communiques #15 and #16, which cover health care costs and pension benefit costs for not-for-profits, respectively, since those reports were written?

Lester Salamon: In the health care field, we’ve had the big health care reform law, which I believe may potentially relieve some of the pressures on not-for-profits from escalating health care costs. Those costs have been very difficult for the not-for-profit sector because it’s been one of the advantages in this sector: its benefit levels have been decent. We were finding that the escalation was making it very difficult for not-for-profits to continue to provide those benefits and that was a gigantic loss of the appeal of nonprofit employment. We are hoping the health care reform law will moderate those increases. I think we’ve had some progress, not particularly in the pension field, but rather with some efforts to cope with unemployment, due to work we were partly involved in that has emphasized that if you treat that problem of unemployment only through the income tax route, it doesn’t affect not-for-profit employers and the incentive only goes to for-profit employers. If you note, the incentive that was put in place for encouraging employment was through the employment tax, not through the income tax, and not-for-profit employers pay the employment tax just as do for-profit employers. So here was evidence of this administration essentially structuring its employment promotion efforts in a way that affected nonprofit employers as well as for-profit employers. And that’s almost a first and is what makes the unemployment insurance reduction that is now up in the Congress so important for nonprofits.

LeadingAge: Have you looked recently at the threat to the taxation status of nonprofits by revenue-hungry state and local governments?

Lester Salamon: Absolutely. We have a whole survey that we did over the summer on this topic. It had a very interesting finding that really did surprise me. What it showed is that an extraordinary share of the Listening Post organizations were reporting that they had been hit by a tax or a fee, suggesting that local governments had caught on to the idea that you could take items of services out of the general fund support base and turn them into user fees. And when you do that you can get money out of the not-for-profits that don’t pay taxes but do pay user fees. We found something on the order of 60 percent of the organizations reporting that they were paying some such tax or fee in the last year or couple of years.