Why Is There a Nonprofit (Dis)Premium? Evidence from Tax Data

• In Event: Mobility, Wealth, and Wages

Abstract

The nonprofit sector employs roughly 10% of the American workforce, making it the third largest workforce behind the retail and manufacturing sectors. However, cultural norms and tax policies differ considerably for non-profit workers relative to other workers in the for-profit or public sectors. Working in the nonprofit sector is typically thought to confer a nonpecuniary, “warm-glow” benefit to workers by producing a “public or social good”. Additionally, nonprofit firms by definition do not operate to maximize profit and are thus exempt from many firm-level taxes faced by for-profit entities in the private sector. Yet, relatively little is known about how these differences in sectoral type translate causally to individual workers’ labor market outcomes. This project uses novel administrative tax data on the universe of US workers from 1999-2023 to reassess the nonprofit pay premium and its implications for efficient provision of public goods. We first document new descriptive characteristics of nonprofit employment and how such characteristics vary over time. Next, we leverage workers’ transitions between firms over time to estimate worker and firm-specific pay premia in a statistical job-ladder model of earnings. The final section of the paper explores different potential explanations for our estimated nonprofit pay differential: career trajectories, worker productivity, differential tax treatment of non-profit and for-profit employers, family structure, and other non-earnings determinants. Understanding the role of these factors is meaningful for our understanding of employment in the nonprofit sector.

Authors

• Jakob Brounstein, jakob.brounstein@gmail.com

• Sreeraahul Kancherla, US Treasury Office of Tax Analysis

• Stephanie Karol, stephanie.karol@treasury.gov

• Jennifer Mayo, DePaul University

• Carl McPherson, Wellesley College