Salamon and Newhouse Publish The 2019 Nonprofit Employment Report

From the conclusion of Lester M. Salamon and Chelsea L. Newhouse, "The Nonprofit Employment Report," Nonprofit Economic Data Bulletin No. 47 (Baltimore:  Johns Hopkins Center for Civil Society Studies, January 2019):

The data presented in this report demonstrate that the nonprofit sector is not only a significant employer, but also a significant contributor to employment growth even in recessionary periods of the sort that occurred in the wake of the 2007 financial crisis. This resilience is due in important part to the overall shift in America toward a service economy, demographic trends such as the aging of the population and the expanded female participation in the labor force that are boosting demand for the kinds of services that nonprofits have traditionally provided, the expansion of government funding for many of these services, and the counter-cyclical nature of many of the government “safety net” programs, which causes funding to expand when recessionary pressures disrupt normal sources of revenue.

However, nonprofits are not the only institutions benefiting from these trends. To the contrary, for-profit firms have increasingly entered these service fields as well. The fact that government has shifted from producer-side subsidies such as grants to consumer-side subsidies such as tax expenditures and vouchers has intensified this trend by channeling increasing shares of government support through the market, where for-profits have inherent advantages. For-profits also benefit from their superior access to investment capital through the issuance of stock, which gives them an edge in responding quickly to increases in demand occasioned by new or expanded governmental support. In addition, for-profits are less held back than are nonprofits by mission-related constraints on the types of clients they should primarily serve, giving them greater access to paying customers. The upshot has been an uneven playing field for nonprofit providers and a resulting steady loss of nonprofit market share even as the overall scale of nonprofit employment has increased.

While competition certainly has its place in this field as in many others, the competition needs to be on a level playing field, particularly given the special contributions that nonprofits have been found to make in devising innovative forms of service, serving more disadvantaged clients, and staying the course even when economic circumstances turn sour. These findings therefore have significant practical implications for both nonprofit stakeholders and policy makers. In the first place, they demonstrate the significant job creation potential of the nonprofit sector, especially during recessions, and therefore highlight the need to keep this sector’s potentials in view as national and regional efforts to boost job growth are put in place. Among other things, these findings demonstrate why job promotion efforts that operate exclusively through the income tax mechanism are insufficient because they discriminate against this important set of job-creators for which income tax incentives have little effect. So, too, government contracting regimes that select providers of government-funded services purely on the basis of the lowest unit cost of services can inadvertently squeeze out some of the major features that make nonprofits special, such as their community-building activities and their charity care. Finally, expanded efforts are needed to overcome the structural impediment that nonprofits face in raising capital due to the prohibitions that bar them from sharing profits with investors and therefore prevent their access to equity finance through the issuance of shares. Expanded interest subsidies and loan guarantees are among the interventions that can help in this area.

Despite the growth of the for-profit presence in many traditional nonprofit fields, the nonprofit sector remains a crucially important provider. To date, the sector has shown remarkable resilience in the face of significant economic pressures and competitive challenges. With public funding under siege and private resources strained, however, the nonprofit job engine is under increasing pressure, with clear evidence of loss of market share in crucial fields. If evidence of the sort provided here can call attention both to the strengths that this sector has displayed and some of the challenges it now faces, it will have served its purpose well.

 

Darryll K. Jones and Easter Floyd-Clarke