Donative labor effect of the nonprofit pay: A multilevel explanation

• DOI: http://doi.org/10.1002/nml.21413
• Author: Tracy Shicun Cui
• Published date: 01 September 2020
• Date: 01 September 2020

RESEARCH ARTICLE

Donative labor effect of the nonprofit pay:

A multilevel explanation

Tracy Shicun Cui

Public Management and Policy, Georgia State University, Atlanta, Georgia

Correspondence

Tracy Shicun Cui, Public Management

and Policy, Georgia State University,

Atlanta, GA

Email: shicun.cui@163.com

Abstract

Studies on the nonprofit pay differential find that non-

profit workers in the child day care industry earn more

than comparable for-profit workers, whereas nonprofit

lawyers earn less than lawyers in for-profit firms. Are

nonprofit day care center workers less altruistic than

for-profit day care workers or nonprofit lawyers? The

answer is yet to come. The study aims to test the dona-

tive labor hypothesis, which is derived from altruistic

motivation. To estimate the donative labor effects on

the individual level, I apply cross-classified multilevel

modeling to disentangle the confounding effects on the

industry level and occupation level. Data are pooled

from Census 2000 and American Community Survey

2005–2016 to provide individual, industry, and occupa-

tion information. Industries are cleaned based on the

Statistics of Income data from the National Center for

Charitable Statistics. My analysis finds that nonprofit

workers earn 4.3% less than comparable for-profit

workers net of industry and occupation effects. The

study contributes to elucidating the explanatory levels

of different theories. The random-effects modeling has

established an exhaustive inventory of nonprofit pay

differential across industry and occupation levels.

KEYWORDS

commercialism, compensating wage, donative labor, nonprofit pay

differential

Received: 28 May 2019 Revised: 27 March 2020 Accepted: 27 March 2020

DOI: 10.1002/nml.21413

Nonprofit Management and Leadership. 2020;31:57–79. wileyonlinelibrary.com/journal/nml © 2020 Wiley Periodicals, Inc. 57

The difference between the nonprofit sector and the for-profit sector indicates legitimacies,

boundaries, and distinctions of the sectors. The donative labor theory reveals one aspect of the

difference in nonprofit labor. However, the donative labor explanation that nonprofits pay less

than for-profits (Handy, Mook, Ginieniewicz, & Quarter, 2007; Preston, 1990a; Weisbrod, 1983)

has been continuously compromised by counter-findings (Holtmann & Idson, 1993; King &

Lewis, 2017; Preston, 1988) or findings of equal pay (Ben-Ner, Ren, & Paulson, 2011; Hirsch,

Macpherson, & Preston, 2018; Leete, 2001). Existing findings are inconclusive because preva-

iling studies either focus on one or a few industries, which is not representative for all nonprofit

workers or devote to all industries but assuming the constant effects across industries and occu-

pations. When findings on the nonprofit pay differential diverge and explanations depart from

each other, we are left to wonder whether theories are wrong. Mixed results plead further inves-

tigation of whether and why nonprofit workers are different when they are in different indus-

tries or occupations.

Disaggregated industries under study are highly selective and repetitive such as child day

care centers, group homes, and nursing homes (Ben-Ner et al., 2011; Preston, 1988; Ruhm &

Borkoski, 2003). Studies find that nonprofits pay equally or even slightly higher than for-profit

firms and thus conclude that labor donation does not exist in the nonprofit sector. In contrast,

other studies on occupations find that nonprofit workers earn less than for-profit workers due

to their altruistic motivation (Frank, 1996; Handy & Katz, 1998; Preston, 1989; Weisbrod, 1983).

On the one hand, in her economy-wide study, Leete (2001) confirms a wide range of nonprofit

pay differentials varying from positive to negative across different industries and occupations.

On the other, the differentials sum to an average pay differential close to zero. Sector-switching

studies using short panel data concur that the difference is insignificant (Hirsch et al., 2018;

Ruhm & Borkoski, 2003). In this study, I examine the nature and magnitude of the donative

labor effect of nonprofit workers by simultaneously modeling its variation on industry and

occupation levels. To answer the research question, I draw the altruism theory from social psy-

chology to explain the individual motivation associated with donation behaviors and compen-

sating wage theory to explain the industry pattern of nonprofit pay differential. The multilevel

nature of the research question requires a statistical model that can decompose effects from dif-

ferent sources. The cross-classified random effects modeling (CCREM) is employed to fulfill this

purpose. I use nationally representative data pooled from Census 2000 and the American Com-

munity Survey (ACS) 2005–2016 based on the industry list extracted from Statistics of Income

(SOI) data from the National Center for Charitable Statistics (NCCS). The finding lends support

to the donative labor theory and compensating wage theory. Then, I visualize the industry and

occupation effects that provide a direction for future studies.

The rest of the article starts with reviewing the literature on the nonprofit wage differential.

Based on the evaluation of the strengths and weaknesses of current findings, I deconstruct the

theories and develop hypotheses, followed by a description of the methodology, data cleaning

process, variables, and models. Then, I present findings, results, and discussion of implications.

1|BACKGROUND

Weisbrod (1983) finds that public interest lawyers earned 20% less than comparable for-profit

attorneys. He argues that altruistic motivation underlies the systematic difference in the cross-

sector pay. Similarly, Preston (1989) finds that although clerical workers earned comparable

wages in the two sectors, managers and professionals earned 5-20% less in nonprofits than in

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