Nonprofit Pay in a Competitive Market: Wage Penalty or Premium?

Two competing theories argue that the nonprofit sector pays differently: Nonprofit employees may accept lower pay to be able to do meaningful work for a good cause, or they may earn higher pay due to nonprofit organizations’ tax exemptions and weaker incentives to hold down wages. To test these opposing expectations, we use the 2005-2013 American Community Surveys to examine pay differences among registered nurses working for nonprofit, for-profit, and public hospitals. We also test hypotheses that public and nonprofit hospitals have smaller pay disparities by gender, race, and relationship status. We find that pay is highest in nonprofit hospitals, partly because they attract better-educated and more experienced nurses, but partly because they pay comparable nurses more than for-profit hospitals do. Furthermore, contrary to expectations, pay disparities appear to be largest in nonprofit hospitals.