The Overpaid and Underpaid: A Comparison of Labor Costs in Nonprofit and For-Profit Service Organizations

The comparison between nonprofit and for-profit organizations has been a lingering question for scholars and practitioners. This research explores employee wage differentials across sectors using a national sample of child care workforce. After controlling for a range of individual, occupational, organizational, and community factors, this research reports a significant wage premium for nonprofit child care teachers. In addition, this study finds evidence for both the labor donation and property rights hypotheses, but the property rights theory demonstrates comparatively stronger explanatory power. Although individuals with stronger intrinsic motivation are more willing to donate labor for charitable outputs, inefficient management in nonprofits actually sets wage levels over the market level. Overall, the study highlights nonprofits’ comparative advantage in employee motivation but disadvantage in efficient management. The findings have implications for public and nonprofit management.