not for the profit but for the satisfaction - benz

Not for the Profit, but for the Satisfaction? –

Evidence on Worker Well-Being in Non-Profit Firms

Matthias Benz�

I. INTRODUCTION

Non-profit organizations account for a substantial and increasing share of

employment and production in the economy. In the service sector, wheremost

non-profit organizations operate, their share of total employment was more

than 15 percent in theUnited States in 1990, and the non-profit sector has been

growing strongly between 1990 and 1995, by 35 percent (Weisbrod 1997: 542).

Similar figures apply to other countries, like Germany, France and the United

Kingdom, where non-profit organizations employ roughly 9 to 10 percent of

the total service sector workforce. The substantial role of non-profit organiza-

tions has attracted increasing interest by economists and business economists,

in an effort to analyze what functional role non-profits may play in a for-profit

world (e.g. Hansmann 1980, Rose-Ackerman 1996, Weisbrod 1988, Glaeser

2003). While non-profits traditionally have operated in areas such as educa-

tion, research, arts, health care and other social services, recent developments

show that thenon-profit formmayalsohavea successful future in thehigh-tech

sector. Open source software projects like Linux, which are basically run on a

not-for-profit basis, have emerged as serious competitors for for-profit firms

like Microsoft.

The existence of non-profit firms has traditionally been explained by their

ability to mitigate certain product-market failures. Following Hansmann’s

(1980) seminal work, non-profits are seen to have a competitive advantage

where the quality of a service is difficult to contract upon; consumersmay then

prefer to deal with a non-profit firm, because it lacks the incentive to lower the

(non-contractible) quality of its services in order to raise profits (see also

Weisbrod 1988, Glaeser and Shleifer 2001). The recent rise of open source

KYKLOS, Vol. 58 – 2005 – No. 2, 155–176

r 2005 Blackwell Publishing Ltd., 9600 Garsington Road, Oxford OX4 2DQ, UK 155and 350 Main Street, Malden, MA 02148, USA

� Contact address: School of Law, 354 Boalt Hall, University of California at Berkeley, Berkeley, CA

94720-7200, USA; email: [email protected]. I would like to thank Patrick Bolton, Robert D.

Cooter, Henry Hansmann, Raymond Miles, Christopher Taber, Tom Tyler, Burton Weisbrod and

the editors of Kyklos for helpful discussions and comments on an earlier version of this paper, and

I gratefully acknowledge financial support by the Swiss National Science Foundation.

software has, however, drawn renewed attention to another advantage of non-

profits: theymaybeparticularly capable inmotivatingemployees tovoluntarily

contribute to a firm’s goals. The ‘donative-labor’ hypothesis has been offered

as an important explanation forwhyopen source projects can induce somany

unpaid volunteers to devote considerable time and effort to developing

software (e.g. Franck and Jungwirth 2003, Osterloh et al. 2003). For non-

profit firms more generally, it has long been recognized that particular

requirements for employeemotivation are likely to be important (Hansmann

1980, Rose-Ackerman 1996, Francois 2001). Employees in non-profit firms

are taken to be intrinsically motivated, be it by a desire to produce a quality

service, to promote the ideas or the vision of the non-profit’s mission, or to

assist in the production of a public good they see as desirable for society at

large. There is a strong notion that people working in non-profit firms derive

some other kind of utility from work than just the monetary reward that

compensates them for their work effort.

Although this view has received considerable attention, it has never been

tested directly. Most studies have investigated the issue indirectly by using a

compensatingwagedifferential approach: employees innon-profitfirms should

be willing to work for a lower wage if they gain additional, intrinsic utility

from their job.The evidence of a substantial number of studies is at bestmixed

(e.g.Mocan andTekin 2003, Leete 2001,RuhmandBorkowski 2003, Preston

1989, Weisbrod 1983). The studies suffer from the problem that theoretical

predictions overwage differentials in the non-profit sector are ambiguous.On

the one hand, people working in non-profit organizations can indeed be

expected to work for a lower wage if they value the job as such. On the other

hand, several forces can work in the reverse. Non-profits may pay higher

wages because they do not have to distribute profits to shareholders, but can

rather distribute them to their employees in the formof inflated salaries (‘rent-

sharing’).Non-profitfirmsmayalsohave to relyon (higher) efficiencywages, to

the extent that the services produced by non-profit employees are particularly

difficult to monitor. Thus, there is reason to believe that wage differentials do

not necessarily reflect the intrinsic utility employees gain from their work in

non-profit organizations.

In this paper, an effort is made to study worker utility in non-profit firms

directly. To our knowledge for the first time, job satisfactionmeasures in non-

profit and for-profit firms are compared empirically. Economists have long

refrained from using such satisfaction measures, because they have tradition-

ally seen utility as not directly measurable. Over the last years, however, self-

reported satisfaction measures like job satisfaction have received increasing

recognition in economics as reliable proxies for utility (see e.g. the survey by

Frey and Stutzer 2002). Thus, worker utility in non-profit and for-profit firms

canbe assesseddirectly byestimatingdifferences in job satisfactionbetween the

156 r 2005 Blackwell Publishing Ltd.

MATTHIAS BENZ

two groups. If the theoretical views underlying the donative-labor hypothesis

are correct, employees in non-profit firms should enjoy higher job satisfaction,

because they gain higher intrinsic utility from their work.

The empirical analysis undertaken here takes advantage of two large panel

datasets that include information on whether individuals work in non-profit

firms, an information that is rarely assessed in large-scale surveys.We use four

waves of the National Longitudinal Study of Youth (NLSY) from 1994 to

2000, andninewaves of theBritishHouseholdPanel Survey (BHPS) from1991

to 1999. These datasets allow for a representative picture of the relationship

between non-profit work and job satisfaction in the United States and Great

Britain in the 1990s. Moreover, they make it possible to explore the determi-

nants of differential job satisfaction in detail, as they contain information on

large sets of control variables.

The results of the empirical analysis largely confirm the traditional view on

non-profit firms: employees working in non-profit organizations are more

satisfied with their jobs than their counterparts in for-profit firms. The result

cannot be attributed to differences in monetary compensation or fringe bene-

fits, and it is robust to individualheterogeneitybetweennon-profitand for-profit

workers, aswell as to the fact that non-profit firms are heavily concentrated in

one single industry (the sector of ‘professional and related services’). The

evidence thus lends support to the view that non-profit firms offer substantial

non-pecuniary work benefits.

The paper is organized as follows: Section II discusses theories of worker

motivation and utility in for-profit and non-profit firms. In Section III, the

datasets used are presented, and Section IV contains the empirical analysis.

Section V shortly discusses implications of the results for the governance of

non-profit firms and offers concluding remarks.

II. WORKERMOTIVATIONANDUTILITYINNON-PROFITFIRMS:

THEORETICAL VIEWS ANDMEASUREMENT APPROACHES

The economic theory of non-profit organizations has frequently noted that the

non-profit sector is likely to have particular requirements for employee

motivation. According to Hansmann (1980), the nature of non-profit produc-

tion requires employees who are motivated more by the desire to produce a

quality product than by monetary rewards; in fact, the inability of nonprofits

to distribute residual earnings (the ‘nondistribution constraint’) serves as an

institutional device to attract such employees. Rose-Ackerman (1996) argues

that non-profit organizations often pursue an ideological mission of how a

particular service should be provided (e.g. in religion or education); as a con-

sequence, they rely on individuals that are rather motivated by the ideas or

r 2005 Blackwell Publishing Ltd. 157

WORKERWELL-BEING IN NON-PROFIT FIRMS

vision of an organization than by profit. More generally, Preston (1989) has

describednon-profit employees aspeoplewhoarewilling todonate labor to the

production of a public good they find valuable. A similar argument is made

by Frank (1996), who depicts non-profit organizations as particularly social-

ly responsible, suggesting that many individuals prefer to work for such an

employer. Thus, although specific formulations may differ, theoretical ap-

proaches generally stress the role of ‘intrinsic’ motivation in non-profit firms.

Employees are taken to derive utility not just frommonetary reward that com-

pensates them for their work effort; rather, they are seen to enjoy satisfaction

from thework and thework context itself.Non-profit organizations are able to

offer employees a workplace where they can assist in the production of a good

or service in which they find an intrinsic value.

There is some circumstantial evidence that supports this theoretical view of

work in non-profit organizations. In a study based on the Quality of Employ-

ment Survey 1977, Mirvis and Hackett (1983) find that non-profit employees

are considerablymore likely than for-profit workers to state that ‘their work is

more important to them than the money they earn’. People employed in non-

profit organizations also report more ‘meaningfulness’ in their work, and they

are less likely to say that their ‘job sometimes requires violating conscience’.

A recent survey commissioned by the Brookings Institution in 2002 reports

similar findings. Non-profit workers state with a higher probability than for-

profit workers that they can ‘accomplish something worthwhile’ in their job

(66 percent vs. 41 percent, see Light 2003: 36–38). As well, about three out of

four non-profit employees think that their organization is goodat ‘helpingpeo-

ple’,whereasonlyhalfof for-profitworkersdo.Non-monetaryworkcomponents

thus seem to play a considerable role in non-profit workers’ own evaluations

of their jobs.

The importance of intrinsic motivation in non-profit organizations also

receives support in a more indirect way. In his economic theory of intrinsic

motivation, Frey (1997) notes that intrinsic motivation is valuable for organi-

zations, but that it is also costly and fragile. Non-profit firms might not only

have to spend resources to carefully select intrinsically motivated employees,

but also find ways to continuously direct and support their motivation; they

can be expected to rely more on organizational practices and procedures that

strengthen intrinsic motivation to work towards the organization’s goals. The

available evidence indeed lends support to this view. The study byMirvis and

Hackett (1983) mentioned above shows that non-profit employees have

workplaces with more autonomy, task variety and greater influence on the

job than for-profit employees (see also Preston 1989). These work character-

istics have been identified as essential for the nurturing of intrinsic motivation

(for a survey of the psychological literature, see Ryan and Deci 2000). Non-

profit organizations have also been found to place more importance on wage


MATTHIAS BENZ

equity, an organizational practice that is seen to support intrinsic motivation

because it signals fair treatment by the employer (Leete 2000).

In contrast to the theories stressing the special nature of non-profit pro-

duction and its reliance on intrinsic motivation, there are, however, also dif-

ferent viewsof thenon-profit sector.Critiquesof thenon-profit formargue that

its existencemay havemore to dowith its favorable tax treatment and the lack

of shareholder pressure than with a genuine role in overcoming failures on the

product market (see e.g. the discussion in Rose-Ackerman 1996: 717f.). In this

view, non-profits do not serve an efficient function, but are rather an alien

element in a for-profitworld, survivingonly because they are protectedby their

special legal status. These arguments imply a very different nature of non-profit

employment.They suggest that employeesmaynotfind jobs innon-profitfirms

attractive because they can assist in the production of an intrinsically valuable

good; rather, they may do so because they receive better material benefits or

enjoy a quiet life.

In fact, the opposing theories of non-profit firms lead to quite ambiguous

predictions about wage differences between the for-profit and non-profit

sector. If employees in non-profit firms gain intrinsic utility from their job,

one can expect that they are willing to work for a lower wage in exchange for

this valued workplace characteristic. If it is correct, however, that the main

feature of non-profits is their freedom from corporate and property tax, from

cost-cutting pressures by shareholders, and from other regulations, one would

rather expect that non-profit organizations pay higher wages: they can share

some of the resulting rents with their employees in the form of inflated salaries

(Feldstein 1971, Borjas et al. 1983, Preston 1989). Higher wages might more-

over be paid because the nature of non-profit production makes it difficult

to monitor employees, and therefore higher efficiency wages are necessary

to ensure proper work effort (Ito and Domain 1987). This ambiguity of

theoretical predictions is reflected to a considerable extent in the empirical

literature. Mocan and Tekin (2003) have found, for example, that non-profit

firms pay higherwages in the child-care sector than for-profit firms; Ruhmand

Borkowski (2003) find essentially no wage difference between the sectors, a

result that is also supported by Leete (2000) for an economy-wide comparison

of for-profit and non-profit workers; Leete (2000), however, also shows that in

some industries, a negativewage differential exists, thus corroborating findings

of earlier studies that non-profit workers are willing to work for lower wages

than for-profitworkers (e.g. Preston 1989,Weisbrod 1983). It seems difficult to

draw a definitive conclusion from these diverse findings onwhether workers in

non-profit firms are intrinsically motivated or not.

Here, a novel approach is undertaken to study utility differences between

non-profit and for-profit workers. Rather than trying to identify utility in-

directly via wage differentials, an effort is made to assess utility in a direct way,



by looking at measures of job satisfaction. Job satisfaction has been increas-

ingly used by economists as a meaningful concept to analyze the labor market

(e.g. Hamermesh 1977, Clark and Oswald 1996, Blanchflower and Oswald

1999,Lalive2002,Clark2003; forasurveyseeWarr1999). Itsgrowinguse reflects

a more general change in economics towards the acceptance of self-reported

satisfaction measures as proxies for utility (Frey and Stutzer 2002). An

advantage of job satisfaction measures is that monetary determinants of

utility (reflecting rents or compensating wage differences) can be controlled

for in the empirical analysis; this makes it possible to study intrinsic, non-

monetary work benefits in a direct way, holding the effects of wages and

salaries constant.

III. DATA

The non-profit status of workers is rarely assessed in large-scale socio-eco-

nomic surveys. Most of the surveys regularly undertaken in western countries

donot comprise a separate category fornon-profit employment; rather, employ-

ees in non-profit firms are classified together with for-profit employees in the

category ‘private sector employment’1. There are, however, two notable excep-

tions. The first is the US-American National Longitudinal Study of Youth

(1979–2000), where in the last four waves of the survey, a new employment

classification was included that assessed non-profit employment separately

(presumably because of the increased importance of the non-profit sector); the

four available waves comprise the years 1994, 1996, 1998 and 2000.Non-profit

status is also assessed in the British Household Panel Survey, a representative

survey of the British population started in 1991. Here, information is available

for nine annual waves that cover the period 1991–1999.

The National Longitudinal Study of Youth (NLSY) and the British House-

hold Panel Survey (BHPS) can be considered as two of themost renowned and

widely used socio-economic surveys. They contain carefully collected and com-

prehensive information on representative samples of individuals in their res-

pective countries. The datasets have several advantages for the purposes of this

paper.First, theymeet thebasic requirementof containing informationonnon-

profit status and job satisfaction at the level of the individual worker. Second,

they extensively cover theareaofwork, includingdetailed informationonwork

relatedaspects suchas income,workinghours, occupation, education, industry

andother individual andfirm-relatedcharacteristics; this information is needed

1. Examples are theGeneral Social Survey or the Panel Study of IncomeDynamics in theUnited States,

and the German Socio-Economic Panel and the European Community Household Panel in Europe.

Non-profit workers are generally included in categories such as ‘works for a private firm’, as opposed

to ‘works for the government’ or ‘is self-employed’.


MATTHIAS BENZ

to study job satisfaction differences between non-profit and for-profit workers

ceteris paribus, i.e. holding various work-related characteristics constant.

Third, the surveys have a panel structure that can be exploited in the empirical

analysis; individuals can generally be observed over several waves, which

allows one to investigate the important question of what happens to the job

satisfactionof the same individualswhen theychange jobs froma for-profit toa

non-profit firm. And fourth, the use of surveys from two different countries

gives a broader picture of the robustness of empirical results thanwhen just one

country is looked at. Most of the empirical work studying non-profit organi-

zations has used US data only.

Like the dependent variable in the empirical analysis, job satisfaction is used

as a proxy for the utility people derive from their work. In the NLSY, job

satisfaction is assessed using the following question: ‘How (do/did) you feel

about your jobwith (nameof employer)? (Do/Did) you like it verymuch, like it

fairlywell, dislike it somewhat, ordislike it verymuch?’ Individuals are asked to

state their job satisfaction on a four point scale, from 1 (dislike it verymuch) to

4 (like it verymuch). The question asked in theBHPS is somewhatmore direct:

‘All things considered, how satisfied or dissatisfied are you with your present

job overall?’ Answers are coded here on a broader scale from 1 (not satisfied at

all) to 7 (completely satisfied).

In general, individuals in the countries considered seem to be quite satisfied

with their jobs. In the United States, over the period from 1994–2000, average

job satisfactionofall individuals in theworkforcewas3.39 (st.d. 0.68)ona scale

from 1 to 4. Interestingly, the answers to the job satisfaction question have

almost a binary nature: 48.3 percent of the respondents said that they ‘liked

their job verymuch’, 44.2 percent stated that they ‘liked it fairly well’, and only

5.7 percent and 1.8 percent, respectively, indicated that they ‘disliked their job

somewhat’ or ‘disliked it very much’. Following this binary nature of the ans-

wers, we will treat the job satisfaction measure in the empirical analysis as a

binary variable, consisting of the categories ‘likes job very much’ (value 5 1)

and ‘does not like job very much’ (value 5 0)2. In Britain, from 1991–1999,

workers indicated an average job satisfactionof 5.43 (st.d. 1.36) ona scale from

1–7. Here, the original seven point scale is used in the empirical analysis.

As the main purpose of the empirical investigation is to identify utility

differences between individuals working in non-profit and for-profit firms, the

NLSY and BHPS samples are restricted to employees that either work in a

private for-profit firm or in a private non-profit firm. Thus, all people work-

ing in government jobs, self-employed people and those helping in a family

2. This does not affect the qualitative nature of the results presented in the empirical section; however, it

makes the empirical analysis more straightforward in some respects, e.g. when individual fixed effects

regressions are estimated.



business are excluded from the analysis. Moreover, individuals are excluded if

they have not been working recently at the job, and if information on the wage

rate, education, tenure and other control variables is not available. This leaves

us with 16’887 observations from 6’565 individuals in the case of the NLSY,

and 33’445 observations from 9’652 individuals in the case of the BHPS3.

Among these individuals employed in the private sector, 9.0 percent are

employed in a non-profit organization in the NLSY, and 4.0 percent in the

BHPS. These figures correspond roughly to those available from other data

sources. Sokolowski and Salamon (1999), for example, estimate the rate of

non-profit employment in the United States to be 7.8 percent of total non-

agricultural employment in the year 1995, and data presented in Kendall and

Almond (1999) indicates that, depending on the definition of the non-profit

sector, between 2.2 and 6.3 percent of the total non-agricultural British work-

force was employed in non-profit organizations in 19954.

IV. EMPIRICAL ANALYSIS

1. Basic Results

Do non-profit employees derive higher utility from their jobs than for-profit

workers? In Table 1, basic results on the job satisfaction in non-profit and

for-profit firms are presented. The left-hand columns of Table 1 report raw

differences in job satisfaction between the two sectors in the NLSY and the

BHPS.This gives a first indicationofwhether employees innon-profit firmsare

on averagemore satisfiedwith their jobs than for-profit workers. In theUnited

States, from1994–2000, 52.9 percent of non-profitworkers said that they ‘liked

3. Note that in the case of the NLSY, there is a reduced number of observations for the first year 1994

(N 5 2’775 compared to the following years, where N E 4’700). This is because the non-profit /

for-profit status was not assessed for all individuals in the first year when this new distinction was

introduced in theNLSY (basically the questionwas asked only for thosewhohad changed employer).

In the following waves, information on non-profit / for-profit employment is available for all

individuals surveyed. Individuals are surveyed on average 2.6 times in either non-profit or for-profit

employment in the NLSY, and 3.5 times in the BHPS.

4. If the share of non-profit employment is compared to total employment, as in these authors’

calculations, the datasets used here contain somewhat lower, but still comparable proportions of

‘third sector’ employment. Non-profit workers account for 6.8% of all gainfully employed people in

the NLSY, and for 2.6% in the BHPS. In the NLSY, non-profit employees are predominantly

working in the following areas (in descending order of importance): hospitals, elementary and

secondary schools, religious organizations, welfare services, colleges and universities, other health

services, convalescent institutions, and nonprofit membership organizations. In the BHPS, the

respective sectors are: social welfare, charitable & community services, tourist offices & other

community services, religious services & other cultural services, trade unions, business& professional

associations, and school education (nursery, primary & secondary).


MATTHIAS BENZ

their job verymuch’, whereas only 44.3 percent of for-profit workers did; non-

profit employees thus are found to be 8 percentage points more likely to have a

high job satisfaction than for-profit employees.A similar picture emerges in the

Table 1

Job Satisfaction of Non-Profit and For-Profit Employees in the United States and Great Britain

Dependent Variable: Job Satisfaction

Variable United States Great Britain

mean jobsatisfaction

(binary variable)

logitregression

mean jobsatisfaction(scale 1–7)

orderedlogit

regression

Non-profit employee 0.529 0.353�� 5.69 0.356��

(0.070) (1.19) (0.074)For-profit employee 0.443 reference group 5.36 reference group

(1.36)Hourly wage (log) 0.478�� 0.235��

(0.042) (0.032)Working hours per week �0.014� 0.002

(0.006) (0.005)(Working hours)2 0.0002�� 0.0000

(0.0000) (0.0000)Tenure �0.071�� 0.029��

(0.011) (0.007)Tenure2 0.002� 0.0008�

(0.0006) (0.0003)Age 0.2101 �0.089��

(0.112) (0.009)Age2 �0.0031 0.001��

(0.002) (0.0001)Sex (Female) 0.226�� 0.373��

(0.044) (0.038)Working part-time – 0.521��

(0.072)Education in years(NLSY) / categ. (BHPS) �0.063 12 categ.

(0.057)(Education in years)2 0.002 –

(0.002)Marital status 3 categ. 5 categ.Ethnic background 4 categ. –Region 4 categ. 20 categ.Degree of urbanization 3 categ. –Year dummies 4 categ. 9 categ.

No. of observations 16’887 33’445No. of individuals 6’565 9’652Time period 1994–2000 1991–1999Chi2 361.32�� 1’069.08��

Notes: Unweighted regressions. Robust standard errors in parentheses (corrected for repeatedobservations on individuals). Significance levels: 10.05o po 0.1, �0.01o po 0.05, ��po 0.01.Data sources:NLSY 1994–2000, BHPS 1991–1999.



BHPS. In Great Britain, over the years from 1991–1999, people working in

non-profit organizations enjoyed on average a job satisfaction of 5.69 (on a

scale from 1 to 7, st.d. 1.19), compared to an average job satisfaction of for-

profitworkers of 5.36 (st.d. 1.39). Job satisfaction is thus on average 0.33points

higher in British non-profit firms than in British for-profit firms.

These raw differences, of course, may reflect a multitude of differences

between non-profit and for-profit work that have nothing to do with intrinsic

motivationor thenon-monetaryutilitynon-profitworkers get from theirwork.

For example, as discussed in Section II, non-profit firmsmay pay higherwages

than for-profit firms, which is likely to affect job satisfaction positively, or non-

profitworkersmayhave towork less hours for agivenwage, asnon-profitfirms

donot face the sameprofit-maximizingpressures as for-profit firms. In order to

account for such differences between the non-profit and for-profit sector, the

right-hand columns in Table 1 report results from multiple regressions that

control for a basic set of work-related variables. Apart from a variable

indicating whether a worker is employed in a non-profit firm, the regressions

include variables on the individuals’ wage rate5, hours worked per week

(including overtime), tenure, age, years of education, gender, a set of dummy

variables on the respondent’s ethnic background, marital status, region of

residence and the place of residence’s degree of urbanization. In the case of the

NLSY,a logit regression is estimated,as thedependent job satisfactionvariable

has a binary nature, and in the case of the BHPS, an ordered logit estimator is

used, because here the dependent variable is ordinally scaled. Both regressions

correct for the fact that individuals are observed repeatedly over time, i.e.

robust standard errors are used to determine the statistical significance of the

estimated coefficients.

The results inTable 1 show that non-profit employees are significantly more

satisfiedwith theirwork than for-profit employees, evenwhen a range ofwork-

related variables are controlled for in the empirical analysis. The estimated

coefficients for the variable ‘works as a non-profit employee’ are statistically

highly significant and of a comparable size as the raw differences indicated for

both the United States and Great Britain in the respective left-hand columns6.

5. In the NLSY, information on individuals’ hourly wage rate is provided by the Center of Human

Resource Research, the institute responsible for the survey. The CHRR calculates wage rates from

verydetailed informationon individuals’ labor income. In the case of theBHPS, thewage rate is based

on own calculations; an individual’s monthly earnings are divided by the hours usually worked per

month.

6. Strictly, the results have to be interpreted by looking at the marginal effects for each variable, as the

estimatedcoefficients ofa logit orordered logit regressiondonothaveany intuitive interpretation.The

marginal effects for the variable ‘non-profit employee’, indicating the changeof theprobability that an

individual is to be found in the highest job satisfaction category, are 8.8% for the United States and

5.5%forGreat Britain.Thus, a non-profit employee is 8.8%more likely than a for-profit employee to

‘like the job verymuch’ in the case of theNLSY, and 5.5%more likely to state ‘job satisfaction5 7’ in


MATTHIAS BENZ

This result shows that the higher job satisfaction of non-profit employees is not

due to differences in the variables that are included in the regressions. In

particular, non-profitworkers’ higherutility fromworkcannotbe explainedby

better material outcomes, like higher wages or lower working hours. The job

satisfaction differences between non-profit and for-profit workers are not only

statistically, but also economically significant. If they are compared to the

effects that e.g. wages have on job satisfaction, it can be calculated that wages

for for-profit employees would have to be doubled (in the NLSY) and tripled

(in the BHPS) in order to make for-profit employees as satisfied as non-profit

workers7.

It is noteworthy to stress that a variable on wages should be included in the

regressions, irrespective of what the theoretical predictions on wage differen-

tials between the non-profit and for-profit sector are. If there are rents in the

labormarket that accrue tonon-profit employees, the variableonwages should

be included in the regressions toaccount formonetary rents thatmaypositively

affect non-profit workers’ job satisfaction. If, in contrast, the labor market is

sufficiently competitive and non-profit employees are willing to work for a

lower wage, the variable on wages should also be included in the regression,

because one ought to compare the utilities of twoworkers that are equally well

paid. A higher job satisfaction for non-profit workers would in this case purely

reflect non-monetary benefits from work. The results reported in Table 1

suggest that such non-monetary work benefits indeed exist in non-profit firms.

2. A Closer Look at the Non-Profit – Job Satisfaction Relationship

The empirical analysis undertaken so far has taken a broad look at employees

in private firms, treating non-profit and for-profit employees as a single large

group. The special nature of the non-profit sector, however, suggests that a

closer analysis may be necessary. Besides its legal status, the non-profit sector

distinguishes itself from the for-profit sector in several respects.

the BHPS.While in the case of theNLSY, themarginal effect can directly be compared to the raw job

satisfactiondifference, themagnitude of themarginal effect in theBHPScanmore easily be assessed if,

for simplicity, one uses an OLS estimator rather than ordered logit. The estimated coefficient for the

variable ‘non-profit employee’ from an OLS-regression is 0.276 for Great Britain, which is slightly

lower than the raw job satisfaction difference of 0.33.

7. Theseestimateshave tobeconsidered,withoutdoubt, as implausiblyhigh. Ithas tobenoted,however,

that it is difficult to assess the magnitude of job satisfaction differences by comparing them to the

effects that wages have on job satisfaction. In a perfectly competitive labormarket, the effect of wages

on job satisfaction is expected to be zero, because every increase in non-monetary utility ( job

satisfaction) is compensated by a lower wage (Lalive 2002). Thus, a simple comparison of the non-

profit coefficient and the wage coefficient, as reported above, is very likely to lead to a substantial

overestimation of the implied wage differential.



Men and Women in the Non-Profit Sector

One special feature of thenon-profit sector is that it employs a particularly high

proportion of women. Among the non-profit employees surveyed in the

NLSY, 67.8 percent were women, while the share of female employment in

for-profit firmswas only 44.3 percent. In theBHPS,more than two out of three

non-profit employeeswerewomen (70.4 percent), compared to a proportion of

46.2 percent in the for-profit sector. This obvious attractiveness of non-profit

work for women raises the question of whether gender-specific preferences for

non-profit employment exist. It could be, for example, that only women enjoy

utility from the intrinsic benefits that non-profitwork offers (like thepossibility

to help), while men might have preferences for other work characteristics (like

higher incomes). To address this issue, the regressions presented inTable 1 are

run separately for the two groupsofmen andwomen.The respective results are

indicated in Table 2.

The findings reported in Table 2 show that the relationship between job

satisfaction and non-profit work is not a gender-specific phenomenon. Both

men and women enjoy higher utility from work in non-profit firms than their

counterparts in for-profit firms. Men even seem to profit more from being a

non-profit employee, as the larger estimated coefficients for both the United

States andGreatBritain indicate.Thus, there is little evidence that onlywomen

value the characteristics of non-profit work. In fact, the large proportion of

women in non-profit firms can largely be explained by non-profit firms’

concentration in the industry of ‘professional services’, a sector that is generally

dominated by female employment8.

Accounting for Personality Characteristics: Fixed Effects Estimates

The argument mentioned above that men and women might have different

preferences for non-profit work reflects a more general issue: people working

in non-profit firms might be a special selection of individuals with different

personality characteristics. This seems not to be implausible: it is likely that

non-profit firms attract e.g. particularly altruistic people. If altruistic people

haveanatural tendency tobemore satisfiedwith their jobs, irrespective ofwhat

employment status they are in, the estimated coefficients might not reflect

benefits from being a non-profit employee, but merely personality differences

between the two groups of non-profit and for-profitworkers.Aswell, causality

may run in the reverse direction ifmorehappypeople aremore likely tobecome

8. In the industry of ‘professional services’, non-profit and for-profit firms employ roughly equal shares

ofwomen inboth theNLSYandBHPS. See also the subsection ‘The role of industry specific effects on

job satisfaction’ below, where only this industry is looked at.


MATTHIAS BENZ

non-profit employees. Both problems can lead to biased estimates of the non-

profit– jobsatisfactionrelationship ifonlyacross-sectionofworkers is lookedat.

To account for such concerns, the panel structure of the NLSY and the

BHPS is exploitedwhere persons are observedmoving into non-profit employ-

ment or out of it. This allows one to follow people over time and investigate

how the job satisfactionof the samepeople changeswhen they change their em-

ployment status from a for-profit to a non-profit firm and vice versa. Techni-

cally, regressions with individual fixed effects can be estimated that control for

time-invariant personal characteristics. The results of such fixed-effects-regres-

sions for theUnitedStates andGreatBritain are reported inTable 3. In the case

of the NLSY, a conditional logit regression with fixed effects is estimated, and

in the case of the BHPS, an OLS estimator with individual fixed effects is

applied9. Otherwise, the same regression specifications are used as in Table 1.

Table 2

Job Satisfaction and Non-Profit Employment: Separate Regressions for Men and Women



logitregression(men only)

logitregression

(women only)

ordered logitregression(men only)

ordered logitregression

(women only)

Non-profit employee 0.464�� 0.307�� 0.555�� 0.306��

(0.125) (0.084) (0.137) (0.089)For-profit employee ref. group ref. group ref. group ref. groupHourly wage (log) 0.481�� 0.515�� 0.399�� 0.139��

(0.058) (0.063) (0.048) (0.044)Working hours per week 0.0008 �0.0191 0.035�� 0.016�

(0.009) (0.010) (0.009) (0.007)(Working hours)2 0.0001 0.00031 �0.0002� 0.0002�

(0.0001) (0.0002) (0.0000) (0.0000)

No. of observations 9’052 7’835 17’654 15’791No. of individuals 3’412 3’153 4’989 4’663Time period 1994–2000 1994–2000 1991–1999 1991–1999Chi2 205.64�� 187.27�� 370.25�� 650.47��

Notes: Unweighted regressions. Robust standard errors in parentheses (corrected for repeatedobservations on individuals). In addition to the variables shown, the regressions contain the samevariables as in Table 1 on tenure, age, part-time work, education, marital status, ethnic background,region, degree of urbanization and year. Significance levels: 10.05 o p o 0.1, �0.01 o p o 0.05,��po 0.01.Data sources:NLSY 1994–2000, BHPS 1991–1999.

9. Theanalysis for theBHPS is carriedoutusinganordinary least squaresfixedeffects estimator,because

ordered logit fixed effects estimators are not yet commonly available. A new ordered probit fixed

effects estimator has been applied to the study of satisfaction e.g. by Ferrer-i-Carbonel and Frijters

(2004).



Table 3 indicates that the non-profit – job satisfaction relationship is largely

a robust phenomenon. People who experience both for-profit and non-profit

employment are on average more satisfied with their jobs when they are work-

ing for a non-profit firm than when they are employed in a for-profit firm. The

estimated coefficients for the variable ‘works as a non-profit employee’ are of a

comparable magnitude to those reported in Table 1, and they are statistically

significant for both theUnited States andGreat Britain. Thus, the non-profit –

job satisfaction effect cannot be explained by systematically different person-

ality characteristics between employees in the two sectors. Rather, the results

suggest that non-profit work is institutionally different than for-profit work,

providing employeeswith thepossibility to enjoy intrinsic benefits fromwork10.

Table 3

Job Satisfaction and Non-Profit Employment: Fixed Effects Regressions



logit regression(as in Table 1)

conditional logitregression

(fixed effects)

OLS regression(specificationas in Table 1)

OLS regression(fixed effects)

Non-profit employee 0.353�� 0.399�� 0.276�� 0.394��

(0.070) (0.138) (0.047) (0.070)For-profit employee ref. group ref. group ref. group ref. groupHourly wage (log) 0.478�� 0.588�� 0.188�� 0.213��

(0.042) (0.088) (0.022) (0.026)Working hours per week �0.014� 0.005 0.0071 0.0061

(0.006) (0.008) (0.005) (0.003)(Working hours)2 0.0002�� 0.0001 �0.0000 �0.0000

(0.0000) (0.0001) (0.0000) (0.0000)

No. of observations 16’887 7’769 33’445 33’445No. of individuals 6’565 2’483 9’652 9’652Time period 1994–2000 1994–2000 1991–1999 1991–1999Chi2/F 361.32�� 170.54�� 20.07�� 11.84��

Notes:Unweighted regressions. Standard errors in parentheses (corrected for repeated observationson individuals in the respective left-hand columns). For the conditional logit regression (NLSY),the sample size is smaller, because the estimator only takes individuals into account whose jobsatisfactionat least changesonce. Inaddition to the variables shown, the regressions contain the samevariables as inTable 1 on tenure, age, part-time work, education, marital status, ethnic background,region, degree of urbanization and year. Significance levels: 10.05 o p o 0.1, �0.01 o p o 0.05,��po 0.01.Data sources:NLSY 1994–2000, BHPS 1991–1999.

10. Note that the results presented here do not mean that every person picked at random from the

population of employees would be more satisfied with the job in a non-profit firm. The fixed-effect-

regressions account for time-invariant personality characteristics, but they do not rule out the

argument that only somepeople have a preference for the characteristics of non-profitwork.With an


MATTHIAS BENZ

The Role of Industry Specific Effects

A thirdpeculiarityof thenon-profit sector is that it ishighly concentrated inone

single industry. In the NLSY, 83.4 percent of the surveyed non-profit workers

are employed in the industry ‘professional and related services’. A similar share

is found in the BHPS, where four out of five non-profit employees are working

in the industry ‘other services’ (80.4 percent). These numbers do not come as a

surprise. The industry categories ‘professional and related services’ and ‘other

services’ encompass areas such as health care (hospitals, nursing homes and

other medical care institutions), education, research and development, chari-

table and community services, religious services, arts institutions (museums,

orchestras, libraries) and professional associations. These are areas where

non-profit organizations have traditionally played an important role, whereas

they hardly exist in industries like manufacturing, construction or trade. This

characteristic makes it questionable whether non-profit and for-profit workers

can be broadly compared on an economy-wide basis. Potentially, non-profit

workers are only more satisfied with their jobs because they predominantly

work in an industry where job satisfaction is generally high. It thus seems

warranted to take a closer look at the ‘professional services’ industry only, in

order to further investigate the robustness of the non-profit – job satisfaction

relationship.

In Table 4, the samples of the NLSY and the BHPS are narrowed to those

individuals that work in the industries ‘professional and related services’ and

‘other services’, respectively. Among the people employed in these industries,

38.1 percent worked for a non-profit firm in theNLSY, and 26.9 percent in the

BHPS. The regressions reported in Table 4 indicate whether these individuals

were more satisfied with their jobs than their counterparts employed in for-

profit firms in the same industry. The regressions contain the same variables

as those in Table 1. In addition, we also include a set of control variables on

different occupation categories, in order to account for potential occupation

specific determinants of job satisfaction11.

The results reported in Table 4 show that the non-profit – job satisfaction

relationship is to some extent an industry specific effect. The estimated coeffi-

cients for the variable ‘works as a non-profit employee’ are considerably smaller

economy-wide share of non-profit employment far below 10 percent, it seems unlikely that most

employeeswouldbe better off in a non-profit firm; onewould expect to seemore supply of non-profit

work if that were the case. That said, the argument nevertheless remains that non-profit work seems

to be institutionally different than for-profitwork, providing a class of employeeswith the possibility

to derive intrinsic benefits from work.

11. The regressions include 9 occupation categories in the case of theNLSY (e.g. ‘professional, technical

and kindredworkers’, ‘managers, officials and proprietors’, ‘sales workers’, etc.), and 12 occupation

categories in the BHPS.



than those found in an economy-wide comparison (Table 1), indicating that

non-profit firms mainly operate in an industry where job satisfaction is on

average higher than in other industries. Nevertheless, statistically significant

differences between non-profit and for-profit workers are found also for the

reduced, industry-specific samples. In both the NLSY and the BHPS, non-

profit employees are found to be more satisfied with their jobs than for-profit

workers in the same industry sector (marginally significantly so in the Ameri-

can case, po0.1, and significantly so in Great Britain, po0.05).

Fringe Benefits in Non-Profit Organizations

Do the results presented so far show that non-profit firms provide jobs rich in

intrinsic work benefits? An alternative explanation of high job satisfaction

among non-profit workers is that non-profit firms rather compensate their

employees with non-wage services, such as generous fringe benefits. In fact,

fringe benefitsmay be an attractive formof compensation for non-profit firms.

If the view is correct that non-profit organizations can share rents with their

Table 4

JobSatisfactionandNon-ProfitEmployment:RestrictedSamplesof ‘Professional Services’Workers




logit regression(restricted sample)


(as in Table 1)


(restricted sample)

Non-profit employee 0.353�� 0.1481 0.356�� 0.252�

(0.070) (0.089) (0.074) (0.099)For-profit employee ref. group ref. group ref. group ref. groupHourly wage (log) 0.478�� 0.200� 0.235�� 0.199�

(0.042) (0.089) (0.032) (0.082)Working hours per week �0.014� �0.0191 0.002 �0.027�

(0.006) (0.010) (0.005) (0.011)(Working hours)2 0.0002�� 0.0002 0.0000 0.0003�

(0.0000) (0.0001) (0.0000) (0.0001)

No. of observations 16’887 3’290 33’445 3’941No. of individuals 6’565 1’559 9’652 1’799Time period 1994–2000 1994–2000 1991–1999 1991–1999Chi2 361.32�� 84.88�� 1’069.08�� 357.95��

Notes: Unweighted regressions. Robust standard errors in parentheses (corrected for repeatedobservations on individuals). In addition to the variables shown, the regressions contain the samevariables as inTable 1 on tenure, age, part-time work, education, marital status, ethnic background,region, degree of urbanization and year, and also information on occupation categories notcontained in Table 1. Significance levels: 10.05o po 0.1, �0.01o po 0.05, ��po 0.01.Data sources:NLSY 1994–2000, BHPS 1991–1999.


MATTHIAS BENZ

employees, it may be easiest to do so in the form of non-wage compensation.

While inflated wages are likely to meet the scrutiny of donors and customers,

because they are easy to compare between firms and sectors, fringe benefits are

relatively intransparent and can be justified as socially progressive. Thus, non-

profitfirmsmaybeparticularlygenerouswith their employees in theareaofnon-

wage compensation, which is likely to affect their job satisfaction positively.

The NLSY contains some information on employees’ fringe benefits that

allows to address the question whether non-profit workers’ job satisfaction is

due to advantages in non-wage compensation (there is unfortunately no

information available for the BHPS). Descriptive statistics show that non-

profit employees are indeed more likely to receive fringe benefits from their

employers. For example, in the sector of ‘professional and related services’,

87.0 percent of non-profit workers are offered health insurance by their

employer, compared to 80.4 percent of for-profit employees. Similar numbers

apply to life insurance (78.0 percent vs. 66.9 percent), dental insurance (77.1

percent vs. 64.2 percent), maternity leave (80.7 percent vs. 76.1 percent),

employer-provided pension plans (77.8 percent vs. 67.6 percent), training (73.6

percent vs. 61.5 percent) and child care (20.0 percent vs. 14.4 percent), while

there are no differences in the areas of flexible work schedules (63.1 percent vs.

62.6 percent) and the number of vacation days (14.2 vs. 13.2). In Table 5,

information on these fringe benefits is included in the regression, in order to

investigate whether they explain the higher job satisfaction of non-profit

employees in the NLSY12.

The findings reported in Table 5 indicate that non-profit employees’ above-

average fringe benefits do not account for their particular job satisfaction: the

coefficient on the variable ‘works as a non-profit employee’ retains its

magnitude and statistical significance. This is so because the provision of

fringe benefits, somewhat surprisingly, does not affect the job satisfaction of

workers in a systematic way. While some fringe benefits, like company-

provided child care or flexiblework schedules, affect job satisfaction positively,

others exert no effect, or even depress job satisfaction. In any event, the results

show that non-profit workers’ higher job satisfaction cannot be explained by

the better non-wage benefits offered by non-profit firms.

Tosummarize thefindings, there seems tobe sufficiently robust evidence that

non-profit workers experience particular satisfaction from their jobs. The

result of higher worker well-being in non-profit firms cannot be attributed to

differences in monetary compensation or fringe benefits, and it is robust to

individual heterogeneity between non-profit and for-profit workers, as well as

12. Information is included in the form of dummy variables for the respective fringe benefits, indicating

whether an individual is offered the particular benefitbyhis orher employer.As there is somemissing

information on these variables, the sample size in Table 5 is lower than in Table 4.



to the fact that non-profit firms are heavily concentrated in one single industry.

The most likely explanation of the evidence seems to be that non-profit firms

offer substantial non-pecuniary work benefits.

The results reported in this paper, however, should be qualified in two

respects. First, we have not offered an empirical test that would directly con-

firm the underlying hypothesis. Such a test could, for example, consist in an

Table 5

Job Satisfaction and Non-Profit Employment: Accounting for the Role of Fringe Benefitsin the NLSY


Variable United States


logit regression(with variables on fringe benefits)

Non-profit employee 0.1481 0.1891

(0.089) (0.098)For-profit employee ref. group ref. group

Provision of fringe benefitsHealth insurance �0.229

(0.171)Life insurance �0.309�

(0.140)Dental insurance �0.095

(0.130)Maternity leave 0.029

(0.125)Pension plan 0.069

(0.132)Flexible work schedules 0.250��

(0.094)Training 0.158

(0.105)Child care 0.385��

(0.126)Number of vacation days �0.0003

(0.002)Hourly wage (log) 0.200� 0.222�

(0.089) (0.102)

No. of observations 3’290 2’708No. of individuals 1’559 1’369Time period 1994–2000 1994–2000Chi2 84.88�� 128.67��

Notes: Unweighted regressions. Robust standard errors in parentheses (corrected for repeatedobservations on individuals). In addition to the variables shown, the regressions contain the samevariables on work hours, tenure, age, sex, education, occupation, marital status, ethnic background,region, degree of urbanization and year dummies as in Table 4. Significance levels: 10.05o po 0.1,�0.01o po 0.05, ��po 0.01.Data source:NLSY 1994–2000.


MATTHIAS BENZ

attempt to fully explain the job satisfaction differential between non-profit and

for-profit workers by their subjective evaluations of ‘how useful the job is for

society’ or ‘how much one can help other people in this job’ (for an example

of such an empirical strategy, see Benz and Frey 2003). Second, alternative

explanations of the results remain possible, e.g. that non-profit workers have

less stress-related experiences atwork, beyond the numbers of hours theywork

(but see e.g. Light 2003). The datasets used unfortunately do not contain the

variables required to address these issues.Futureworkmight be able to explore

the reasons behind the non-profit job satisfaction differential in more detail

than has been possible here.

V. CONCLUDINGREMARKS

In this paper, an old notion about non-profit organizations is tested in a novel

way.There is a long tradition that sees non-profit firmsasplaceswhere employ-

ees not only enjoy satisfaction from the paycheck they get, but also from the

work theydo itself.Economistshave traditionally investigated thisphenomenon

by looking at compensating wage differentials, seeking evidence that non-profit

employees are willing to work for lower wages in exchange for the intrinsically

valued qualities of their workplaces. Here, for the first time, measures of job

satisfaction are used to compare the utilities of non-profit and for-profit

employees. The empirical results show that inboth theUnitedStates andGreat

Britain over the 1990’s, non-profit workers were generally more satisfied with

their jobs than for-profit workers, a finding that is difficult to explain by

material differences between the sectors, but is consistent with the view that

non-profit firms offer substantial intrinsic work benefits.

What consequences do the results presented in the empirical analysis have for

the governance of non-profit firms? In order to conclude, we wish to argue that

they can inform ongoing discussions on the non-profit form by highlighting

advantages of non-profit firms that have rather been forgotten or downplayed

in recent years. Probably the most important development that the non-profit

sector has experienced over the last decade, especially in the United States, is a

strong tendency to introduce concepts taken from the business sector. This

trend has come in different facets. On the one hand, non-profit firms have

become more commercially oriented over the 1990’s (for an overview, see

Weisbrod 1997, 1998); theboundaries between thenon-profit and the for-profit

sectorhave therebybecome increasinglyblurred.On theotherhand,manynon-

profit firms have started to base their human resources policies on approaches

applied in the for-profit sector, in particular by introducing pay-for-perfor-

mance schemes (e.g.Arnould, BertrandandHallock2000). Bothdevelopments

bring non-profit firms closer to being like for-profit organizations.



The results presented in this paper, however, make it questionable whether

non-profit firms should be run as if they were a private business organization.

People working in non-profit firms seem to be motivated by more than just

monetary concerns, and they specifically value the working conditions offered

by non-profit firms, which results in a high job satisfaction. This characteristic

is likely to get lost once differences between non-profit and for-profit firms

disappear, with potentially detrimental consequences for employeemotivation

and the functioning of the non-profit sector. The governance of non-profit

organizations thus may gain by not pushing the view too far that for-profit

sector management policies are also ‘best-practice’ for non-profit firms. In

contrast, non-profit organizations seem to have a competitive advantage in

motivating and satisfying theirworkers, an asset that theymayfindworthwhile

to preserve.

On average, non-profit firms still seem to understand this. For example, des-

pite current trends, non-profit firms continue to rely less on pay-for-perform-

ance plans to motivate employees than for-profit firms. Data contained in the

NLSY shows that in the years from 1996 to 2000, 10.2 percent of non-profit

workers in the ‘professional services’ sector received some kind of performance

pay (mainlybonuses),while 17.0percentof for-profit employeesdid so (seealso

Ballou and Weisbrod 2003). Interestingly, one may even argue that the for-

profit sector increasingly gains insights into how to raise workers’ satisfaction

and motivation by adopting procedures and organizational principles applied

in non-profit firms. The recent successes of open source software projects like

Linux, which deliberately apply a ‘not-for-profit’ approach to their business,

highlight the potential of the non-profit form in knowledge- and innovation-

based industries (see e.g. Franck and Jungwirth 2003, Osterloh et al. 2003,

Economist 2004).

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SUMMARY

Non-profit firms are often seen as workplaces where people not only work for money, but also find

substantial satisfaction in the kind of work they do. Studies looking at compensating wage differentials,

however, have only found limited support for this notion. In this paper, a novel approach is undertaken to

compare the utilities of non-profit and for-profit employees, by using measures of job satisfaction. The

results show that in both the United States and Great Britain over the 1990’s, non-profit workers were

generallymore satisfiedwith their jobs than for-profitworkers. The robustness of the results is explored in

detail, and implications for the governance of non-profit firms are shortly discussed.


MATTHIAS BENZ

not for the profit but for the satisfaction - benz

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