The Systematic Starvation of Those Who Do Good

Late last year, New York State Comptroller Thomas P. DiNapoli reported that nonprofits in New York employ nearly 1.3 million people, representing more than 18 percent of all private employment in the state. In New York City alone, human service organizations—those focused on the overall quality of life of local populations, and often addressing the most economically intractable and politically unappealing problems—employ more than 200,000 people. Yet despite the importance of these institutions to employees and the people they serve, many nonprofit workers do not earn a living wage.

Across the United States, nonprofits struggle to pay competitive wages, especially in the human services sector. New York nonprofits have the third-highest prevalence of low wages in the private sector, behind food service and retail. This is in spite of the fact that its human services workforce is highly skilled and highly educated—two-thirds of workers have some college education, and close to half hold bachelor’s degrees or higher. One factor in the widespread acceptance of these low wages may be that, across the state, 82 percent of these workers are women, and 50 percent are people of color. Both of these groups typically earn less than their counterparts who are white, male, or both. Both women and people of color also tend to come into our workforce with higher levels of student debt, making low pay all the more burdensome.  

The negative effects of poor pay are wide-ranging and institutionalized, and they pose an existential threat to the nonprofit sector as it currently exists. Following the sudden bankruptcy of Federation Employment and Guidance Service (FEGS) in 2014—an 81-year-old, $250 million human services nonprofit in New York City—the Human Services Council’s Commission on Nonprofit Closures reported that the systematic underfunding of nonprofits has led to “salaries so low that many nonprofit employees depend on safety net programs, such as food stamps and Medicaid. It also results in inadequate investment to keep facilities safe and in good repair.” Ann Goggins Gregory & Don Howard describe this underfunding as a “starvation cycle,” where nonprofits settle into a “low pay, make do, and do without” culture.

This dynamic is bad for everyone—for children and families, for communities, and certainly for employees. It is also frustrating for public agencies charged with achieving results via contracts with the nonprofit sector and for the taxpayers who foot the bill.

So how did we get here?

The approach to poverty in American politics generally—and in public child welfare specifically—has always been influenced by the widespread understanding of poverty as primarily a moral and personal failing, rather than a structural issue. Child and family poverty, and the policy levers pulled in response to it, have also been marked by significant racial inequity. Throughout its history and up to the present day, the United States (to a greater extent than other developed countries) places strict means testing on its safety net, requiring that families demonstrate great need prior to receiving assistance. We must understand strict means testing as a policy strategy, then, within this politically and morally charged historical context.

This dynamic provides insight into the old adage (widely attributed to the civil servant and Great Society architect Wilbur J. Cohen) that “a program for the poor is just a poor program.” The efficacy of means testing as a policy approach is debatable, but the record is nuanced, and entangled with a variety of demographic and economic factors.  Nevertheless, case studies dating from the 19th century to the present day—including the institutional failures of the poorhouse movement, the rise and fall of mothers’ pensions in the early 20th century, and, more recently, the ferocious backlash against many War on Poverty programs—demonstrate how this segregation of programs for the very needy creates negative stereotypes and connotations. Programs designed (or perceived to be designed) exclusively for poor or marginalized populations tend to be politically vulnerable and viewed with scorn, and tend to convey this scorn and stigma to recipients through their resources, administrative structures, and requirements.

A 2006 paper by Jennifer Stuber and Mark Schlessinger showed that the stigma associated with means tested programs may also disproportionately impact people who are members of racial minorities. One of the reasons we see such disregard for the sustainability of the nonprofit sector—which in many places is the primary venue for poor Americans to receive assistance—is the trickle-down of these pejorative attitudes to our own workforce. The result is a stigma around market-rate compensation for personnel at all levels of nonprofit and charity organizations, as noted in recent articles chronicling the high turnover at leading nonprofits in Chicago and elsewhere.

In New York City, as in other places, this dynamic is currently exacerbated by a wide gap in the treatment of public sector employees and their nonprofit counterparts. While the city has rightfully taken steps to increase compensation for its own employees working in challenging front-line jobs, it has neglected to do the same with its nonprofit partners, which compose a much larger percentage of the front-line workforce. Some community-based service contracts in New York City have not seen a reasonable rate increase in a decade, even as costs have risen steadily across the board.

In a famous 2006 comparison of the labor practices of Sam’s Club and Costco, management professor Wayne Cascio demonstrated how better pay and more generous benefits in the retail sector could actually improve the bottom line by reducing turnover and supporting improved productivity. Readers recognized that the Costco model was good for everyone—the organization, workers, and consumers. Why would we not apply the same thinking to our sector?

Breaking this cycle is a challenge, but we must face it. Public and private funders must send the message that living wages for workers in the nonprofit and human services sector are a priority—particularly when state and local budgets are stretched thin, there is an emphasis on cost containment in public contracts, and individual agencies do not have the leverage to push back. Similarly, foundations and private donors often focus on efficiency and cost-per-outcome when making awards. Neither of these perspectives are wrong; human services agencies should focus on achieving measurable outcomes, and public agency administrators have a responsibility to tax payers to spend their dollars wisely. However, we hope funders also keep in mind the high cost of low wages: systematic devaluation of the nonprofit employee! Fiscal responsibility and efficiency need not be synonymous with poverty wages.

To this end, we applaud the Ford Foundation’s willingness to challenge what it calls “the overhead fiction,” where “foundations, governments, and donors force nonprofits to submit proposals that do not include the actual costs of the projects.” The foundation commits to providing 20 percent in overhead going forward—an amount we agree fully funds the cost of indirect operations.

Some public and private funders are also beginning to deploy performance-based funding, social impact bonds, capitated rates, or other financing models. Some of these approaches show promise, and we try to embrace them whenever possible. But it can be difficult for many nonprofits to assume the level of risk inherent in these contracts when finances and administrative bandwidth are already stretched to the limit. We believe that returning the sector to a baseline of financial health is a necessary first step to reap the benefits of these new funding models, and that outcome measures must be designed with client and community priorities in mind, not just bottom-line savings.

We hope to see much more progress in this area. Ultimately, the “low pay, make do, and do without” culture sends a message to the children and adults the nonprofit sector serves. What does the system say about your worth if the person helping you is paid so little they need public assistance to feed their own family?

We can do better. We must do better.

Read more stories by David Collins & Jeremy Kohomban.