Introduction Manajemen | Fakultas Ekonomi Universitas Maritim Raja Ali Haji 992.full

Compensation in the NonproŽt Sector Christopher J. Ruhm Carey Borkoski a b s t r a c t We investigate the determinants of pay in the nonproŽ t sector using data for 25– 55 year olds from the 1994– 88 Current Population Survey Out- going Rotation Groups. Our results are consistent with the hypothesis that compensation is primarily determined in competitive markets without ‘‘labor donations’ ’ to nonproŽ t employers. One implication is that non- proŽt workers receive virtually the same wages as observationally equiva- lent employees in similar positions with proŽt-seeking enterprises. We can- not rule out the possibility of nonproŽ t penalties or premiums for selected groups; however, the differentials are generally small and competition ap- pears to play a dominant role in nonproŽ t wage setting.

I. Introduction

NonproŽt enterprises are an increasingly important part of the Ameri- can economy. The number of nonproŽt associations grew 54 percent between 1980 and 1997 U.S. Census Bureau 1998, Table 1286 and the fraction of GDP accounted for by them rose from 2.9 to 4.3 percent Bureau of Economic Analysis 1998. Non- proŽts utilize the majority of volunteer labor and are responsible for a substantial proportion of paid employment in some industries. Despite this growing signiŽcance, Christopher J. Ruhm is a professor of economics at the University of North Carolina at Greensboro, Greensboro, NC 27402-6165 and a research associate at the National Bureau of Economic Research. Carey Borkoski is a Ph.D. student in the policy science program at the University of Maryland, Balti- more County. The authors thank Peter Bearse, Richard Frank, H. E. Frech III, Dan Rosenbaum, Doug Staiger, and Burton Weisbrod for helpful comments and William Black for research assistance. Ruhm gratefully acknowledges Žnancial support from the National Science Foundation SES-9876511 and from an NBER faculty fellowship for the study of nonproŽ t institutions. The data used in this article can be obtained beginning April 2003 through March 2007 from Ruhm. [Submitted August 2000; July 2002] ISSN 022-166X Ó 2003 by the Board of Regents of the University of Wisconsin System T H E J O U R N A L O F H U M A N R E S O U R C E S • X X X V I I I • 4 compensation in the nonproŽt sector remains poorly understood. There is little ques- tion that nonproŽt workers earn less than observably similar employees of for-proŽt Žrms. 1 However, the distribution of jobs and worker characteristics varies markedly, raising the possibility that the disparities reect compensating differentials or indi- vidual heterogeneity not accounted for in standard earnings regressions. We address these issues through a detailed analysis of the determinants of pay in the nonproŽt sector. Our goal is to ascertain how the earnings of individuals em- ployed by nonproŽt enterprises compare to those of identical workers in similar jobs with proŽt-seeking Žrms. 2 We use several complementary approaches including: analyzing the size and pattern of the cross-sectional wage differentials with and without controls for job characteristics, estimating how earnings change when work- ers shift between nonproŽt and for-proŽt jobs, and examining the disparities in wage levels and growth rates for workers in narrowly deŽned industries or occupations with a substantial mix of nonproŽt and for-proŽt employment. Our results generally support the hypothesis that nonproŽt workers are paid in competitive labor markets and do not ‘‘donate’’ labor to their employers by accepting lower wages. What this means is that, after controlling for limited set of job charac- teristics, persons in nonproŽts earn approximately the same amount as if they were employed in equivalent positions with proŽt-seeking Žrms. This is true even though the wages of nonproŽt employees average 11 percent less than those of their counter- parts with similar observed attributes. The reason for the lower earnings is that non- proŽt jobs require fewer hours and are concentrated in a small number of industries that offer relatively low pay but are probably also desirable places in which to work. Our evidence does not rule out the possibility of wage penalties or premiums for selected groups. However, the magnitudes of the differentials are generally small and do not detract from the dominant role that competition appears to play in setting nonproŽt wages.

II. Relative Earnings in the NonproŽt Sector