Those who wish to have careers that have a positive impact on the world often consider working for nonprofits since the mission and purpose of these entities are to further social causes and provide a public benefit. But, these aspiring do-gooders are often dismayed by the low wages associated with the field. A U.S. Bureau of Labor Statistics study found that the wages of management, professional, and related workers at nonprofits earn on average $3.36 less per hour than their for-profit counterparts and $4.67 less when accounting for cost of benefits, resulting in $6,989 and $9,714 less in income per year, respectively, assuming 2,080 working hours a year.
As a junior employee of a financially sophisticated nonprofit, I certainly don’t earn a lot of money, but for someone in her mid-20s who doesn’t have any dependents or debt, I feel lucky and comfortable in my financial situation. In fact, I earn close to the the median U.S. income in 2021, which was $69,717.
However, knowing that I could earn a lot more after previously being employed at a corporate firm that paid me almost triple of what I earn now, I sometimes think that I’m not getting paid enough to justify working overtime even if that would better serve my non-profit’s mission. I have heard similar sentiments from peers in similar career paths who know they could be earning drastically more. Indeed, higher wages have been found to motivate workers to be more productive. Higher wages are also correlated with lower turnover, reducing the costs of hiring and training new workers.
What does this mean for the quality of employees these nonprofits paying low wages tend to attract? A Stanford study demonstrated that higher wage jobs attracted higher-quality applicants than lower wage ones because it is likely that the higher-quality applicants have better alternatives elsewhere whereas lower-quality workers would be discouraged from applying to higher-wage jobs considering the competition. To be fair, the study used an IQ test to gauge applicant quality, which clearly is limited in its ability to holistically evaluate an applicant. However, the study also found that the higher-wage applicant pool were higher on desirable emotional traits, such as agreeableness, extraversion, being open to new experiences, and low neuroticism, going against the theory that higher wages attract the wrong people.
Nevertheless, the argument that nonprofits should pay higher wages to do more good shouldn’t matter if they are not even truly doing good. Indeed, nonprofits often do not have enough access to capital to pursue the most effective but financially risky interventions with around half of U.S. nonprofits having less than one month of cash reserves. Even though I work for a nonprofit that is actually quite profitable, I also observe the constant organization-wide tension of meeting target returns and funding the highest impact solutions.
Potential solutions to lack of capital include soliciting the financial support of the government, which already funds various social programs, and employing commercializing partnerships with the for-profit sector. Although the government may sound like a better source of funds considering the controversial ways the for-profit sector makes money, the government also indirectly makes their money through for-profit ventures.
Specifically, the U.S. federal government generates most of its revenue from taxes with 51% coming from individual income taxes. With the U.S.’ progressive tax system, it is unsurprising that in 2020, the top 1% paid 42% of all federal income taxes. It should also be unsurprising that most of the top 1% with jobs as managers and salespersons generated their incomes working for for-profit organizations. Philanthropies are also among the biggest donors to nonprofits, but nearly all of the top philanthropists made their wealth building or being associated with successful for-profits. Accordingly, it appears difficult to disentangle nonprofits’ ability to effectively have a positive impact from the support and/or adoption of for-profit services.
This begs the age-old question of whether for-profits can be a net-positive for society. Former Unilever CEO Paul Polman certainly thinks so, defining a net positive company as one that “improves well-being for everyone it impacts and at all scales—every product, every operation, every region and country, and for every stakeholder, including employees, suppliers, communities, customers, and even future generations and the planet itself,” benefiting all stakeholders rather than just the shareholders.
As you can imagine, a single organization attempting to address everyone’s needs is not easy. In fact, Harvard Business School economist Michael Jensen wrote that “Without the clarity of mission provided by a single-valued objective function, companies embracing stakeholder theory will experience managerial confusion, conflict, inefficiency, and perhaps even competitive failure.” After all, all the individuals and entities affected by an organization have competing demands, and even if that weren’t so, everyone has different thoughts on the immensely complicated issue of how to make the world better. It makes sense that no company has been able to be “net positive” as Polman defines it.
The other factor to consider is that even if for-profit companies could be net positive, would they actually have any impact that would not have occurred without them? This criterion, known as additionality or counterfactual impact, is a goal for most impact investors, but it is unlikely to be accomplished unless some financial returns are sacrificed and/or an unconventional amount of financial risk is taken in pursuit of social impact. This is because any guaranteed highly profitable and socially beneficial venture would be done by another entity.
Therefore, the dilemma of the nonprofit employee who wants to do good is that the non-profit they’re working for cannot do good without paying higher wages so that they and their colleagues are more productive and better at work. But, to do so and to fund the high impact solutions needed to create impact in the first place, they must leverage and employ for-profit services, which cannot efficiently do good and in certain cases cause harm, and even if they could do good, they probably wouldn’t be doing anything that would not have already been done in the efficient marketplace.
Solutions to this dilemma could take a page from the lessons learned in impact investing, i.e., finding creative ways to make a profit necessary to sustain the operations of the socially beneficial venture but not enough to be adopted by others wanting to make a quick buck. Nobel Prize-winning economist Robert J. Shiller has some ideas in his book Finance and the Good Society.
One of which is the participation nonprofit, which is still aimed at a public benefit but raises money by issuing shares that could be bought as a charitable contribution for tax purposes. The nonprofit would distribute profits to shareholders with the caveat that they could only use their share of the profits for charitable purposes, such as reinvesting in the nonprofit or investing in other participation nonprofits. Not only incentivized by the tax write-offs, an investor in the nonprofit would also have a psychological stake in its success due to their partial ownership of the nonprofit. If the investment is highly successful, investors can use their dividends to underwrite new buildings with their names on them and be allowed to spend the money on themselves, without a tax penalty, in cases of certified family emergencies.
All the possible innovations and new jobs that could arise in the name of sustainable positive impact are exciting, but, in the age of rapid automation, how do we know that the careers we think have the best bet of making a positive impact won’t be automated away in the near-future? This is obviously hard to predict considering the pace of technological advancement, but MIT physicist, cosmologist, and machine learning researcher Max Tegmark has some insight in his book Life 3.0: Being Human in the Age of Artificial Intelligence.
Jobs involving highly repetitive or structured actions in a predictable setting will likely go away soon. Currently, technology is eliminating telemarketers, warehouse workers, cashiers, train operators, bakers, and line cooks with drivers of trucks, buses, taxis, and Ubers/Lyfts following soon. Many other professions, such as paralegals, credit analysts, loan officers, bookkeepers, and tax accountants, are getting most of their tasks automated and will need far fewer humans to do them.
He instead advises people to go into professions that machines are bad at, which involve interacting with people and using social intelligence, working in an unpredictable environment, and using creativity to come up with clever solutions. Relatively safe bets include becoming a teacher, nurse, doctor, dentist, scientist, entrepreneur, programmer, engineer, lawyer, social worker, clergy member, artist, hairdresser, or massage therapist.
Nevertheless, Tegmark acknowledges that succeeding in traditionally risky career paths that machines are bad at, such as being an entrepreneur or professional athlete, may be even more challenging in the digital age because technology allows superstars to easily distribute their work to the masses. For example, Harry Potter author J. K. Rowling became a billionaire since her stories could be transmitted to billions of people around the world through text, movies, and games at a very low cost, making it difficult for other writers to see a need in the marketplace for their works.
For those who wish to avoid this risk by going into more conventional sectors, it may be prudent to be strategic when deciding which jobs within those sectors you should pursue. Tegmark states that those going into medicine shouldn’t be the radiologist who analyzes medical images and can be replaced by IBM’s Watson but instead the doctor who orders the radiology analysis, discusses the results with the patient, and decides on the treatment plan. Similarly, those going into finance shouldn’t be the quant who applies algorithms to data and can be replaced by software but rather the fund manager who uses the quantitative analysis results to make strategic investment decisions.
Ultimately, the careers that those wishing to do good decide to pursue depend on what their definition of doing good means. This could mean taking on a traditionally altruistic job like being a doctor or teacher or, for those concerned with counterfactual impact, doing something completely new or finding ways to innovate within traditional systems that take into account human limitations and those of broader institutions. Either path has a place in our rapidly developing world and is a reason to be optimistic about what’s to come.