The Initial Nonprofit Exposure and Response to Seattle’s Minimum Wage Ordinance

The Effect of State Minimum Wage Increases on Nonprofit Organizations

“…While nonprofits with substantial funding can in fact absorb the increased labor costs, there are a significant group of nonprofits that are unable to do so, and consequently reduce their employment growth. This is consistent with the assertion in Allard et al (2020) who write limited reserves may restrict nonprofits abilities to reallocate resources internally to pay higher wages. Nonprofits may have limited ability to pursue channels of adjustment related to revenue generation or fee increases because there may be little opportunity to raise significant additional external revenue in the short run.…”

“…We emphasize that the calculation in our exhibit does not assume any or all of the employees of the NPO are currently making the minimum wage. Rather for illustration purposes, we assume that increases in the minimum wage will ripple through the pay scale, so that someone earning 10% above the minimum wage before the increase will receive a commensurate pay raise so that they still earn 10% above the minimum wage-to avoid wage compression and maintain the pay scale (Allard et al, 2020;Jardim & van Inwegen, 2019).…”

“…While prior research suggests that nonprofits are profitable on average (see Balsam & Harris, 2018; Chang & Tuckman, 1990), research also shows that nonprofits have incentive to moderate that profitability (Calabrese, 2012; Leone & Van Horn, 2005). Accordingly, “many NPOs maintain inadequate reserves” Calabrese (2012, p. 318), and thus “have fewer slack or discretionary resources to address sudden needs than comparable for-profit firms” (Allard et al, 2020, p. 191). A nonmutually exclusive explanation for why the adverse impact on employment may be greater than that observed in FPs is that NPOs have different (and less fixed) production technologies.…”

How Do Employers Belonging to Marginalized Communities Respond to Minimum Wage Increases? The Case of Immigrant-Owned Businesses in Seattle

“…Taken together, our findings indicate the need for more granularity in the minimum wage debate. A robust body of literature analyzes the effect of minimum wages on labor markets (Card & Krueger, 2015; Neumark & Wascher, 2008), but few studies investigate how and why certain employers are more likely to use one channel of adjustment over another (Allard et al, 2020; Hirsch et al, 2015; Romich et al, 2020). Even fewer studies examine how channels of adjustment intersect with the demographic characteristics of employers, which may influence how low-wage workers in specific sectors of the labor market are affected by minimum wage laws (Deskins & Ross, 2018; Kwapisz, 2020).…”

“…Established firms use various channels of adjustment to respond to a minimum wage ordinance, and research shows that employers in different sectors of the economy often use diverging channels of adjustment. Nonprofit organizations, for instance, are more likely than for-profit organizations to rely on volunteer labor in response to a higher minimum wage (Allard et al, 2020). Similarly, small for-profit firms in labor-intensive industries are the likeliest organizations to use informal labor to absorb the impact of a higher minimum wage (Arrowsmith et al, 2003).…”