January 21, 2014

Fighting Income Inequality Should Be Top Nonprofit Priority

Sam Simmonds/Polaris/Newscom

In the long-overdue battle to stem America’s growing economic inequality, too many nonprofits are either missing from action or part of the problem.

While charities and foundations do much to help those in poverty, some groups actually perpetuate it through their own compensation practices.

Not only do some nonprofits pay their lowest-ranking staff members so little that they often are eligible for federal antipoverty help, such as food stamps, but the gulf in pay between the CEOs of the nation’s wealthiest colleges and hospitals and the average worker’s pay at their organizations is unconscionably wide.

That is bad enough, but what is truly damaging is the lack of attention most nonprofits have given to advocacy and other efforts to bring about policy changes that could help the poor and combat inequality. They have done little to push for increases in the minimum wage or greater spending on federal and state programs for needy families.

The time to get involved is now. Both Democrats and Republicans have started to give more attention to poverty and financial inequality, and charities and foundation cannot truly serve the public interest unless they engage with lawmakers­—and work to correct their own behavior as employers.

Looking at the facts of financial equality, it is hard to imagine a more important concern for nonprofits to tackle. Income inequality is profound: The United States is now ranked 32nd out of 34 advanced national economies. It is worse now in the U.S. than since just before the Great Depression started.

From 1990 to 2010, the top 1 percent of Americans increased their share of income by 66 percent while those struggling in the bottom portion actually lost ground. And it keeps getting worse 95 percent of income gains since 2009 have gone to the top 1 percent, and the richest 5 percent of American households now holds more than 60 percent of the wealth.

Part of the reason this has happened is that businesses are depressing salaries for lower- and middle-income workers. In real terms, the minimum wage is worth 12 percent less today than it was in 1967. Even working full-time year-round without taking sick days or vacation, that’s not enough to support a parent and child above the poverty line.

As a result, more workers are turning to government aid programs. Over half of the families of fast-food workers are enrolled in one or more public-assistance programs. That is costing taxpayers $7-billion a year; over $1-billion of those tax dollars goes just to McDonald’s workers. Why aren’t the companies that are making increasingly larger profits paying their workers enough to live without needing food stamps and other government-paid benefits?

Astonishingly, across all industries one in every four workers is receiving some kind of government-funded assistance. In health and social-services work, the percentage is even higher.

Exacerbating inequity, pay at the top of corporations and nonprofit organizations has grown while other employees suffer. From 1978 to 2012, CEO compensation grew by 875 percent while the average worker’s increase was under 6 percent.

Today, some nonprofit organizations have pay differentials as large as some for-profit corporations. Scores of college officials take home over $1-million each year while 22 percent of their work force is at poverty-level wages for a family of four. In many nonprofit health institutions, disparities are even more extreme. In some human-service areas (nursing homes and child care) wage inequality ratios are actually greater than in for-profit counterparts, but they are generally lower across the range of other kinds of such service groups.

Such inequities have led some policy makers to suggest that it’s time for nonprofits or government to limit the pay gap between CEOs and rank-and file workers. Demands in recent months have come for a ratio of less than 100 to 1 at hospitals and 10 to 1 in higher education. And just last month a powerful new voice stepped into the fray: Massachusetts Attorney General Martha Coakley asked nonprofits to start disclosing the difference in pay between CEOs and all other employees, echoing a rule proposed by the Securities and Exchange Commission for businesses.

The focus on nonprofit health and education organizations is appropriate because while together constituting about 30 percent of charities, they account for 75 percent of revenue and are the largest employers. Given the nature of these institutions, it is certain that they have a significant portion of their work force at or near the minimum wage. That means that the wage structure of these charities inevitably perpetuates poverty.

So what can nonprofit organizations do besides providing services to the 15 percent of Americans already in poverty (about a quarter of whom work) and to others falling from the shrinking middle class as economic inequality increases? They can start by speaking up for an increase in the minimum wage. They can alter their own compensation practices to bring up the lower end of their pay scales by cutting back at the higher end, and they can demand that businesses do the same.

The Minnesota Council of Nonprofits may well be the only charity leadership group pushing to increase the minimum wage. Individual charities and the nonprofit world as a whole are pitifully far from the level of advocacy needed to influence the policy conversation on income inequality, poverty, and economic justice.

Few charities have fought for an extension of federal unemployment benefits, yet we know it is critical to avoiding poverty for more than a million more people, and that without it some nonprofit organizations will face major new demands for their services. Too few charities have argued for an increase in the minimum wage that would lift people out of poverty (a proposal for $10.10 an hour would do that for 4.6 million Americans) without significant job loss, economists now agree. Too few charities have endorsed limitations, or even just disclosure, of ratios between top and average salaries in for-profit and nonprofit entities as a way to help address both income inequality and the erosion of philanthropic motivation.

And charities have done little to counter Republicans’ anti-poverty proposals that evoke the ethos of 18th-century workhouses by requiring labor of the poor receiving government benefits, all while these same politicians work to cut food stamps and unemployment benefits.

Advocacy by charities is critical when policy makers have so little experience with the travails of the middle class and even less with those of the poor. For the first time, over half of the politicians in the U.S. Senate and House are millionaires. That’s a problem because a recent scholarly analysis of their voting records shows that lawmakers clearly reflect their own economic circumstances and interests.

There is no policy area in which the voice of nonprofit organizations is more critical than in affecting legislators’ deliberations regarding economic inequality and poverty. Charities need to be a strong voice on these issues in part because wealthier people vote at a much higher rate than the poor.

If the United States is again to be a nation where upward mobility applies to more than those already near the top, a nation that can reverse its egregious inequality and poverty, nonprofit officials must lead by example. They will have little moral authority unless they modify their own practices and organize their peers and their supporters to use their voices and their votes to push for change.

Mark Rosenman is emeritus professor at Union Institute & University.