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Nonprofits Must Speak Out Against Poverty and Income Inequality

January 21, 2014

(Mark Rosenman, professor emeritus, Union Institute & University, is a frequent contributor to PhilanTopic. In his previous post, he argued that the rush by many to embrace social impact bonds is another example of private profit crowding out a public good.)

Rosenman_headshotIn the battle to stem and reverse widening economic inequality in the United States, too many tax-exempt organizations are either missing from action or are part of the problem. While charities and foundations in general do much to help the poor and indigent, some organizations and institutions actually make the problem worse through their own compensation practices. At the same time, these organizations and others often go out of their way to disassociate themselves from policy debates on a host of related issues, from increasing the minimum wage to preserving government programs for needy families.

The good news is that both Democrats and Republicans in Congress have started to pay more attention to poverty and economic inequality. Given the profound ideological differences between the parties, however, there is a great deal of disagreement about how government ought to address these problems and what kind of nonprofit programs it ought to support. Unfortunately, charities and foundations cannot truly serve the public interest unless they engage in these debates — today and into the future.

First, though, let's consider the deteriorating economic circumstances of many Americans. While most of the 15 percent of Americans living in poverty are children or adults who do not participate in the labor market, close to 1 in 4 of the 46.5 million people in the United States who are poor do work; that's 7 percent of the country's total workforce, and among other things it means the poverty rate today is as high as it has been since 1965.

What's more, income inequality in the U.S. has reached historic levels. Based on something called the Gini coefficient, the United States now ranks 32 out of 34 OECD member countries in terms of inequality; in fact, we haven't seen these levels of inequality since the 1920s, just before the onset of the Great Depression.

It gets worse. In the three decades prior to 2010, the top 1 percent of Americans increased their share of the national income by 66 percent, while those at the bottom of the economic ladder actually lost ground. Meanwhile, 95 percent of income gains since 2009 have gone to the top 1 percent, who now claim 22 percent of the national income, while the richest 5 percent of American households control more than 60 percent of the country's wealth.

Part of the reason this has happened is that businesses are doing what they can to depress wages and salaries for lower and middle-income workers. In real terms, the minimum wage today is worth 12 percent less than it was in 1967. Even working full-time, year-round, without taking sick or vacation days, minimum-wage workers do not earn enough to keep themselves and their families above the poverty line

Low-wage jobs aren't the only problem. Even as corporate profits continue to grow as a percentage of GDP, salaries and wages for the middle class have fallen. So, too, have corporate contributions to charities and nonprofits, which declined from more than 2 percent of pretax profits in 1986 to less than half that level in 2012.

In effect, American taxpayers are subsidizing soaring corporate profits, even as many businesses pay poverty-level wages and actively lobby for policies that keep a lid on middle-income salaries. One need only consider the startling fact that more than 50 percent of the families of Americans employed by the fast-food industry are enrolled in one or more public assistance programs, costing taxpayers some $7 billion a year, to know that something has gone terribly wrong.

And it's not just fast food. Astonishingly, across all industries, one in every four workers in America is receiving some kind of publicly funded assistance. In health and social services, the percentage is even higher.

Exacerbating this inequality is the outsized growth of executive compensation at corporations, and nonprofit organizations, over the last thirty years or so. In the 1970s and '80s, the ratio of CEO compensation to the compensation of the average (not lowest) paid worker was roughly 20 to 1. Today, it's about 350 to 1. Or consider this: Between 1978 and 2012, CEO compensation increased some 875 percent, while the average worker saw his/her pay increase just under 6 percent.

Sadly, some not-for-profit verticals boast CEO pay ratios as out of whack as any in the for-profit sector. There are two college presidents who take home 200 times what the average minimum-wage worker makes. And while scores of college officials take home over $1 million a year, more than 20 percent of their workforce earns poverty-level wages (for a family of four). Ratios in the nonprofit health industry are at least as lopsided. Indeed, in some human service areas (e.g., nursing homes and child care), wage inequality is actually greater than it is on the other side of the nonprofit/for-profit divide.

Income inequality has become such a problem that even the usually feckless Securities and Exchange Commission felt the need to propose a new rule calling for corporations to disclose the ratio of their CEO's compensation to the median pay of their employees. Similar calls are beginning to be heard in the nonprofit sector, including proposals for a no greater than 100 to 1 ratio for nonprofit hospitals and a 10 to 1 ratio for institutions of higher education. These demands for disclosure have been echoed powerfully by at least one state government official.

The focus on nonprofit health organizations and institutions of higher education is warranted, especially when you consider that while nonprofit hospitals and colleges and universities comprise approximately 30 percent of all tax-exempt organizations, they account for 75 percent of the sector’s revenues and often are its largest employers. It's also true that a significant portion of their workers are employed at or near the minimum wage. In other words, the pay structure of these organizations and institutions by definition helps to perpetuate poverty in America.

So, what can nonprofits do to ameliorate the situation besides providing services to those who are already poor or are in danger of falling out of the shrinking middle class and into poverty? They can start by supporting an increase in the minimum wage. They can alter their own compensation practices to redress imbalances between their lowest-wage workers and extraordinarily well-compensated executives. And they can demand that businesses do the same.

The Minnesota Council of Nonprofits is helping lead the way by advocating for an increase in that state's minimum wage, while also making sure that state legislators understand how important it is for charities to be reimbursed the full costs of the programs they deliver — an issue that also is being raised vigorously by the National Council of Nonprofits.  But MCN's call is a voice in the wilderness; whether at the state or federal level, nonprofit organizations and sector leadership groups as a whole have fallen far short of generating the kind of vigorous advocacy needed to influence the policy conversation with respect to income inequality, poverty, and economic justice in America.

Few nonprofits have fought for an extension of federal unemployment benefits, for instance, even though we know that such an extension would go a long way to preventing another million or so people from sliding into poverty and ease the burden on many nonprofit organizations that are struggling to keep up with the demand for their services. Similarly, too few nonprofits have argued for an increase in the minimum wage as a way to lift people out of poverty, even as a consensus of economists now agree that raising it to $10.10/hour would do that for 4.6 million Americans, without significant job loss.

Too few nonprofits have endorsed caps, or even disclosure, of executive compensation ratios as a way to address income inequality. And there has been a distinct absence of nonprofit voices raised to counter Republicans' anti-poverty proposals — proposals that, in their insistence on requiring one's labor as a precondition of government benefits, evoke the 19th-century ethos of workhouses for the poor.

Advocacy by charities and nonprofits is critical when our increasingly wealthy political class has so little experience with the realities, and struggles, of lower-income and middle-class Americans, never mind the poor. In fact, for the first time in the history of the country, more than half the members of the U.S. Senate and House are themselves millionaires. As a recent scholarly analysis of their voting records shows, that's a problem for the rest of us.

Indeed, I would argue that 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 heard on these issues, in part because wealthier people vote at a much higher rate than the poor and because they tend to be much more conservative with respect to "redistribution issues."

If the United States is again to be a nation where upward mobility applies to more than those already near the top, nonprofits must exercise their moral authority and advocate for economic policies that give a hand up to the poor and advance a vision of the common good that includes all Americans. If, on the other hand, they continue to ignore egregious pay disparities and fail to demand that elected leaders do something to reverse economic inequality, they stand to relinquish the very thing that has set them apart from the unrestrained and avaricious business
practices that are largely responsible for our current predicament.

-- Mark Rosenman

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