THE BLOG
01/21/2014 12:15 pm ET Updated Mar 23, 2014

Nonprofits, the Minimum Wage and Not Fighting Inequality

In the long-overdue battle to stem our country'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 have a huge disparity between CEO and average workers' salaries, but some pay so poorly that their own staffers have to depend on food stamps and other government programs

Perhaps even more damaging is most nonprofits' inattention to advocacy and other efforts to bring about policy changes that could help the poor and combat inequality. They have done little or nothing to push for increases in the minimum wage or greater spending on federal and state programs for needy families.

Both Democrats and Republicans have started to give more attention to poverty and financial inequality. With their profound ideological differences, however, there is a great deal of disagreement - and that will continue into and beyond the 2016 election cycle - about how government itself ought to address these issues and what nonprofit programs it should support. Charities and foundation cannot truly serve the public interest unless they engage with lawmakers on these issues, as well as to correct their own behavior as employers.

It's hard to imagine a more important concern for nonprofits to tackle than the deteriorating economic circumstances of Americans. Our 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.

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; they now account for 22 percent of national income. The top 10 percent have over 50 percent of all income. The richest 5 percent of American households now holds more than 60 percent of our 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.

And the problem isn't just with the lowest wage jobs, as those in the middle-class, and charities themselves, know. While corporate profits continue to rise significantly, salaries and wages continue to fall as a percentage of G.D.P. So too do corporate contributions to U.S. charities; they dropped from over 2 percent of pretax profits in 1986 to under half that in 2012.

Americans' tax dollars subsidize soaring corporate profits, allowing businesses to get away with poverty-level minimum wages and to depress middle-income salaries. For instance, looking only at fast-food workers' families, over half of them 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 20 percent of their workforce 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, although they are generally lower across the range of other kinds of service groups.

Such inequities have some suggesting 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 workforce 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 now 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 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.

Alarmingly, 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.

And 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.

Charitable voices have not been heard 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 concurrently work to cut food stamps and unemployment benefits.

Advocacy by charities is critical when policymakers 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 and are much more conservative on "redistribution issues."

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. Absent such action, charities and foundations will lose distinction from the very corporate practices that destroy economic justice.

Versions of this piece also appear in The Chronicle of Philanthropy and PhilanTopic.