THE BLOG
12/06/2011 09:04 am ET Updated Feb 04, 2012

An Unemployment Tsunami Heading for the Nonprofit Sector

Edmund Phelps, a Nobel-prize winning economist believes the "natural rate" of unemployment in the medium term is likely to be around 7.5 percent and most economists seem to agree. This is certainly lower than the current unemployment rates north of 8 percent , but a far cry from our previously typical rates around 5 percent.

This reality -- a sustained 50 percent increase in Americans out of work - will have a sweeping, tsunami like impact, and threatens to overwhelm the nonprofit sector.

Combined with the alarming growth in personal debt , sustained unemployment will create anxiety in the middle class which is likely to depress growth in personal giving to nonprofits (only 3.8% last year) while at the same time nonprofits are increasingly reliant on these individual gifts to meet demand.

With so many Americans out of work the government's tax-base decreases -- and the government is cutting costs associated with government programs to help the poor. Some of these services are provided directly by the government and will likely be trimmed to balance budgets. Many more are outsourced by the government to nonprofits who are asked to deliver services at rates below the actual cost of delivery. Increasingly, the government is trimming these contracts even further and in some cases even failing to pay for contracted services.

The net result is a significant spike in the needs of the community and a shrinking or at least stagnant revenue stream for the nonprofits that are being asked to carry the societal burden. This goes beyond the basic safety net services that we associate with unemployment like job training, food banks and housing.

Sustained unemployment has an exponential impact on our society. Each new unemployed American doesn't just create the need for one more person to feed and help get gainful employment, it impacts all aspects of their lives and the lives of those around them.

We have seen that unemployment is tied to increases in crime and social disturbances like divorce, worsening health and lower life expectancy. This increases the need for a range of nonprofit services from health care clinics to psychiatric counseling for victims of crime to community centers to keep people engaged and off the street.

In times when jobs are scarce we also see a rise in xenophobia and anti-immigrant sentiment. This leads to increased discrimination and civil rights abuses. Again, the nonprofit sector is asked to play a key role in providing the services to both combat xenophobia but also to provide services to those affected by it. This can range from programs to support victims of hate crimes to legal aid to advocacy for equal opportunity employment in the workplace.

Incremental change is not going to be enough to address this tsunami. We need to fundamentally re-think the role of nonprofits in our society and the ways we generate the resources to continue to support their missions.

It is time to stop trying to protect the traditional role and model for nonprofits and to collectively develop a new vision that can carry us into a future -- a future with sustained high unemployment, a global economy and deferred maintenance on the core infrastructure of our nation. We need to act now, developing the systems that will allow us to face this future prepared.