Working for a company that makes an honest profit doesn’t make you a sinner, and taking a (monetary) pay cut to work at a nonprofit organization doesn’t make you a saint.
Profit is not a four‐letter word, but sometimes people treat it as one. From this perspective, non‐profit work is seen as more noble because it eschews that wicked profit motive. It is seen instead as a form of sacrifice for others. But this is a misunderstanding, because while there are non‐profit organizations, there is no non‐profit work, at least not in the sense of making a real personal sacrifice. This means that the criticism of for‐profit work as being bad because it is self-interested–a criticism which is a danger to a well‐functioning economy that meets people’s needs–is misguided, as we will see below.
What Exactly is a Non‐Profit?
A non‐profit organization is simply one that has been legally granted a particular favorable tax status conditioned on undertaking certain types of designated activities and on not distributing net revenue (revenue above costs, a.k.a., profit) to shareholders. These activities are often, though not always, activities in which it is difficult to succeed as a normal business that gives goods or services in exchange for money. This may be because the clients of the business are the poor, who cannot afford to pay the full production and delivery cost for the goods or services received. Or it may be a consequence of collective action problems, such as for environmental organizations, where there is ability among environmentalists to pay for environmental protection but also an incentive to free ride on the efforts of others. In either case, the reduced tax burden helps them meet their goals by not taking a portion of their revenue.
But let’s look at the motivation of those who work for non‐profit organizations. We can presume that people who work at them have the option of working in the for‐profit sector instead, so why do they choose what is often a lower‐paying sector?
Wages at a Non‐Profit
First, we must verify that it is in fact a lower‐paying sector, or there is no puzzle to solve. And it appears that at the executive level there is in fact no such puzzle. CEO pay at non‐profits is often comparable to for‐profit CEO pay. The top executives of non‐profit health care organizations, credit unions, and industry lobbying organizations may make $10— 20 million per year. Lower down the scale the head of the American Heart Association made nearly $3.5 million in 2019 and the director of the Carnegie Hall made over $2 million, salaries that are in the range of CEOs in the bottom half of the Fortune 500. Financial sacrifice to work in the non‐profit sector is hard to identify here.
But wages are often lower for the average non‐profit employee, even though the very bottom end is set by the same minimum wage that sets a wage floor for for‐profit workers. According to Payscale.com, non‐profit workers make 4% to 18% less than for‐profit workers with the same job titles, so it does seem that the average non‐profit worker makes a financial sacrifice for staying out of the for‐profit sector.
But money isn’t everything. In fact, it is merely a measure of value and a medium of exchange for the things we actually do value. If you exchange $1.50 for a candy bar, you have given up $1.50 in value but have gained more than that, else you would have foregone the candy bar and held on to the money to buy something else instead.
Likewise, if you were to take a day off work to spend with family, you would be giving up some money, but you would have a net gain in value, or else you wouldn’t do it. Whatever income you sacrificed for that day was less valuable to you than the time with family that you gained. Giving up the opportunity to make money you haven’t yet earned in order to “buy” something you value is functionally no different than spending money you have already earned to buy something.
How We Value Work
This demonstrates that, as most people will quickly agree, money isn’t everything. Ludwig von Mises, in his classic work Human Action, wrote that “Profit, in a broader sense, is gain derived from action; it is the increase in satisfaction…brought about” by our actions. Much of this profit is financial, recorded in dollar amounts. But the dollars don’t measure what Mises called our psychic profit, our “increase or decrease in satisfaction or happiness.”
In fact, in terms of what most people really value, money is simply a means to an end. Some things we get without having to spend money directly, and when we get these things as part of our work, they are part of our total compensation from work. In some cases this is a company car, or it may be health insurance, or paid vacation. But it can also be intangible things like job satisfaction or work‐life balance, which unlike those more tangible objects you literally cannot pay for with money. Nonetheless, these are real gains from one’s work, and they may be “bought,” at least in some cases, by giving up higher wages. For example, some academic secretaries work only during the academic year, and have a de facto three‐month un‐paid vacation each year. And many of them like that, because they like having their summers off, whether to be with their children, to travel, to have more time for gardening, or just to have time to relax.
The key economic concept underlying this analysis is opportunity costs. Your opportunity cost is always your next best option, the most valuable thing you must give up to get what you most want. When you buy the candy bar, your opportunity cost is that thing you otherwise would have done with that $1.50, whether it was to buy a can of Coke, apply it to the cost of a movie ticket, or give it to charity. Likewise, if you take time off work to be with your family, your opportunity cost is not the income that you gave up to do so, but rather what else you would have done with that income if you had gone to work instead.
We can presume that non‐profit workers have the option of working in the for‐profit sector. Therefore, what they could have done with their extra earnings in the for‐profit sector is their opportunity cost. Having given that up to work in the non‐profit sector, they necessarily value more highly whatever it is they are “buying” with that foregone income. There are multiple possible reasons non‐profit workers find their jobs more attractive than jobs in the for‐profit sector. Often there is smaller staff, which means that everyone has to cover more cover more responsibilities. This can keep a job more interesting than doing nothing but the same narrow and repetitive task. Some non‐profit sector jobs may provide for better work‐life balance, such as flexibility for parents, than many for‐profit sector jobs.
But in particular people may find more meaning in the purpose of their job, whether it’s working for environmental protection, helping those in need, educating youth, or promoting the arts. They value being in those roles, and that value offsets lower pay. The same Payscale report referenced above shows that non‐profit graphic designers are more than twice as likely to say they find meaning in their work than those in the for‐profit sector, marketing professionals about twice as likely, and even administrative assistants more than one and a half times more likely.
These people have not sacrificed anything—they have gained! That it is not their highest paid option is irrelevant, because it is their highest valued option. Remember, they could work in the for‐profit sector for more money, and presumably would (rather than not working at all) if they could not find non‐profit work. It does not take that extra benefit to get them into the workplace; the extra benefit is pure bonus for them, or in other words profit in the psychic sense. This is true whether the worker in the non‐profit organization is already wealthy or struggling to get by. Each has made a choice to take their psychic profit in the form of somewhat less money and somewhat more direct personal satisfaction.
Does this mean that the already‐wealthy can most afford to take up non‐profit work? Not necessarily.
All work is ultimately for psychic profit, and a key insight is that there is nothing wrong with pursuing the maximum value one can gain. In fact, financial profit, that profit that can be measured in dollars, demonstrates that one’s actions are providing value to others, because they are willing to voluntarily pay a price that includes that financial profit. Just as workers in non‐profit organizations do good for their clients or customers, so does the for‐profit auto mechanic who keeps cars running so poor people can get to work, the for‐profit Uber driver who gets drunk patrons safely home from their evening entertainment, the for‐profit Amazon delivery person who delivers food and other items to an elderly shut‐in. And it is not just these lower‐level workers, but also the executives who arrange for the production and distribution of auto parts for aging cars, create a ride‐share service that saves lives by reducing transportation prices, or organize the next‐day delivery of things the elderly and others need. All honest work is honorable, however its value is measured by the individual worker.
Seeking Your Own Profit
At the extreme, there are those who advocate that essentially all work be not‐for‐profit. This is a dangerous proposition. That danger is why it is important to recognize that everyone seeks their own profit: understanding this eliminates a ground for criticism of explicitly for‐profit work. And explicitly for‐profit work should be valued, as noted above, because only financial profit earned in a genuine market provides evidence that the good or service provided is valued by the client or customer at the full cost of producing and delivering it to them. Without that price signal, there is no way to really know how the good or service is valued by that client or customer. Just as an ugly sweater knitted by Grandma may not be valued by the receiving grandchild, the recipient of benefits from a non‐profit may not value those services at their actual cost, but we cannot know because of the lack of prices attached to them. This does not mean that all work in the non‐profit sector is wasteful, but it does mean that it has a greater potential for being wasteful, despite sounding like a more noble endeavor. Recognizing that people who work in the non‐profit sector are also profit-seekers—psychic profit seekers like all who engage in economic action—reveals that they are in truth no more noble than the aforementioned auto mechanic.
The point, of course, is not that non‐profit work is not worthy of moral praise. Quite the opposite. The very fact of valuing helping others can be admirable, and certainly it’s better to enjoy helping others than to do it grudgingly and resentfully. But if we insist that it has higher moral value than work in the for‐profit sector, we mistakenly devalue a whole category of work that is equally morally praiseworthy because it also involves helping others, often people far away whom we will never meet. The two sectors meet different but equally real human needs, and are both essential to human flourishing.