Executive Summary

Little is known about wage determination and the distribution of wages, or wage structure, in nonprofit organizations (NPOs). Research in this area has mainly compared wage levels in the nonprofit sector with pay levels in the for-profit sector. The aim of this paper is to analyze wage dispersion within NPOs. We concentrate on the characteristics of NPOs as compared to for-profit organizations and whether three variables have a significant impact on within-firm wage dispersion: volunteer workers, private donations and public subsidies. We hypothesize that the wage dispersion is lower in organizations with volunteers as compared to organizations without volunteers if volunteers substitute for paid managers or for employees at the bottom of the wage distribution. If voluntary work is entirely complementary to the work of paid staff, there is less reason why volunteering should affect the wage distribution. Higher income from donations and public subsidies could either lead to a higher or lower wage dispersion, depending on the relative effect of (a) relaxing budget constraints in wage setting and (b) public scrutiny and control. Our empirical analysis is based on Austrian matched employer-employee data collected in 2006. This is a unique data set consisting of a large scale descriptive survey of the characteristics of Austrian NPOs with at least one paid employee and individual data on all paid employees in these NPOs from tax income statistics. Using an instrument variable regression, we find that organizations with volunteer workers have, as expected, a smaller wage dispersion. A more even mix between paid and unpaid staff is associated with a lower wage dispersion. Higher donations and public subsidies lead to a greater within-firm wage dispersion