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Recession and competition are changing Indiana’s social assistance nonprofits, IU report shows

September 4, 2012
Bloomington, Indiana --

Indiana nonprofit social assistance agencies are feeling the effects of the Great Recession and the increased competition from for-profit firms, a new report from Indiana University shows.

Employment in Indiana's social assistance industry grew almost every year from 1995 to 2009, even during recessions in the early 2000s and the Great Recession that began in 2007. This growth, however, can be attributed more to growth in the for-profit sector than to increases in nonprofit employment.

Image of Kirsten Gronbjerg"Indiana Nonprofit Employment: Historical Trends in Social Assistance, 1995-2009" is a joint project of Indiana University's School of Public and Environmental Affairs, the Indiana Business Research Center at IU's Kelley School of Business, the Center on Philanthropy at Indiana University and the Johns Hopkins Center for Civil Society Studies.

Kirsten Grønbjerg, the Efroymson Chair in the Center on Philanthropy and professor at SPEA, is the project director and lead author. Co-authors are IU doctoral student Kellie McGiverin-Bohan and master's students Alexandra Buck, Kristen Dmytryk, Katherine Gagnon, Weston Merrick and Katherine Novakoski.

The researchers used employment statistics, such as the number of employees and establishments as well as payroll and wages, for social assistance services such as family support groups, child day care, emergency relief and vocational rehabilitation. Well-known Indiana nonprofit social assistance agencies include Pathfinder Services in vocational rehabilitation, Stepping Stones transitional housing and the Red Cross and Feeding Indiana's Hungry food banks for disaster and relief services; for-profits include multi-site operations like KinderCare child day care or Active Day Adult Day care for individual and family services.

The data show that nonprofit employment in social assistance grew by about 44 percent over the 1995-2009 period, and for most of the period, nonprofits accounted for about 70 percent of total industry employment. However, beginning in 2004, nonprofit employment growth stopped and the nonprofit share of total industry employment decreased to 62 percent by 2009.

By contrast, for-profit employment grew every year, especially after 2006, and more than doubled over the 1995-2009 period. By 2009, for-profit establishments accounted for 38 percent of private-sector employees and 33 percent of private-sector payroll in social assistance. Government agencies accounted for less than 1 percent of direct social assistance employment.

"We see how services that were traditionally dominated by the nonprofit sector -- job training and counseling, adoption centers, child welfare, senior citizen centers, disability support groups and other family support organizations -- have experienced a remarkable growth of for-profits, right at a time when public and private funds are dwindling," Grønbjerg said. However, "our analysis does not allow us to determine whether the shift towards for-profit employment in the social assistance sector reflects a preference by state policymakers to direct more contracts to for-profit providers, new types of contracts that are more aligned with for-profit operations, less ability by nonprofits to expand their services (they do not have access to equity capital) or compete, or whether nonprofits give higher priorities to serving the most needy clients."

The only sub-industry where nonprofit growth exceeded that of the for-profit sector was community housing, food and other relief services. This lends support to the argument that nonprofits may have a greater commitment to those clients who are more difficult and costly to serve and thus not attractive to for-profit firms. As the authors write, "This report confirms that nonprofits continue to play a dominant role in serving the needy, protecting at-risk populations, training individuals to make them more competitive in an economy undergoing major structural changes, and administering government-funded social assistance programs."

The report also shows that nonprofit wages on average exceeded for-profit wages. However, the gap narrowed over time with average nonprofit annual wages growing by 11 percent (in constant dollars) from 1995 to 2009, while for-profit wages grew 21 percent over the same time period.

Overall, this research confirms the important role of the nonprofit sector in providing social services for the well-being of residents of Indiana. Social assistance employment accounted for about 11 percent of all nonprofit employment statewide from 1995 to 2009 and was the second-fastest-growing major nonprofit industry, after health care services. However, the increasing competition from the for-profit sector may require nonprofits to adapt to meet new challenges.

The report warns, "[If] nonprofits are to survive in an environment of continuing government fiscal austerity and growing for-profit competition, they will need to secure greater access to credit markets, offer distinctive products, scale up operations and diversify services. While this may have some benefits, there is also the risk that nonprofits will leave behind their tradition of serving the needs of society's most marginalized members."

The report is the sixth nonprofit employment report in the Indiana Nonprofits: Scope and Community Dimensions project, which Grønbjerg directs. The next will assess the impact of nonprofit employment trends in the arts, entertainment and recreation industry, followed by an analysis of trends in health.

A short summary and the complete report are both available online. For more information or to speak with Grønbjerg, contact Jim Hanchett at the School of Public and Environmental Affairs, 812-856-5490 or jimhanch@indiana.edu, or Steve Hinnefeld at IU Communications, 812-856-3488 or slhinnef@iu.edu.

About the School of Public and Environmental Affairs

SPEA is a world leader in public and environmental affairs and is the largest school of public administration and public policy in the United States. In the 2012 "Best Graduate Schools" by U.S. News & World Report, SPEA ranks second and is the nation's highest-ranked professional graduate program in public affairs at a public institution. Four of its specialty programs are ranked in the top-five listings, including nonprofit management, which was ranked first. SPEA's doctoral programs in public affairs and public policy are ranked by the National Academy of Science as the best in the country.

About the Center on Philanthropy

The Center on Philanthropy at Indiana University, part of the Indiana University School of Liberal Arts at Indiana University-Purdue University Indianapolis, is a leading academic center dedicated to increasing the understanding of philanthropy and improving its practice worldwide through research, teaching, training and public affairs programs in philanthropy, fundraising and management of nonprofit organizations.

About the Indiana Business Research Center

As part of Indiana University's Kelley School of Business, the Indiana Business Research Center provides and interprets economic and demographic data needed by businesses, government and nonprofit organizations across the state and the nation.

About the Johns Hopkins Center for Civil Society Studies

The Johns Hopkins Center for Civil Society Studies is a leading source of research and knowledge about the nonprofit sector, social investing and the tools of government. The center's research and educational programs seek to improve current understanding, analyze emerging trends and promote promising innovations in the ways that government, civil society and business can collaborate to address social and environmental challenges.