Specific Findings: The Number and Type of Nonprofit Organizations Predict Resilience to Unemployment

Civic Health and Unemployment II: The Case Builds

September 12, 2012
Counties with more nonprofits per capita prior to the recession already had lower unemployment in 2006. While almost all of the counties lost jobs during the recession years, the counties with more nonprofits per capita lost fewer jobs between 2006 and 2009. Both patterns remain even when holding education, median income, housing prices, and other economic factors constant.(3)

As an illustrative case (see Figure 1), counties ranking in the top 10% in nonprofit density experienced an increase of only 2 percentage points in their unemployment rate between 2006 and 2009, compared with 5.1 percentage points for the counties in the bottom 10% in nonprofit density.

Counties already varied greatly in unemployment rates prior to the recession, but the counties rich in nonprofits lost many fewer jobs than the low-nonprofit counties. Having just one more nonprofit per 1,000 residents was related to a net difference of 0.5 percentage points in unemployment rate in 2009, accounting for other factors that generally affect unemployment.(4) The communities with more nonprofits tended to have slightly lower unemployment rates before the recession (by 0.25 percentage points per additional nonprofit), but they also experienced a slower growth in unemployment between 2007 and 2009, resulting in a net difference of 0.5 percentage points.

Similar patterns are also found in metro areas. The density of registered nonprofit organizations in metro areas in 2006 predicts both the unemployment rate before the recession, and the rate of increase during the recession years. Figure 2 shows the change in unemployment rates between 2006 and 2009 for metro areas with five different levels of NPO density (ranging from the 5th to the 95th percentile). This pattern is adjusted for the average local unemployment rate before the recession and other factors likely to affect unemployment.(5) The unemployment rate increased by about 5.3 percentage points between 2006 and 2009 in the core metro areas at the 5th percentile in nonprofit density, whereas it increased by only 3.6 percentage points in the same period for those at the 95th percentile. The gap is somewhat smaller than what was found at the county level.

This statistical model estimated how three factors related to changes in the unemployment rate during and after the recession: nonprofit density before the recession, economic performance before and during the recession, and the portion of the workforce employed in the nonprofit sector. All three factors were statistically significant. In other words, higher nonprofit density in 2005 predicted fewer jobs lost in the whole community, better overall economic performance, and more individuals employed in the nonprofit sector. These results suggest that nonprofits may bring economic benefits by directly employing people and also by changing the economic climate of the whole community. Nonprofits support civic engagement and social cohesion; in turn, when citizens feel committed to their communities and connected to their fellow residents, they are more likely to make decisions that boost local employment. This explanation is explored in more detail below.

Another way to investigate the relationship is to follow individuals over time in a longitudinal survey. As Figure 3 shows, an individual who had a job in 2008 and who lived in a core metropolitan area with a low density of nonprofit organizations (at the 5th percentile) had about a 5.5% chance of becoming unemployed in 2009, after adjusting for other factors.(6) A similar individual living in a similar area but with high nonprofit density (95th percentile) had only a 2.7% chance of becoming unemployed in 2009. The odds of becoming unemployed were thus twice as high in a community with low civic health compared with one with high civic health.

As Figure 4 shows, certain types of nonprofit organizations appear to matter more than others. This study used official classifications of nonprofit types from the IRS and National Center for Charitable Statistics.(7) One of these categories consists of organizations devoted to the “public and social benefit,” which includes veterans groups and other organizations that foster citizen participation and leadership skills. Analysis of national data demonstrates that the density of such organizations has a significant relationship to unemployment in their communities.

Fraternal and “mutual benefits” organizations form another category that has a strong relationship to employment in the national statistics. Employment-related organizations, such as labor unions and job-training nonprofits, and sports and recreational organizations also predicted lower levels of unemployment. The relationship with employment was smaller, although significant, for associations devoted to “arts, culture, and humanities” and “philanthropy, volunteerism, and grant-making foundations.” For some types of groups, including those devoted to civil rights or medical research specifically, no statistically significant relationships were found.(8)

The organizations that appear to be helpful could be described as:

---Organizations that provide direct, tangible benefits to their members, instead of pursuing advocacy agendas or impersonal goals, such as research and science.

---Horizontal organizations, characterized by peer-to-peer interactions and collective decision-making, rather than strongly hierarchical organizations in which a few people make the decisions.

---Groups that meet regularly and whose supporters perceive themselves as genuine members, in contrast to mailing-list organizations, “in which ‘membership’ is essentially an honorific rhetorical device for fundraising.”(9)

---“Thick” rather than “thin” organizations.(10) In “thick” organizations, people are loyal to the group and are generally willing to do what it decides to do (within reason), whereas “thin” groups pursue a defined agenda their members endorse. In other words, thick groups involve commitment whereas thin ones are transactional.
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1 Comment
By David Crowley at 2:54 PM on Sep 14th, 2012
Good insights on the importance of nonprofits for employment. Good to see the detail on what types of nonprofits contribute the most to engagement. We posted some ideas about what nonprofits can do to increase the extent to which they engage the community in their work, and thus build more social capital. http://www.socialcapitalinc.org/node/1307
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