donative-labor hypothesis, nonprofit wages are lower than private sector

• Leete, L. (2001). Whither the Nonprofit Wage Differential? Estimates from the 1990 Census. Journal of Labor Economics, 19(1), 136-170.

These ideas, all variants of the donative-labor hypothesis,  are  attributable  to  the  work  of  Hansmann  (1980),  Preston (1989),  Rose-Ackerman  (1996),  and  Frank  (1996).  While  each  author offers a slightly different rationale and formulation, in each case individuals accept lower pay from a nonprofit organization in return for assisting with production in which the worker finds intrinsic value. According to Preston,  this  lower  pay  is  equivalent  to  a  monetary  donation  to  an organization producing public goods. Frank views it as a compensating differential in return for work that is more morally palatable. Alternately,

Rose-Ackerman notes that ideologues may accept lower pay in return for the guarantee that their efforts are helping to achieve their idealistic goals and  are  not  lining  the  pockets  of  for-profit  stockholders.  Hansmann suggests that it is a result of a sorting mechanism through which employees more interested in the production of quality services than in financial gain signal this to nonprofit organizations. The variants put forth by both

Hansmann and Rose-Ackerman are particularly applicable to the case in which nonprofit organizations are formed because of information asymmetries  and  consumers  take  nonprofit  status  as  an  indicator  of  either product quality or integrity along ideological lines.

• Preston  (1989)  found  up  to  15%  lower  wages  for white-collar nonprofit workers.
•  Weisbrod (1983) found that nonprofit lawyers earn 20% less.