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Connecting the nonprofit growth dots

July 1, 2006


Ron Wirtz Editor, fedgazette
Connecting the nonprofit growth dots

Despite the growth among nonprofits across the district and nation, we have little idea of how nonprofits relate to the broader economy—the how-where-when-why of nonprofit growth. Does the nonprofit sector expand faster as personal income increases or decreases? What relationship does it have to such economic and demographic factors as unemployment, median age, poverty and population density?

Looking at numerous variables from 1997 to 2003, including nonprofit gross receipts, Minneapolis Fed associate economist Rob Grunewald analyzed these sorts of relationships at the county level in 47 states, specifically for the 303 counties in the Ninth Federal Reserve District. Among some preliminary, and tentative, findings from this research:

  • As personal income increases, nonprofit gross receipts appear to increase proportionally faster over time and across counties. In econ-speak, this makes nonprofit services a "superior good"—in other words, as people's income increases, they buy (or possibly fund through donations) more nonprofit services as measured by gross receipts.
  • Counties with higher population density tend to have higher levels of nonprofit receipts per capita. However, after accounting for personal income levels and the poverty rate, counties with higher population density are associated with lower levels of nonprofit receipts. These results run counter to a view that big cities accrue the lion's share of nonprofit receipts relative to income and poverty trends while rural counties are left wanting.
  • Levels of nonprofit receipts differ from state to state, which means state-specific variables such as tax rates, industry mix and population composition likely influence nonprofit receipts over time.
  • Higher rates of unemployment are associated with decreases in nonprofit receipts in Ninth District counties. This suggests that, not surprisingly, weak labor market conditions reduce the income of nonprofits.

See working paper: What factors are associated with changes in nonprofit receipts? [Web only 66K PDF]

Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.