Nonprofit Sector

Nonprofit Sector


Have you ever joined clubs or organizations because you wanted to help make the world a better place? Maybe you pitched in at a local soup kitchen, taxied meals to elderly neighbors, or helped organize a school blood drive. Or perhaps you have volunteered for groups like the American Society for the Prevention of Cruelty to Animals, Habitat for Humanity, or Reading Is Fundamental. Many such groups and efforts were founded on the premise that individuals or small groups of people passionate about important issues could make a difference in their community. Many present-day national and international nonprofit associations started out on a local scale and grew as they attracted volunteers and supporters. New groups are founded all the time.

Many historical factors have influenced and shaped the nonprofit sector. For centuries, churches have made tending to the less fortunate part of their mission. In 1601, the Act for the Relief of the Poor, commonly known as the Elizabeth Poor Law, was established in England and Wales, mandating that church parishes take care of the poor by providing shelter to those unable to work, work and workhouses to those capable of work, and food, clothing, or money, to all as needed. The U.S. Constitution of 1789 transferred the responsibility of caring for the poor from churches to town governments. With the power of the federal government decentralized, interest in charitable causes then grew, giving rise to the creation of associations for a wide variety of interests. The French writer Alexis De Tocqueville toured the United States in the 1800s and commented on the burgeoning philanthropy: "The Americans make associations to give entertainment, to found seminaries, to build inns, to construct churches, to diffuse books, to send missionaries to the antipodes; in this manner they found hospitals, prisons and schools."

Other legislation that gave structure to the nonprofit sector in the United States was the case Trustees of Dartmouth College vs. Woodward (1819). Dartmouth had been chartered by the King of England, and in 1816, New Hampshire state legislature revised the charter, changing the school from private to public and also changing how the trustees were selected. Dartmouth's trustees filed suit, claiming the legislature violated the Constitution. The court ruled in favor of Dartmouth College, agreeing that although New Hampshire was no longer a royal colony, the contract remained valid. And in accordance with the Constitution, a state can't pass laws to impair a contract. The case was important because it defined the differences between private and public actions. It set the precedent for preventing state governments from turning private charitable entities into public institutions.

Volunteerism and nonprofit activity in the United States also increased during the Civil War. Teacher Clara Barton had volunteered during the war to bring supplies and support to soldiers in the field. In 1881, she, along with a group of supporters, founded the American Red Cross, which provides disaster relief and assistance to armed forces and civilians, international relief and development, health and safety education and training, and other critical care. Andrew Carnegie and John D. Rockefeller also influenced the nonprofit sector in the 1800s and early 1900s and are considered the forefathers of philanthropy. They were the wealthiest men in the United States and donated millions of dollars to nonprofit organizations; their foundations continue today. World War I inspired average Americans, not just the wealthy, to donate money to nonprofit causes. Community foundations, in which average people of modest means pitch in to local nonprofit programs, started to grow in the 20th century. The Revenue Act of 1917, which allowed tax deductions for charitable gifts, also triggered Americans' interest in philanthropy. In 1964, the Volunteers in Service to America Act (VISTA) was established to encourage community-level volunteering in low-income neighborhoods and schools. The VISTA program became AmeriCorps VISTA in 1994.

Careers in the nonprofit sector offer an opportunity to combine your work with your passions and to help improve society while you fulfill your professional goals. Nonprofit groups function on local, national, and global levels to address all sorts of issues, from health care and politics to social and religious issues. Many are set up like corporations with executive directors and chief financial officers, but the common denominator among them is that their bottom line is based on public service and not on profit.

That does not mean you can't make a good living working in the nonprofit sector. Volunteers certainly play an important part in helping these groups accomplish their mission, but it takes regular, paid employees to keep things running. Nonprofit groups employ directors, managers, and assistants just like most for-profit companies, but they also require full-time fund-raisers, grant writers, and volunteer coordinators.

A nonprofit organization (NPO) is one that has been granted tax-exempt status by the Internal Revenue Service under either 501(c)(3) or 501(c)(4) of the Federal Tax Code. While groups in either class may share similar goals, donations to 501(c)(3) organizations are tax deductible. Donations to 501(c)(4) associations are not tax deductible, because this type of group is permitted to become more engaged in lobbying and political efforts. Groups classified as 501(c)(3) are generally charitable organizations or providers of social services.

As of 2018, nonprofits accounted for about 10 percent of all wages and salaries paid in the United States. The nonprofit sector did surprisingly well compared to the for-profit sector throughout the first decade of the 2000s, according to a study by Johns Hopkins University's Center for Civil Society Studies. Employment in the nonprofit sector grew at an annual average rate of 2.1 percent from 2000 to 2010, whereas job growth declined by 0.6 percent annually in the for-profit sector during that time frame. The study also showed that from 2007 to 2017, nonprofit employment grew nearly four times faster than for-profit employment. There are now more than 1.5 million tax-exempt organizations in the United States, according to Independent Sector, a coalition of nonprofits, foundations, and corporations, and more than 1million of them were 501(c)(3) groups. More than 12 million people work in the U.S. nonprofit sector.