The Initial Nonprofit Exposure and Response to Seattle’s Minimum Wage Ordinance

Abstract

Nearly 40 local governments adopted minimum wage rates higher than the federal minimum in the last decade. Research on such laws focuses on employment and price adjustments of for-profit firms. Higher minimum wage rates, however, may pose unique challenges to community-based nonprofit organizations, many of which serve vulnerable communities and have limited ability to modify business practices. We use survey and in-depth interview data with more than 125 nonprofit executives to explore how nonprofit organizations were exposed to, understood, and responded to the initial phase-in of Seattle’s $15 minimum wage ordinance. Although most nonprofits with low-wage workers do not report substantial programmatic changes in response to the minimum wage, we do find evidence nonprofits are pursuing several avenues to raise revenue to cover higher anticipated labor costs. Results suggest that the channels of adjustment available to nonprofits have a different character than those available to for-profit firms.

In recent years, more and more states and localities have adopted minimum wage rates much higher than the federal minimum wage rate of $7.25 as a strategy for reducing poverty, tackling income inequality, and improving job quality (Romich and ^{Hill 2018}). Cities such as Seattle and San Francisco have raised local minimum wage rates to $15 an hour, whereas nearly 40 other cities or counties have minimums well above $10 an hour (UC Berkeley Center for Labor Research and Education 2020). Along with a resurgence of interest in such laws among the public, policy makers, and advocates, there is resurgent research interest in the effects of the minimum wage on firms and workers. Substantial attention has been paid to the effect of higher minimum wage rates on workers’ wages, work hours, and earnings (Belman and Wolfson 2014; Neumark, Salas, and Wascher 2014; Jardim et al. 2017). Additional research focuses on how higher minimums shape the health and well-being of workers (Averett, Smith, and Wang 2017; Horn, Maclean, and Strain 2017; Kuroki 2017; Lenhart 2017; Leigh, Leigh, and Du 2019). Scholars also have examined the so-called channels of adjustment, or strategies, through which for-profit firms adapt practice and strategy to higher minimum wage requirements (Lester 1960; Schmitt 2013; Hirsch, Kaufman, and Zelenska 2015; Knudsen 2017; Allegretto and Reich 2018; Romich et al. 2018; Jardim and van Inwegan 2019).

Discussion of how higher minimum wage rates may affect the charitable nonprofit sector has been noticeably absent from the research literature on the minimum wage. Many nonprofits, particularly those in the health and human services sectors, rely on workers in relatively low-wage jobs paying hourly rates below the minimum wage rates of $13 to $15 per hour recently adopted in some communities (Butler 2009). Scholars, policy makers, and advocates have speculated on the effect of such laws on nonprofits (e.g., Allard 2016), but to our knowledge there is no peer-reviewed theoretical or empirical research assessing how higher minimum wage rates affect nonprofit organizations. Much of the existing research examining nonprofit sector employment says little about how contemporary labor market regulations shape organizational strategy around hiring, service provision, and revenue streams. Data limitations also make it difficult to explore the effects of minimum wage laws on nonprofit organizations specifically. For example, state unemployment insurance data commonly used to track employment and earnings do not identify organizations as nonprofit or for-profit firms. Similarly, although the Internal Revenue Service 990 forms filed by tax-exempt charitable nonprofits provide important insight into the nonprofit sector overall, they contain little information relevant to examinations of higher minimum wages’ effects on organizational behavior. The fact that nonprofit organizations are largely overlooked by the minimum wage research literature should be of concern to social work practitioners and social policy researchers broadly, as nonprofits are critical sources of advocacy, human services delivery, social assistance, and civic community for some of the most marginalized population subgroups in society (Smith and Lipsky 1993; Salamon 1999; Allard 2009; Mosley 2010).

This article draws upon several research literatures to identify potential channels of adjustment to higher minimum wages that more carefully reflect the realities of the nonprofit sector. We then use this conceptual framework to guide our analysis of survey data and in-depth interviews capturing how more than 125 nonprofit organizations in Seattle responded to the initial phase-in of that city’s local minimum wage ordinance in 2015.We find that nonprofit organizations in Seattle exposed to the initial phase-in of the minimum wage ordinance pursue a mix of responses. In some instances, nonprofits raise prices or fees in a manner similar to for-profit firms. Our survey and interview data also suggest that nonprofits pursue channels of adjustment unique to that sector. For example, we find some organizations using volunteer labor as an adjustment to higher labor costs. We also find that a mix of organizational and institutional realities likely limits the ability of nonprofit organizations to adjust to higher minimum wage rates by substantially shifting operations or program delivery. The article concludes by drawing implications both for future research and for the field of social work.

THE SEATTLE MINIMUM WAGE ORDINANCE

The Seattle City Council passed the Seattle Minimum Wage Ordinance in June 2014, following extensive public debate and widespread support among local elected officials (Balk 2014). Despite its relatively simple framing around a $15-an-hour minimum, the phase-in of the Seattle Minimum Wage Ordinance is complex (see app. A). The ordinance sets out two different phase-in schedules: one for employers with 500 or fewer workers across all business locations worldwide and one for employers with more than 500 workers. Within each firm-size schedule, phase-in varies by whether an employer provides health insurance. Employers contributing to employee health insurance have a slower phase-in to $15 an hour than those that do not provide such insurance.¹ The first wage step-up, from the 2015 state minimum of $9.47 to $11.00 for most employers, took effect on April 1, 2015, and subsequent step-ups happen each year on January 1. Although phase-in of the ordinance is implemented differently by firm size and the presence of health insurance coverage, Seattle did not exempt nonprofits or apply different phase-in schedules to certain types of nonprofit organizations or firms ( City of Seattle 2014).

Data from the Washington State Employment Security Department illustrate the effects of Seattle’s 2014 minimum wage ordinance. The first step-up, in 2014, increased the minimum wage to $11 an hour for most firms in 2015.This corresponded to a 1.7 percent average increase in hourly wages for workers earning $19 an hour or less. The second step-up, which increased the minimum wage from $11 to $13 an hour for most firms in 2016, corresponded to an average hourly wage increase of 3.1 percent for those earning $19 an hour or less (Jardim et al. 2017; see also Jardim and van Inwegen 2019).

NONPROFIT CHANNELS OF ADJUSTMENT TO HIGHER MINIMUM WAGE LAWS

The current literature on the minimum wage does not clearly theorize how nonprofit organizations specifically might respond to higher minimum wage rates. An absence of research examining the effect of higher minimum wage rates on nonprofit organizations implicitly conveys that channels of adjustment commonly pursued by for-profit firms also pertain to nonprofit organizations. Yet, because we understand that for-profit firms operate differently than nonprofit organizations, we might expect the channels of adjustment available to for-profit firms to vary from those available to the charitable nonprofit sector.

To define the viable channels of adjustment nonprofit service organizations might use to adapt to higher minimum wage rates, we begin with a brief overview of the channels of adjustment commonly identified by minimum wage research examining for-profit firms. In turn, we draw upon nonprofit organizational theory and institutionalist perspectives to assess when these conventional channels of adjustment might apply to nonprofit organizations. We also use insights from these theoretical traditions to identify channels of adjustment that may be unique to nonprofits. Examining these channels might also shed light on the particular ways in which nonprofit organizations respond to shifts in their external institutional environment.

EXPOSURE TO MINIMUM WAGE LAWS

Local minimum wage laws set hourly wage rate floors and promote the value of greater pay equity. The laws themselves, however, do not prescribe how organizations or employers should adjust practices to achieve compliance. The magnitude of an employer’s exposure to minimum wage increases, commonly defined as the cumulative wage increase necessary for a firm or organization to comply with higher minimum wage rates, may determine the effect of wage laws on strategic decisions of firms or organizations (see Hirsch et al. 2015^; Jardim and van Inwegen 2019). Exposure to a given minimum wage law is important because employers experiencing much higher labor costs should pursue more significant changes to operations and staffing compared with those with modest exposure. Although firms vary in their exposure to minimum wage laws, much of the research to date on employer responses to such laws focuses on the food service and retail sectors, where exposure is thought to be most significant (Card and Krueger 1995; Neumark and Wascher 2008; Schmitt 2013; Knudsen 2017).

There are many reasons to expect substantial exposure as a result of state and local minimum wage increases on at least some types of nonprofit organizations. Scholars commonly argue that nonprofit organizations compensate employees less on average than for-profit employees in comparable positions (see Leete 2000). Research suggests the health and human services nonprofit sector in particular may be reliant on low-wage workers to deliver child care, home health care, and residential or hospice care (Butler 2009; Gray and Schlesinger 2012; Smith 2012). Reseachers think the presence of below-market or low wages in these instances reflects the limited fiscal resources of nonprofits, the provision of generous employee benefits and health-care coverage, and employee willingness to work for lower wages because of the intrinsic or solidary benefits of nonprofit work (Preston 1989; Ben-Ner, Ren, and Paulson 2010).The literature is not clear, however, on the extent to which nonprofit organizations employ staff in low-wage positions subject to state or local laws raising the minimum wage above the federal minimum rate. We return to this point when we begin to analyze our survey and in-depth interview data.

POTENTIAL CHANNELS OF ADJUSTMENT

For-profit firms exposed to higher minimum wage rates are thought to use any number of different strategies, or channels of adjustment, to respond to resulting increased labor costs. Basic economic theory holds that as the price of labor rises, employers will use less of it. This premise suggests that for-profit firms are likely to offset higher hourly rates through some cuts to employment, whether it be scheduled hours or staffing levels (Schmitt 2013).² Other strategic business adaptations also may occur. For-profit firms may raise prices for goods and services to meet higher labor costs (Schmitt 2013; Hirsch et al. 2015; Romich et al. 2018). Businesses can adjust human resource practices to reduce labor costs in a number of ways: by limiting wage increases for workers to just above new minimum wage thresholds; reducing professional development and training activities; and cutting back on nonwage benefits such as health insurance coverage or vacation time (Schmitt 2013; Romich et al. 2018). Higher minimum wages may lead firms to upgrade the skill levels sought for new hires or to rely more heavily on technology to increase productivity within similar or reduced staffing levels (Schmitt 2013; Hirsch et al. 2015). In the extreme, firms may choose to relocate outside of high-wage places or may even close operations altogether. Significant increases in the minimum wage floor also may shift employers’ internal wage ladders as they maintain pay and status differential between entry-level employees earning minimum wages and more experienced or skilled workers (Knudsen 2017). Higher minimum wages could have positive consequences for internal operations as well. Some posit that higher wages might lower employee turnover and increase staff morale or productivity (Reich, Hall, and Jacobs 2003; Dube, Naidu, and Reich 2007; Schmitt 2013; Hirsch et al. 2015).

To understand how nonprofit organizational forms and professional imperatives may shape the channels of adjustments available to nonprofits, we focus on two broad sets of theoretical considerations. First, the channels of adjustment available to employers should be shaped by their organizational structure, market realities, customer or client characteristics, and the availability of labor substitutes (Lemos 2008; Barman and MacIndoe 2012; Romich et al. 2018).Organizational theory commonly presumes that nonprofit organizations and for-profit firms differ in structure, revenue models, and incentives or goals (see De Cooman et al. 2011^; Lee 2016). To the extent that nonprofits are structurally distinct from for-profits, we may assume that channels of adjustment available to nonprofit organizations also are distinct. Second, conceptions of how nonprofit organizations perceive viable channels of adjustment also should be shaped by theoretical examination of nonprofits’ interaction with their external institutional environment. Scholars recognize that shifts in public policy or government regulation foster change within the nonprofit sector by leading organizations to prioritize certain internal values, goals, and strategic actions over others (DiMaggio and Powell 1983; Smith and Lipsky 1993; Barman 2016; Suárez and Esparza 2017). Nonprofit organizations, however, are not merely passive reactors to changes in the external institutional environment. Instead, nonprofits intentionally work to shape and influence policy through cross-sector collaborative work and advocacy activities (Marwell 2004, 2007; Fyall 2016, 2017; Suárez 2020).

Key structural differences between for-profit and nonprofit employers are well understood in the scholarly literature. Perhaps most importantly, nonprofits are commonly seen as prioritizing social justice,values, or care missions, whereas for-profit firms are presumed to prioritize maximizing profit and minimizing operating cost (Brown and Slivinski 2006; Steinberg 2006; Salamon 2012). Although nonprofit organizations do not accumulate profit, it is understood that many also do not maintain substantial financial reserves or rainy day funds (Brown and Slivinski 2006; Calabrese 2018). As a result, many nonprofits will have fewer slack or discretionary resources to address sudden needs than comparable for-profit firms. Agency or control over revenue streams also can differ between the two sectors. The minimum wage literature commonly assumes for-profit firms have meaningful discretion over the pricing of goods and services. By contrast, nonprofits often rely on revenue from multiyear contracts or grant arrangements that mandate adherence to specific program logic models and dictate staffing levels. These revenue streams also tend to be shaped by factors outside of nonprofits’ immediate control, such as federal or state budget decisions, public agency rulings on reimbursement rates or covered services, and strategic direction taken by charitable philanthropy (Smith and Lipsky 1993; Allard 2009).

Differences in organizational structure between nonprofit and for-profit employers may affect the ability of nonprofits to pursue several channels of adjustment seen as commonplace in the minimum wage literature focusing on for-profit firms.³ Limited reserves may restrict nonprofits’ abilities to reallocate resources internally to pay higher wages. Nonprofits may have limited ability to pursue channels of adjustment related to revenue generation or fee increases because there may be little opportunity to raise significant additional external revenue in the short run (Smith and Lipsky 1993; Allard 2009; Smith 2012). Similarly, nonprofits may have less ability to reduce staffing levels or hours than for-profits due to grant or contract stipulations. In fact, given the availability of volunteer labor, it may be the case that nonprofits with significant exposure to higher minimum wages seek to substitute paid labor with volunteer workers (Handy, Mook, and Quarter 2008). To the extent that there are few staffing or revenue-based channels of adjustment to pursue, it may be that nonprofit organizations respond to higher minimum wages by making significant programmatic changes or shifts in service provision (Grønbjerg and Salamon 2012; Romich et al. 2018).This adjustment may involve substantial change in programs offered, a departure from traditional client or community focus, or relocation to another place in the community with fewer budget constraints.

Although a focus on organizational differences is useful, it is important to bear in mind that nonprofit organizations can share many structural features in common with for-profit firms. Where organizational forms and structures are similar, we might expect channels of adjustment to be similar. For example, it may be that nonprofit organizations and for-profit firms both will attempt to maintain service quality with slight downward adjustments to staffing levels. Some nonprofits maintain reserve funds large enough to be used to address higher labor costs (see Marwell and Calabrese 2015^; Calabrese 2018). Larger regional nonprofits also may operate more like for-profit firms with board or governance structures and revenue portfolios that offer different channels of adjustment than may be available to smaller, less formally structured, neighborhood-based nonprofits. Similarly, nonprofits may operate in settings where demand is elastic and there is a reasonable expectation that the burden of higher labor costs can be directly transferred to the consumer, client, or community through higher prices or fees, as is often the case among for-profit firms. Other nonprofit organizations may have access to commercial or fee-based revenue streams over which they have more control and can be more readily adjusted to account for higher costs (Hasenfeld and Garrow 2012; Smith 2012; Schmitt 2013; Hirsch et al. 2015; Romich et al. 2018). Nonprofits, such as those in behavioral health services, compete closely with for-profit organizations for resources and clients. This participation in competitive markets may force nonprofit employers to respond to minimum wage laws similarly to comparable for-profit firms or risk losing market share (Twombly 2009; Smith 2012; Smith and Phillips 2016). Employee health coverage and retirement benefits often are an attractive feature of the overall compensation package in nonprofit organizations and for-profit firms (see Bishow and Monaco 2016), which means both types of employers may adjust benefits and insurance packages available to workers to offset costs associated with higher wage rates. Nonprofit organizations and for-profit employers may face practical limitations around options to geographically relocate the business because of the difficulty in finding affordable space options or options that maintain access to critical customers or markets (Allard 2009; Romich et al. 2018). In addition, nonprofits with significant exposure to higher minimum wages and without viable options for raising revenue, reducing overhead, or relocation may be forced to close operations, as would comparable for-profit firms.

Institutionalist perspectives also generate insight into how nonprofits come to understand the feasible or acceptable channels of adjustment to higher minimum wage rates. Nonprofit responses to changes in workplace regulation should be shaped by what leaders understand to be professionally, normatively, or culturally appropriate strategic actions (DiMaggio and Powell 1983; Scott 2014; Barman 2016). Differences in professional norms, priorities of key organizational stakeholders, and leading organizational values between for-profit and nonprofit employers should translate into different understandings of what constitutes an appropriate or feasible channel of adjustment. Even within the nonprofit sector, different organizations will have different professional norms or cultural understandings of what might be more appropriate or less appropriate responses to changes in the external institutional environment (Stone and Sandfort 2009; Scott 2014; Smith and Phillips 2016; Moulton and Sandfort 2017).

Certain nonprofit organizations, perhaps health and human services nonprofits working with vulnerable populations in particular, are likely to find that organizational imperatives and professional norms tied to serving high-need communities will shape the viable channels of adjustment. Nonprofit organizations whose work focuses on marginalized or underserved communities could find it difficult to adjust to higher labor costs by modifying services, reducing staffing levels, or relocating because formal contractual provisions may limit substantial changes to operations (Smith and Lipsky 1993; Suárez 2011). Moreover, public agency and philanthropic partners may be particularly attentive to any change in service provision that would acutely affect the at-risk or vulnerable populations nonprofit organizations are expected serve.⁴ Reduction or withdrawal of services could have downstream political or reputational costs for nonprofit organizations, affecting the future likelihood of receiving public or philanthropic funding (see Suárez 2011). In these circumstances,we should expect nonprofit organizations to seek alternative channels of adjustment in the near term and plan for longer-term adjustments to services or reimbursement rates through professionally normative contract or grant renewal processes (Netting et al. 1990).⁵ Nonprofits also may evolve advocacy and social change activity to better educate policy makers, charitable philanthropy organizations, and the public about the unintended spillover effects of higher minimum wage laws on staffing, service provision, and community (Marwell 2004, 2007; Fyall 2017; Suárez 2020).

There may be circumstances instances in which the professional norms and values underlying the work of nonprofits lead to fewer contradictions between higher minimum wages and operations than one might expect. For instance, nonprofit organizations with strong, mission-focused cultures may be better positioned to appeal to the social value of their work when justifying channels of adjustment that result in wage compression or limited wage progression. It may be that nonprofit employees tolerate such responses more readily than employees of for-profit firms because nonprofit work provides important intrinsic value (Preston 1989; Ben-Ner et al. 2010). At the same time, laws raising minimum wages may provide relief to nonprofit organizations and employees from persistent struggles to reconcile mission to serve marginalized communities with societal expectations that employees only receive modest wages (Sosin 2012). Higher minimum wages also may help offset the demands of stressful low-wage human services positions (see Otten et al. 2019). Moreover, because higher minimum wage rates have been associated with improved self-reported health outcomes, reduced rates of chronic health conditions, and decreased prevalence of suicide (Lenhart 2017; Van Dyke et al. 2018; Leigh et al. 2019; Kaufman et al. 2020), nonprofits may see higher minimum wages as a pathway to better outcomes for their clients and employees. Consequently, we may observe nonprofit leaders framing higher labor costs due to minimum wage laws as simply an alignment of human resource practice with organizational goals or values.

Ideally, it would be possible to test different hypotheses about the responses of nonprofit versus for-profit organizations to higher minimum wage laws using employment and business practice data across a large sample of nonprofit and for-profit employers with varying exposure to state or local minimum wage laws. Data limitations described at the outset and below, however, prevent precise assessment of wage ordinance effect on nonprofit employment levels, compensation, and budgets. As a result, our primary goal here is to advance conceptual understandings of nonprofit channels of adjustment and draw conclusions for future research by examining the initial responses of nonprofit organizations to the Seattle Minimum Wage Ordinance. We structure our discussion around six key strategic channels of adjustment in which nonprofit organizational features and external institutional pressures might most directly shape responses to the law: management of internal wage structures, decisions around staffing and hiring, provision of employee benefits, changes to programming and service delivery, strategic behavior around revenue streams, and office relocation.

DATA AND METHODS

To continue to build conceptual insight into how nonprofit organizations may be responding to the higher minimum wage, this project collected survey and in-depth interview data with more than 125 local nonprofit organizations believed to have low-wage employees in Seattle and were thus subject to the ordinance. We gathered data immediately before and during the 18 months following the April 1, 2015, phase-in of the local minimum wage ordinance. As part of a larger, two-wave panel survey of employers in the city, researchers interviewed staff informants at nonprofit organizations in the city of Seattle between March 2015 and September 2016. The first-wave survey of nonprofits was conducted between March and May 2015; the second-wave survey occurred between June and September 2016. Researchers also conducted in-depth interviews with 29 nonprofit executives and senior leaders between March and June 2016.

SURVEY OF SEATTLE NONPROFIT ORGANIZATIONS

The Survey of Seattle Nonprofit Organizations was part of a larger panel survey of a representative sample of employers in Seattle. The nonprofit sample for this panel survey was a hybrid drawn from a random sample of all business license holders in the city of Seattle and a purposive oversample of providers in the health and human services sector.⁶ The random sample of 3,780 business license holders included both for-profit and nonprofit organizations. Business license data do not provide information about for-profit or nonprofit status, however, so it was not possible to know how many nonprofits, from which subsectors, were in the sample until survey contact was made. To ensure enough representation of affected nonprofits, we included an oversample of 335 nonprofit organizations operating in the health and human services sector built from several local community directories. We drew organizations from five specific service areas where nonprofits were believed to be most likely to employ low-wage staff and where client populations may be most vulnerable to program cuts or changes. The service areas examined were basic needs and emergency assistance, education, employment assistance, health care, and mental health care. We selected an oversample of health and human services providers because those organizations compose a large share of nonprofit activity and employment overall (Leete 2006; Cordes and Steuerle 2009; Cornelius and Corvington 2012). These types of organizations also offer a wide range of supports to vulnerable population subgroups and communities, including help with basic material needs; assistance with job search and housing needs; counseling for mental health and substance abuse problems; care for children, elderly people, and disabled populations; and assistance for developing literacy and vocational skills (Smith and Lipsky 1993; Allard 2009).

Table 1 shows the sampling framework that generated the nonprofit survey sample at key stages of data collection. Through our sampling strategy, the Survey of Seattle Nonprofit Organizations contacted nearly one-quarter of the nonprofits in the city, including a large proportion of those nonprofits likely to be most affected by the higher minimum wage.⁷

TABLE 1.

Nonprofit Sampling and Response Rates for Screener, Wave 1, and Wave 2 Surveys

Survey Wave and Data	N
Wave 1 survey sample (2015):
A. Total number of randomly sampled Seattle business license holders	3,780
B. Randomly sampled nonprofits responding to screener	124
C. Total number of oversampled nonprofits from Seattle community directories	335
D. Oversampled nonprofits responding to screener (response rate 5 297 335 5 88.7%)	297
Wave 1 screener completed (2015):
E. Total number of nonprofits responding to screener (rows B 1 D)	421
F. Randomly sampled nonprofits with low-wage workers	90
G. Oversampled nonprofits with low-wage workers	85
H. Randomly sampled nonprofits with no low-wage workers	34
I. Oversampled nonprofits with no low-wage workers	212
J. Total number of nonprofits eligible for long survey (rows F 1 G)	175
Wave 1 long survey (2015):
K. Total nonprofit survey sample (row J):	175
L. Total nonprofits with no low-wage workers	37
M. Randomly sampled nonprofits completing survey	73
N. Randomly sampled nonprofits with no low-wage workers	17
O. Oversampled nonprofits completing survey	65
P. Oversampled nonprofits with no low-wage workers	20
Q. Total nonprofit respondents with low-wage workers (rows M 1 O) (response rate 5 101 138 5 73.2%)	101
Wave 2 long survey (2016):
R. Total nonprofit survey sample (row Q)	101
S. Total nonprofit respondents with low-wage workers (response rate 5 89 101 5 88.1%)	89

Source.—Survey of Seattle Employers (2015, 2016).

The wave 1 survey occurred in two steps: (1) a brief screening survey completed between January and March 2015 and (2) a detailed survey about business practices completed between March and May 2015. Although interviewers sometimes gathered information from whoever answered the phone at an employer’s location, they asked for an alternate informant when the initial respondent did not know needed information. The screeners then took care to ensure information gathered during the survey itself was accurate, requesting the name of the organization’s “president, area manager, or someone else who would know about numbers and types of employees, employee compensation, and business strategy.” The screener survey then asked for information about the organization’s for-profit or nonprofit status and for information about a contact who could answer a longer survey about staffing and business practice. Information about employment and for-profit or nonprofit status collected in the screener was cross-checked with the identified contact during completion of the detailed survey.

To ensure the detailed survey would focus on organizations most likely to be subject to the minimum wage ordinance, the screening survey identified employers where it appeared possible that paid staff were earning less than $15 an hour in early 2015. Specifically, respondents to the screener were then asked what percentage of “Seattle employees earn less than $15 per hour? None; Less than 1 in 10 or Less than 10%; 10% or more but less than a quarter; 25% or more but less than half; 50% or more; or Don’t Know.” The screener survey used an inclusive determination for eligibility for the detailed survey, defining all employers that had an answer other than “None” as eligible for the detailed survey.⁸

Of the 3,780 employers randomly sampled from the city of Seattle business license directory, 124 firms self-identified as nonprofits during the screener.Of the 335 nonprofit organizations in the oversample, 297 responded to the screening survey. Thus, the screening survey contains information on 421 nonprofit organizations total. Of the 421 nonprofits in the screening survey, 175 organizations were thought to have paid staff earning less than $15 an hour at the time the ordinance took effect and were then determined eligible to continue to the longer survey. Reflecting efforts to be inclusive during the screening survey and efforts to check the accuracy of screener survey responses, 37 of the 175 nonprofit organizations initially eligible for the detailed survey were later found to not have paid staff earning less than $15 an hour when talking to the key contact completing the detailed survey. The final survey sample, therefore, included 138 nonprofits.

Of the 138 nonprofits with low-wage employees in the wave 1 sample, 101 completed the long-form survey (response rate of 73 percent).⁹ Our long-form wave 1 survey captured information about changes in business practice, employment and staffing strategies, employee productivity and morale, benefits and compensation, provision of programs or services, and responses to the wage ordinance. Respondents were prompted to think about changes in staffing or operations “to accommodate the Seattle Minimum Wage Ordinance,” rather than to indicate whether activities had occurred in a certain window or to a particular step-up. The wave 1 survey captured baseline information about nonprofit organizations at the time the ordinance was beginning implementation and anticipated responses to the ordinance. The wave 2 survey presented the same set of questions to the 101 wave 1 respondent organizations between June and September 2016 to capture any change in baseline organizational characteristics and self-reported responses to the minimum wage in the 18 months following the first step-up.¹⁰ Of the 101 nonprofits interviewed in wave 1, 89 (88 percent) completed the wave 2 survey.¹¹ Surveys took about 30 minutes to complete over the telephone in each wave, and there was a web survey option for respondents who preferred that mode.

Tables 2 and 3 provide more information about the survey respondents. Two-thirds of the nonprofits surveyed are from the health care or human services sectors. The remaining nonprofits come from a mix of other industry codes, including the arts, services for the elderly, and services for the disabled. Apart from being drawn across a variety of subsectors, the nonprofits participating in this study reflect organizations of varied size. Participating organizations ranged in size from very small (1 or 2 employees in Seattle) to very large (more than 500 in Seattle). More than 60 percent of nonprofit firms surveyed, however, had fewer than 50 employees in Seattle, with about 24 percent indicating they had fewer than 10 employees in the city (see table 4 later in the article).

TABLE 2.

Characteristics of Nonprofit Organizations Surveyed

Characteristic	Wave 1	Wave 2
Service sector (%):
Arts/culture	11.9	11.2
Disability	5.0	4.5
Elder care	6.9	7.9
Health services	13.9	14.6
Social services	53.5	52.8
Other	8.9	9.0
Location of organization:
Median number of sites within Seattle	1.0 (1.0, 3.0)	1.0 (1.0, 3.0)
Median number of sites within Seattle metro area	3.0 (1.0, 9.0)	2.0 (1.0, 8.0)
Location of customers (%):
Customers/clients come to office location	75.2	76.4
Provide goods/services to customers outside city of Seattle	29.7	31.5
Provide goods/services to customers inside city of Seattle	48.5	48.3
Funding sources in most recent fiscal year (%):
Earned/commercial revenue	44.6	42.7
Governmental sources (e.g., grants, contracts, fees)	76.2	68.5
Philanthropic or corporate support	74.3	69.7
Individual donations and individual giving	82.2	75.3
Grants or contracts from the city of Seattle	···	40.4
City funding through Human Services Department	···	21.3
Medicaid	···	12.4
N	101	89

Source.—Survey of Seattle Employers (2015, 2016).

Note.—Percentages do not add up to 100 due to item-specific nonresponse. Numbers in parentheses reflect interquartile range. The “Other” sector category consists of firms serving immigrants, spanning multiple services such as disability and social services, and “other services.”

TABLE 3.

Employment and Earnings within Nonprofit Organizations Surveyed

Characteristic	Wave 1	Wave 2
Median number of Seattle employees	23.0 (10.0, 74.0)	22.0 (10.0, 62.0)
Mean number of Seattle employees	89.3	91.7
Number of Seattle employees (%):
1–9	23.8	15.7
10–49	46.5	51.7
50–99	8.9	9.0
100+	20.8	19.1
Type of workers (%):
Firm hired seasonal basis employees in past year	35.6	···
Firm works with independent contractors	58.4	···
Firm has temporary employees in Seattle	37.6	···
Current employees who were the following in the past year (mean %):
New hires	24.5	24.4
Recalls	.4	.9
Quits	18.5	20.7
Layoffs	1.7	.7
Discharges	4.6	3.4
Employee pay ranges—percentage of all employees:
April 1, 2015:
$15 per hour or more	63.2	···
Between $11 and $14.99 per hour	27.7	···
Less than $10.99 per hour	9.1	···
April 1, 2016:
$15.00 per hour or more	···	73.7
Between $13.00 and $14.99 per hour	···	16.5
Between $12.00 and $12.99 per hour	···	8.9
Less than $11.99 per hour	···	.9
Firm benefits/health insurance—all employees:
Health insurance for the employee	87.1	80.9
Health insurance for the employee’s spouse domestic partner, or dependent	43.6	46.1
Paid sick leave	79.2	77.5
Paid vacation leave	78.2	70.8
Paid holidays	88.1	78.7
Undesignated leave or universal “paid time off”	39.6	38.2
Contribution to a retirement or pension plan	58.4	65.2
Number of benefits offered:
0	8.9	10.1
1–4	27.7	20.3
51	63.4	69.7
N	101	89

Source.—Survey of Seattle Employers (2015, 2016).

Note.—Percentages do not add up to 100 due to item-specific nonresponse.

TABLE 4.

Nonprofit Leadership Understanding of the Minimum Wage Ordinance (%)

	Respondents
Question Format	Wave 1	Wave 2
Based on your understanding of the Seattle Minimum Wage Ordinance, what is the minimum wage that you have to pay employees working in Seattle as of April 1, 2015/2016?
Underestimate wage rate	4.8	2.9
Accurate wage rate	72.6	68.6
Overestimate wage rate	22.6	28.6
Difficulty understanding the legal requirements of the minimum wage ordinance?
Very difficult	3.0	···
Somewhat difficult	27.7	···
Not too difficult	44.6	···
Not difficult at all	17.8	···
Difficulty understanding what minimum wage applies to your employees?
Very difficult	5.9	···
Somewhat difficult	23.8	···
Not too difficult	42.6	···
Not difficult at all	20.8	···
Difficulty complying administratively with the minimum wage ordinance, including recordkeeping and notification requirements?
Very difficult	7.9	···
Somewhat difficult	31.7	···
Not too difficult	35.6	···
Not difficult at all	17.8	···
N	101	89

Source.—Survey of Seattle Employers (2015, 2016).

Note.—Percentages do not add up to 100 due to item-specific nonresponse. Percentages for underestimates, accurate estimates, or overestimates of the wage rate are based on the number of firms responding that were aware of the details of the minimum wage ordinance phase-in (i.e., 84 nonprofits in 2015 and 70 nonprofits in 2016).

IN-DEPTH INTERVIEWS WITH NONPROFIT EXECUTIVES

Between the two survey waves, we also conducted in-depth interviews with executive directors and senior leadership of nonprofit organizations located in Seattle between March and June 2016.¹² A purposive sample of 44 nonprofit organizations with workers earning less than $15 an hour was drawn using community directories.¹³ Invitation letters and follow-up calls were made to each organization. Senior executives from each nonprofit were invited to participate, with 29 executives (66 percent of those contacted) completing in-depth interviews. As with the survey, research staff members asked to speak with an organizational leader who would know about human resources and organizational strategy. Our interview data complement survey responses, providing granular detail about exposure and responses to the minimum wage ordinance by nonprofit organizations. Appendix C provides information about how our interview sample included organizations from several broad nonprofit subsectors thought to be most likely exposed to higher minimum wage rates: social services (employment, food assistance, housing and home-lessness, and programs for immigrants), health-care services, services for the elderly and disabled, and arts and culture.

Trained interviewers pilot tested and then conducted the semistructured interviews. An in-depth interview guide can be found in appendix B. During the interview process, respondents discussed changes experienced or anticipated in the following areas: labor costs, the price of goods or services, staffing levels or hours, health insurance or other employee benefits, services available, fees charged to clients or insurers, and strategies for seeking funding. In-depth interview data also helped illuminate how nonprofit executives understand the minimum wage ordinance, its implications for their workforce, and its effect on service delivery or organizational practices. All interviews were audio recorded and typically lasted 30–60 minutes. Interviews were manually transcribed verbatim from digital dictation into a word processing document and then hand-coded by a three-person team. Coding was done in a semistructured two-step process. The first step featured an iterative process designed to identify themes in the interviews. In the second step, a more focused, analytic coding process concentrated on a small number of specific themes. That structure was tested and refined through the iterative coding of an initial set of four interviews, after which time the in-depth interview codebook was set at 11 main theme nodes.¹⁴ The previously coded interviews were checked according to the codebook, and subsequent interviews were coded in accordance with that codebook.

Here we add a few notes about our data before turning to a discussion of our findings. First, our survey analyses assume that when an executive director or individual in a senior leadership position answers “don’t know” or “not applicable” to a question about a given channel of adjustment, such responses indicate no action was taken. Second, due to the study’s commitment of confidentiality and anonymity to respondents, we present findings here in a manner that limits the ability of readers to identify subsectors or specific organizations. Third, the initial phase-in of the law coincided with a period of robust local and regional economic growth. From 2014 to 2016, King County (in which Seattle is located) added 77,798 jobs overall (6.3 percent growth) compared with statewide job growth of 5.6 percent. King County also saw an increase of 4,204 jobs (3.0 percent growth) among firms in the health care and social assistance industry code, where we might expect many nonprofit organizations to be classified, compared with statewide growth of 1.8 percent in this sector. Average annual wages from 2014 to 2016 also increased in King County by 8.8 percent in nominal dollars to $76,828 compared with a 7.4 percent nominal increase statewide, where average annual wages reached $59,090 in 2016 (Washington State Employment Security Department 2017).¹⁵ These limitations notwithstanding, we believe that the data findings discussed here present valuable conceptual and practical insights into the experiences of nonprofit organizations with the first step-ups in the minimum wage.

FINDINGS

Drawing on a mix of survey and in-depth interview responses, we begin by considering how well nonprofits understood the minimum wage ordinance and then examine the degree to which nonprofits may have been exposed to the higher mandated wage rates. We then explore the self-reported responses and actions of surveyed nonprofits to the initial phase-in of the Seattle minimum wage. The most commonly cited channels of adjustment in the minimum wage literature to date are reductions in staffing, price increases, and geographic relocation. Beyond these strategies, we consider the extent to which nonprofit organizations are pursuing nonprofit-specific channels of adjustment that involve modification of services and programs offered or the adoption of new revenue models. Our findings also highlight the organizational dilemmas and complexities that persist amid initial strategic responses to the Seattle Minimum Wage Ordinance.

EXPOSURE TO AND UNDERSTANDING OF THE MINIMUM WAGE ORDINANCE

Contrary to our initial expectations, we find that a relatively small share of nonprofit organizations contacted for the survey component of this study project had workers with wages that were immediately raised by the minimum wage law. Fewer than one-third of the nonprofit organizations (138 of 421; see rows E, K, and L in table 1) contacted through the survey screening process had workers earning $15 an hour or less on April 1, 2015. Even in nonprofits with staff earning less than $15 an hour, it was common for workers not to be immediately affected by the higher $11 an hour minimum. At baseline, more than 91 percent of the employees earning less than $15 an hour in the nonprofits surveyed were earning $11 or more per hour (see table 3). When the minimum wage rate for many firms was $12 to $13 an hour 1 year later, nearly 74 percent of nonprofit employees in organizations surveyed at wave 2 were earning $15 an hour or more, and almost 17 percent were earning between $13 and $15 an hour.¹⁶

Because the Seattle ordinance had a particularly complex phase-in schedule, the wave 1 survey asked nonprofit executives and leaders who said they were familiar with the law’s phase-in schedule the following question: “Based on your understanding of the Seattle Minimum Wage Ordinance, what is the minimum wage that you have to pay employees working in Seattle as of April 1, 2015?” Nearly three-quarters of executives reported their minimum wage level accurately based on where they were located in the ordinance phase-in calendar (see table 4). A number of respondents, however, had the impression that the ordinance phased in at a higher wage level and on a quicker timetable than was actually the case. More than one out of five respondents from nonprofits with paid staff earning less than $15 an hour at the time the ordinance took effect indicated erroneously that the law required them to pay a $15 per hour minimum wage as of April 1, 2015.

Nonprofit leaders also were asked how difficult it was to understand and administratively comply with the ordinance. About one-third of respondents stated it was very or somewhat difficult to understand the legal requirements of the ordinance. A similar share of respondents indicated it was very or somewhat difficult to understand the minimum wage rate that applied to staff in April 2015. Of nonprofit leaders surveyed, 40 percent indicated it was very or somewhat difficult to comply with the recordkeeping and notification requirements entailed by the ordinance. See table 4 for details.

In-depth interviews, completed about 1 year after the ordinance took effect, suggest that most nonprofit leaders had little enduring uncertainty about the minimum wage ordinance. Nevertheless, nonprofit executives in our survey were not always certain of where they sat in the phase-in schedule even a year after the ordinance took effect. The wave 2 survey asked nonprofit leaders the following: “Based on your understanding of the Seattle Minimum Wage Ordinance, what is the minimum wage that you have to pay employees working in Seattle as of April 1, 2016?” As was the case in wave 1, about 70 percent of nonprofits reported their minimum wage level accurately. Almost one-third of respondents, however, still overestimated the wages they were required to pay employees (see table 4).

Nonprofit executives participating in the in-depth interviews often made explicit their organization’s support of the social and economic justice goals embodied by the Seattle minimum wage ordinance. A respondent from an organization serving particularly vulnerable adults noted, “I really feel like my employees are doing some of the most important work that there is to be done for society. And that work has always been undervalued, and I’m really happy about the $15 an hour minimum wage, even though it’s putting the squeeze on us.” An exchange with a long-standing regional nonprofit organization similarly captures the sentiments of many nonprofit leaders working to advance social justice. This executive described the organizational values behind the decision to pay their workers, both in the city of Seattle and in the suburbs where the ordinance did not apply, the higher minimum wage rate: “[Our organization] has long stood for fair wages. …Our [founders] were very much into social justice and the rights of the poor and that kind of thing.” Such expressions of support are consistent with expectations that nonprofit responses or adjustments to higher wage rates will be shaped by their specific organizational missions and cultures.

When discussing their support for the ordinance, however, many nonprofit leaders also revealed tensions the higher minimum wage has created within their business or strategic planning. Nonprofit organizations, perhaps like many employers, alluded to the difficulty of reconciling their organization’s core values with the mandates of the organization’s business model. An executive from a large local nonprofit simply stated, “I am 100 percent behind people making better wages, but it is a significant amount of money that I do not know how we are going to make up over a long period of time.” Another organization leader expressed similar concerns about the fiscal bottom line: “Whatever they [workers] can get paid, they deserve it. The only thing is, they [city government] can come up with these different workforce development initiatives and blah blah blah, but at the end of the day, it’s like, you know, R minus E equals what? Revenue minus expenses equals what? Going back, it’s really that simple, I think, and so we’re experiencing external factors that impact our business model, impact everybody’s business model.” As the quotes here suggest, there is support in the nonprofit sector for higher local minimum wages but also a sense that higher minimum wage rates may have downstream consequences for nonprofit business practice and operations.

WAGE RESPONSE

The vast majority of nonprofits in our survey sample with workers earning less than $15 an hour at the time the minimum wage ordinance took effect increased wages to be compliant with the ordinance and planned to increase wages as the step-ups continued. Roughly 80 percent of nonprofits interviewed in waves 1 and 2 indicated they had raised wages or planned to raise wages in response to the ordinance (see table 5).¹⁷ In this way, the minimum wage ordinance appears to have achieved its intent: low-wage workers in nonprofit organizations saw increases in their hourly wage rate.

TABLE 5.

Staffing and Compensation Channels of Adjustment (%)

	Wave 1			Wave 2
	Responses from March to May 2015			Responses from June to September 2016
Type of Adjustment or Response	Have Done/Have Done and Plan to Do More	Plan to Do	Do Not Plan to Do	Have Done/Have Done and Plan to Do More	Plan to Do	Do Not Plan to Do
Raise the wages of one or more Seattle employees	53.5	22.8	12.9	61.8	20.2	5.6
Increase hourly earnings for employees earning between new minimum wage and $15.00 per hour	33.7	29.7	24.8	39.3	25.8	11.2
Limit raises or decrease wages for employees earning more than minimum wage	2.0	13.9	72.3	6.7	4.5	73.0
Reduce the number of employees	2.0	12.9	72.3	4.5	10.1	70.8
Reduce the number of scheduled hours for minimum wage employees who work in the city of Seattle	2.0	9.9	77.2	3.4	5.6	77.5
Contract out work currently provided in-house	2.0	5.0	82.2	3.4	3.4	42.7
Intend to use more interns or volunteers	10.9	24.8	51.5	20.2	19.1	42.7
Add health-care benefits for some employees	18.8	6.9	63.4	15.7	9.0	44.9
Encourage more employees to enroll in the health care you provide	16.8	8.9	60.4	14.6	11.2	38.2
Eliminate another benefit for some employees	2.0	5.0	80.2	2.3	2.3	77.5
N	101			89

Source.—Survey of Seattle Employers (2015, 2016).

Note.—Numbers are percentage of respondents with a valid response. Percentages do not add up to 100 due to item-specific nonresponse.

Because there was a long period of time between passage of the law, collection of baseline data, and the date the ordinance took effect, our wave 1 survey data may slightly understate the share of nonprofit workers affected by the minimum wage ordinance. To this point, in-depth interviews revealed decisions by several organizations to raise staff salaries above new minimum wage levels well ahead of the April 2015 phase-in of the law. An executive from a large nonprofit described the decision to move to $15 an hour in advance of the ordinance taking effect: “We wanted to get out ahead of $15.We felt like … as a mission-based decision, it just made sense to do it that way.”

Another nonprofit leader echoed this approach: “We just decided to do it … go all the way to 15. So, no one earns below 15, most of the people are above 15. So, we’re on board.” Similarly, an executive from a smaller nonprofit organization recounted, “We had been feeling for some time like we weren’t paying enough. And this [minimum wage ordinance] was a good reason, a kick in the pants to step it up and show people that we care about them.” Because unemployment insurance data do not contain information about for-profit or nonprofit status, however, we are prevented from examining the anticipatory behavior of nonprofits through administrative data.¹⁸

CHANNELS OF ADJUSTMENT TO THE MINIMUM WAGE ORDINANCE

In this section, we draw upon in-depth interviews and surveys to examine the channels of adjustments nonprofit organizations reported considering or pursuing as they accommodated a higher wage bill. We focus on six channels of adjustment commonly found in the minimum wage literature and likely shaped by the unique contexts in which nonprofit organizations operate: shifts to internal wage ladders and compression, changes in staffing and hiring, provision of employee benefits, modification of program and services, rethinking of revenue portfolios, and reconsideration of site locations.

Internal Wage Ladders and Compression

One prominent channel of adjustment discussed in the minimum wage literature involves the shifting of internal wage ladders, whereby workers with hourly wages well above a new hourly minimum experience smaller or no wage increases and, thus, wages within a firm compress. We find evidence that a majority of nonprofits are raising wages for staff just above the new minimum wage floors. Nearly two-thirds of nonprofit leaders surveyed indicated they had or planned to raise hourly wages of employees with wage rates just above the new minimum wage (see table 5). Survey data also find few nonprofit organizations acted to limit raises for those just above the new hourly minimums.

In-depth interviews, however, indicated that several organizations were grappling with the challenges that higher minimum wage rates posed for internal wage ladders. An executive from a large local nonprofit noted that “the middle of the pay scale has suffered a little bit,” as the organization raised pay for all entry-level positions to $15 an hour. Similarly, another executive noted that the higher minimum meant higher wages for other staff: “We advanced everybody. And it’s not easy—I mean, it’s not easy for us to do that. It’s a core value that we felt like we really needed to address: that concern for our lowest-paid staff.” A respondent from a large nonprofit with many staff members earning just above the new mandated minimum wage levels described the complex nature of the organization’s work to address wage compression:

In order to retain some distance between them [minimum wage workers and staff in positions paying nearly $15 an hour], we needed to bring everybody up a little bit. But doing so, for such a large number of staff, increases our costs significantly, so we needed to do it carefully. And just with so many different kinds, so many different low-wage positions, it just made it complicated to move people to a new wage so that they weren’t getting paid less—less than somebody on a lower wage scale—so [someone], you know, who may have been here longer. So, it became extraordinarily complicated to move all of these low-wage positions to a new scale and make it fair.

The experience of this nonprofit underscores how challenging it may be for large organizations to find a process that raises wage rates for those earning at the new minimum while also preserving internal wage ladders and reducing wage compression.

Interviews also suggested many nonprofits had not fully resolved how to address issues of wage compression and expectations for higher wages, whether internally or among office locations. One nonprofit executive discussed the presence of wage compression following the organization’s initial adjustments to the higher minimum wage: “We’re trying to catch up with all the changes in terms of budgeting and the pay-scale structure.” In particular, this executive’s organization was grappling with how to maintain fair compensation for their more-skilled workers: “So right now, we still have some gap [in pay rates] between those with [less-skilled and more-skilled job types], but the minimum is catching up, and we need to do something.” If higher-skilled workers believed the wage differential was “getting too close,” the executive feared they would “go somewhere else,” noting that the higher-paid workers “always complain it’s not fair to them.”

A senior executive of a large regional nonprofit described her organization’s approach to the fact that low-wage employees in her organization’s suburban sites were making less than employees in Seattle doing the same work because of the city’s new minimum wage law. Despite inquiries from staff in these suburban offices, organization leadership chose to pay staff different hourly rates across its urban and suburban sites. This led to some internal tensions about how to set wage rates across the organization: “The truth of the matter is, a lot of our staff people are [in low-wage jobs]. … And so we had to kind of … grapple with that a little bit. … We would have liked to have raised everyone’s rates.” Another executive from a large health and human services nonprofit used the term “serious wage aggression” to describe the recent results of heightened competition for job applicants.

Although nonprofit organizations emphasize the intrinsic value of mission-focused employment opportunities, our survey and in-depth interview data indicate that nonprofit organizations also are mindful of how higher minimum wages affect internal wage ladders, wage compression, and employee morale. Our data do not allow us to assess what motivates nonprofits to adopt a particular strategic response to wage compression. But in-depth interviews suggest that organizational structure, limited fiscal resources, and concerns around competitiveness likely shape how nonprofits pursue internal wage ladder adjustments.

Staffing and Hiring

Scholarship on minimum wage laws suggests that employers will make modifications to staffing as a common channel of adjustment to higher minimum wage rates. Accordingly, our surveys and in-depth interviews asked respondents to discuss changes to staffing or head count, scheduled hours, hiring practices and priorities, turnover, and morale or performance. Despite the reported staff cuts by the regional nonprofit above, our survey data indicate that fewer than 5 percent of nonprofits surveyed in waves 1 or 2 reduced the number of employees in response to the minimum wage. About 1 in 10 nonprofits in each wave reported that it planned to reduce staffing in the future. Only a handful of nonprofits surveyed indicated they had reduced work hours because of the higher minimum wage, and the share reporting that they planned to reduce work hours decreased over the two survey waves (see table 5).

Interviews with nonprofits generally aligned with these survey findings. Most nonprofit organizations interviewed did not indicate the higher minimum wage had led them to reduce the size of their workforce. One executive commented, “The [head]count has remained more or less the same. I mean … [there were] slight fluctuations but nothing really significant.” In-depth interviews with nonprofit leaders downplayed the effect of higher minimum wage rates on staffing levels, which is consistent with our expectations that organizational and institutional constraints around many nonprofit revenue streams make cutting staff a less viable channel of adjustment. One executive observed, “We eliminated some positions in our budget this year. A lot of that was due to some funding coming and going. We’ve always got funding going away and other [funding] coming in somewhere else. So again, it’s hard to really make a direct correlation. … We did reduce the number of positions we have overall in the organization this year. Was raising the internal minimum wage some factor in that? It may have been, but I couldn’t directly say that it resulted in x number of jobs going away.” Here we see staffing levels more clearly tied to the dictates of shifting external funds rather than a channel of adjustment to higher minimum wages. When nonprofit executives referenced staffing adjustments, changes were often modest in scope and reflected effort to reduce labor costs while maintaining existing programming. One nonprofit leader discussed how the organization was coping with higher labor costs in part by freezing the number of staff: “The only real burden that we experience as an org is having very flat rates of payment while having to increase wages. … We’ve not had any layoffs, but we’re not replacing positions, as there is attrition. As people have moved on to other positions, we’re trying to hold tight. We’re having other people take on those responsibilities and not [refilling] that position.”

Some nonprofit leaders perceived that competition for qualified applicants may have quickened in the wake of the minimum wage ordinance, perhaps reflecting erosion in the intrinsic value associated with nonprofit employment as wages across the low-wage labor market rise (Preston 1989; Ben-Ner et al. 2010). One nonprofit executive noted that the organization’s hourly rate for new employees now matched that of mass retailers, but “5 years ago, we had a much higher hourly rate than somebody working at [a well-known national retailer].”

Similarly, another executive complained, “What we’ve seen is a significant decrease in the amount of applicants. Because [across] from my office right across the street is a [fast food chain], and they have a sign on their door. They start at $13.50.” Whereas nonprofit work may have paid better than retail, fast food, or the accommodations sector in the past, our interviewees perceived those earnings differences to have been dramatically reduced by the minimum wage ordinance. A nonprofit executive of a large health and human services organization commented that the rising minimum wage spurred greater reflection about hiring, retention, and recruiting: “[The increase] has forced me to really think about our local market and who we compete with; who we lose staff to; and where do we get our staff.”

Another executive noted, “We worked hard to make a wage change that exceeded the minimum wage law for 2016 in hopes that it would help us recruit more people, but it’s just—I would say we haven’t seen any difference. You know, it’s really been about the same.”

Heightened competitive pressures for workers within particular industry sectors, such as health care, can create more acute challenges for nonprofits around staff recruiting and retention as the minimum wage rises to $15 an hour. A social service executive discussed the “unintended consequences” of the minimum wage laws and the dilemma of how to compete with “larger corporations”: “We probably can’t afford to accelerate our wages on pace with [larger corporations], [which could make it] more difficult for us to find talent. And we need good employees. It’s a supply and demand thing, right? And they’re going to move to wherever the organizations pay higher wages, I think, and we’ll be left with. …”

Similarly, a community health leader said she had to compete with the large health providers that can offer new hires more money. In addition to trying to offer reasonably competitive salaries, her organization had to “look for ways to engage our staff differently [to hire or retain]. So, you feel part of the mission, [which] you can really tie yourself into. You know … [our mission’s focus on] community and improving the quality of health for our patients.”

Many nonprofit organizations cited economic conditions unique to locales with persistently low rates of unemployment as complicating hiring, staffing adjustments, and wage practices at the time the minimum wage ordinance went into effect. Respondents discussed how difficult it is for nonprofit organizations, perhaps like all employers in Seattle, to find qualified applicants in Seattle’s tight labor market. One executive summed up an experience that many others also reported: “[We are] definitely getting fewer applicants, and that’s just a product of a hot job market.”

Another pointed out that “there are more people looking to hire than I think job seekers. I think again it goes back to some of the positions, but even for the entry positions I feel like you’re just competing with everybody.” Complicating matters further, many nonprofit organizations (again, like other employers in the city) invoke the higher cost of living in Seattle as a key to understanding the scarcity of qualified job applicants. One respondent observed, “I don’t think it’s the availability of jobs that’s changing; I think it’s the availability of housing that’s changing. And then [there is] the question about proximity; and if you’re trying to get people into a stable, long-term situation, ideally you’d look closer to where you work, right? It’s less expensive and it’s, you know—it’s more doable.” These types of structural economic realities may encourage nonprofits to set hourly wages ahead of the minimum wage law’s schedule. A nonprofit executive described how applicants’ expectations of $15 an hour and decisions by other employers to go to $15 an hour right away created pressure in the current economic context to match “the shortage, supply and demand. If there are less people to pull from, then the only way organizations, companies can attract is by raising [the wage]. Show me the money.” This executive continued: “The reality is if we don’t keep pace with whoever is putting up that $15 minimum, people are not going to come and work for us because if within the city of Seattle, if someone’s paying 15 bucks an hour, and we’re paying 11, and these [jobs] are entry level, why would you want to [take the lower-paying job] unless you didn’t need the money?”

Staff turnover was a commonly cited challenge facing nonprofit organizations, but one that also exists apart from increases in the minimum wage. Each survey wave asked nonprofit leaders about the number of employees who were hired, quit, were laid off, were recalled from layoff, and were discharged in the last 12 months (see table 3). Data on hiring, quits, and layoffs for waves 1 and 2 suggest nonprofits experience a substantial level of employee turnover during the course of a year. But data also suggest that such turnover has not significantly increased since phase-in of the minimum wage began. For example, in wave 1, the average nonprofit had hired or recalled from layoff 24.9 percent of staff employed at the time of the survey in the previous 12 months. The total number of quits, discharges, and layoffs in the previous 12 months was also equivalent to 24.8 percent of staff for the average nonprofit. Figures for hiring and turnover were nearly identical for wave 2. In wave 2, the average nonprofit had hired or recalled from layoff 25.3 percent of staff employed at the time of the survey in the previous 12 months. The total number of quits, discharges, and layoffs in the previous 12 months was equivalent to 24.8 percent of staff for the average nonprofit in wave 2.

Interviews with nonprofit executives underscored how common it is for workers in low-wage positions to move frequently between employers. One nonprofit leader described efforts to curb or limit turnover through human resource efforts “to only hire people that show job stability.” To most, however, turnover is simply a reality of the nonprofit sector and broader low-wage labor market—not a phenomenon driven by the minimum wage ordinance. Higher minimum wages, however, may make it easier for workers to shop for jobs. As one nonprofit executive noted, “I think we see people staying in these positions for shorter periods of time; [so] the positions tend to turn over more frequently and take longer to fill now. And so that’s a trend we saw before the minimum wage change in 2016, and it’s one we continue to see now.” Such findings suggest that changes in today’s labor market may be shifting the emphasis nonprofit employees place on mission-based work versus other aspects of job quality.

There are additional channels of adjustment available for nonprofit organizations seeking to minimize labor costs without disrupting operations. It may be that rising labor costs could lead some nonprofits to contract out for work currently provided in-house. Our survey data, however, find very few organizations contracting out work more frequently because of the ordinance. Survey responses presented in table 5, indicate that the share of nonprofits using more interns and volunteers as a result of the minimum wage law nearly doubled, from 10.9 percent at wave 1 to 20.2 percent at wave 2. Overall, about one in three nonprofits in each wave indicated that it plans to use more volunteers (including interns), is already using more volunteers, or plans to continue to expand use of volunteers because of the ordinance. Greater reliance on volunteer labor represents a channel of adjustment uniquely available to nonprofit employers, and this strategy may be a common nonprofit response to higher minimum wages.

Finally, although researchers often hypothesize that higher minimum wage rates will affect morale and productivity among workers (Schmitt 2013; Hirsch et al. 2015), it is difficult to measure such features of nonprofit organizations or jobs. We asked nonprofit executives about morale and productivity among minimum wage workers or those workers in the lowest-paid positions. Nearly 60 percent of respondents in wave 1 thought morale would probably or definitely improve among low-wage workers (see table 6). At the time of the wave 2 survey, only 37.1 percent of nonprofits indicated that morale definitely would or probably would increase among the lowest-paid workers following the new minimum wage policy. At the same time, a smaller percentage of nonprofits surveyed were confident of lower morale or productivity among lower-wage workers in wave 2 than in wave 1 (13.5 and 25.7 percent, respectively). Although more than half of nonprofits surveyed expected morale to improve among low-wage workers at the first phase-in of the minimum wage ordinance, nonprofits were far less optimistic about improved morale among low-wage workers by the second wage step-up. We interpret these findings cautiously, as closed-ended survey questions to senior staff and managers may not be the best path to understanding shifts in employee morale.

TABLE 6.

Anticipated Employee Responses (%)

	Wave 1		Wave 2
	Responses from March to May 2015		Responses from June to September 2016
Type of Anticipated Response	Probably/DefinitelyHappen	Probably/Definitely NotHappen	Probably/DefinitelyHappen	Probably/Definitely NotHappen
Improved morale among minimum wage workers	57.4	28.7	···	···
Decreased productivity/morale among minimum wage workers	25.7	55.5	···	···
Improved morale among lowest-paid workers	···	···	37.1	39.3
Decreased productivity/morale among lowest-paid workers	···	···	13.5	73.0
N	101		89

Source.—Survey of Seattle Employers (2015, 2016).

Note.—Numbers are percentage of respondents with a valid response. Percentages do not add up to 100 due to item-specific nonresponse.

Employee Benefits

Another common channel of adjustment involves employer modifications to employee benefits to reduce labor costs amid rising wages. Consistent with the notion that internal organizational culture and professional norms will shape channels of adjustment, nonprofits often reported employee benefits as a key feature of job quality that distinguishes nonprofits from other low-wage employers. One executive noted that the robust package of benefits provided by his organization may be responsible for lower rates of turnover than otherwise would be expected, noting that “employees who have jobs that might be lower on the pay scale—you often assume that they’re going to go take something else. … But if they have great benefits, a good pension plan, decent wage—some of them never move on.” Thus, provision of a greater number of or more generous benefits may allow nonprofits to be more competitive in a labor market where wages are rising across different types of low-wage firms.

To understand potential changes in the provision of workplace benefits, our surveys asked nonprofit executives if they provided any of the following employee benefits: health insurance for the employee; health insurance for the employee’s spouse, domestic partner, or dependents; paid sick leave; paid vacation leave; paid holidays; undesignated leave or universal paid time off (PTO); and contributions to a retirement or pension plan [e.g., 401(k), 403(b)]. Of these benefits, health insurance for the employee, paid holidays, paid sick leave (which is mandatory for employers with more than 4.0 full-time equivalent [FTE] in Seattle), and paid vacation leave are the most commonly offered benefits (see table 3). The least commonly benefits offered include (1) undesignated leave or universal PTO and (2) health insurance for the employee’s spouse, domestic partner, or dependent. About two-thirds of nonprofits interviewed offered five or more of these benefits to employees. Only 9 percent of nonprofits surveyed in wave 1 indicated they provided none of the seven benefits to staff.

In the early stages of the minimum wage ordinance phase-in, it does not appear that nonprofits shifted the benefits packages for employees. Survey data and interviews indicate no significant changes in the provision of employee benefits. The share of nonprofits providing various benefits did not decrease after the minimum wage ordinance took effect (see table 3).Very few nonprofit survey respondents indicated they eliminated benefits as a result of the wage ordinance. Nearly 20 percent of nonprofits in each wave indicated they added health-care benefits to workers as a result of the higher minimum wage, and a similar share indicated they were encouraging more employees to enroll for health insurance (see table 5). A number of motivations for such changes could be proposed. One prominent explanation is that local nonprofits were seeking to be more competitive for job applicants in a tight Seattle labor market. Because firms offering health insurance phase-in to $15 an hour over a longer time period (see app. A), it is possible nonprofits are adding health benefits to be competitive and to set their organizations on a slower phase-in to $15 an hour.

Modification of Programs or Services

Nonprofit organizations may choose to adjust program delivery or service provision in response to higher labor costs, a channel of adjustment akin to a for-profit firm’s decision to shift to products or services with higher margins. Our surveys asked nonprofit leaders about several different paths through which they may adjust service or program delivery following the phase-in of the minimum wage. Consistent with organizational and institutional theory suggesting that nonprofit organizations would not find reductions or dramatic changes to programming as a viable channel of adjustment, we find nonprofits in our study infrequently report making changes to client services in the early stages of the ordinance phase-in. In waves 1 and 2, very few nonprofits indicated having modified programs or services offered in response to the ordinance. Less than one in five nonprofits indicated having plans to change the scope of services offered at the time the ordinance went into effect. Neither survey nor interview data suggested that large numbers of organizations had shifted or would be shifting their client focus in the near term in response to the minimum wage ordinance.

Few executives described cuts to services in in-depth interviews. On occasion, however, an executive made reference to changes in service provision. The executive of the regional nonprofit that maintained separate wage scales for urban and suburban office sites explained how the organization modified services to low-income clients: “[The minimum wage rate increase] was roughly a $35,000–$45,000 increase in our personnel budget. That was unbudgeted for, because it came on suddenly. So, we had to make cuts … in various areas. We tried not to lose many staff people, but there were staff that were lost. There was also an impact to what we paid out for services that we provide people … meaning, some of the [program of assistance] couldn’t be paid, some of the [program operations] stuff couldn’t be done. So there was some effect there.” Overall, however, we find no dramatic or widespread shifts in service provision in the period following the initial phase-in of the minimum wage.

Such findings to some extent reflect the limited exposure of surveyed nonprofits to the initial step-ups in the minimum wage. Mission-based nonprofits also may find it difficult to drop or modify programming without compromising adherence to their organizational mission. Consideration of mission is particularly important in light of the fact that many nonprofit organizations interviewed for this study work with some of the most vulnerable populations in the city; about 60 percent of nonprofit respondents indicated serving low-income clients, and about one-third reported serving clients living with disabilities (the findings on respondents working with clients with disabilities are not reported in detail in this article). Our findings also are consistent with the limited degrees of freedom to alter service delivery terms within existing contract language or fee-for-service arrangements (Smith and Lipsky 1993; Smith 2012).

We might expect, therefore, that changes in service provision will occur over the long term through professionally normative processes of contract renewal and strategic planning. One executive described strategic planning considerations echoed in several interviews with nonprofits. Her organization was evaluating the possibility of withdrawing from one area of programming because labor costs have escalated, and reimbursements or contracts have not kept pace. In turn, her organization is expanding into other areas where the revenues and expenditures net out more favorably. Another representative of a nonprofit discussed the “possibility” of reducing services because of higher labor costs due to the rising minimum wage. Discussion of such plans and possibilities underscore the limited immediate-term changes nonprofits reported making to service delivery in the wake of the initial wage step-ups.

Rethinking of Revenue Sources

As discussed in the background section on channels of adjustment, one prominent strategy available to for-profit firms involves raising revenues, often through setting higher prices or fees. Perhaps contrary to theoretical expectations about limited autonomy around setting of prices or fees for services, we find evidence that an increase in prices or fees is one of the most common channels of adjustment in our study. About one-third of nonprofits surveyed in wave 1 and slightly less than 40 percent surveyed in wave 2 reported that they had raised or were planning to raise prices for goods or services delivered in response to the higher minimum wage (see table 7). Similar shares of nonprofit leaders expressed decisions or intent to increase sliding-scale fees over time as a result of the wage ordinance. Although they are striking, we view these findings with some caution because survey items lack context about the size of price or fee increases, and they do not convey which programs or services may be subject to price increases.

TABLE 7.

Programmatic Channels of Adjustment (%)

	Wave 1			Wave 2
	Responses from March to  May 2015			Responses from June to  September 2016
Type of Adjustment or Response	Have Done/Have  Done and Plan to Do More	Plan  to Do	Do Not  Plan  to Do	Have Done/Have  Done and Plan to Do More	Plan  to Do	Do Not  Plan  to Do
Change programs offered	2.0	13.9	72.3	3.4	10.1	62.9
Change scope of services provided	3.0	16.8	68.3	2.2	16.9	58.4
Make changes to client populations served	2.0	5.0	83.0	0	6.7	71.9
Withdraw business or services from the city of Seattle	0	4.0	85.1	2.2	2.2	69.7
Raise prices on goods or services	11.9	21.8	53.5	28.1	11.2	30.3
Increase fees or sliding fee scales	9.9	23.8	53.5	16.9	18.0	23.6
Request additional resources from funders	18.8	30.7	37.6	27.0	28.1	27.0
Request higher rates of reimbursement	7.9	25.7	54.5	11.2	15.7	20.2
Change fundraising campaigns, events, or appeals	14.9	33.7	39.6	16.9	28.1	37.1
N	101			89

Source.—Survey of Seattle Employers (2015, 2016).

Note.—Numbers are percentage of respondents with a valid response. Percentages do not add up to 100 due to item-specific nonresponse.

Consistent with expectations that nonprofit leaders would respond to higher labor costs through advocacy and professionally normative channels of adjustment, many nonprofit executives reported efforts to locate additional sources of revenue to cover higher human resource costs due to the minimum wage. Approximately half of respondents in each wave indicated they had or were planning to request additional resources from current funders (see table 7). About one-third of respondents reported seeking higher reimbursement rates from existing grants and contracts to reflect the costs imposed by the higher minimum wage. An executive of a large health and human services nonprofit described how the organization presented the State of Washington Department of Social and Health Services with projections for how the increased minimum wage would force the nonprofit to reduce services to a particularly vulnerable population subgroup. The department weighed the projections and agreed to increase contract rates to adjust for the higher wage cost. Similarly, other nonprofit leaders mentioned working with unions to help renegotiate contracts and reimbursement rates with state or local agencies.

After passage of the minimum wage ordinance, the City of Seattle Human Services Department allocated funds to help nonprofits offset the higher cost of labor due to the minimum wage. One nonprofit executive noted that “our City of Seattle contracts … have been also not only open to conversation but, you know, [the city] will reimburse us. [The city] will put more money into contracts where we’ve had an impact on wages for our own employees.” Fewer than half of respondents (40.4 percent) had received funding through grants or contracts from the city at the time of the wave 2 survey. Perhaps more concerning is that only about one-quarter of nonprofit organizations that reported receiving funding from the city’s Human Services Department also reported knowledge of such mitigation funds (author calculations not shown in tables). Interviews with nonprofit organizations suggest that organizations eligible for these mitigation funds were just becoming aware of this funding opportunity at the time the of the wave 2 survey. We might expect a larger share of nonprofits with relevant city contracts will make use of these supplemental funds as awareness spreads.

Given the persistent challenges of securing consistent and predictable funding, many nonprofit executives report efforts to diversify or broaden their revenue streams regardless of the effect of higher minimum wage rates. One executive discussed plans to expand the organization’s portfolio of programming to include new programs targeted at youth “because corporate as well as government funders are really interested in youth programs.” Roughly half of nonprofit leaders surveyed also indicated they had or planned to request additional resources from external donors and funders due to the effect of the minimum wage. For example, when asked about the effect of the minimum wage on fundraising strategies, another nonprofit executive mentioned a new focus on engaging private donors: “We’ve been going after major donors more with greater dedication and trying to cultivate a greater base of major donors.” Upon reflection, however, the executive noted, “But that’s not entirely relevant to this conversation [about the minimum wage], I don’t think.”

Our initial surveys and interviews do not suggest a significant shift in the overall composition of nonprofit revenue portfolios following the initial phase-in of the minimum wage. The majority of organizations receive roughly the same mix of funding from foundations, corporate support, philanthropic organizations, and nongovernmental agencies, as well as governmental sources, after the second step-up in the minimum wage. Given that internal budget planning, negotiating or renegotiating fee schedules, and external fundraising activities are long-term processes shaped by organizational structure and opportunities within the surrounding institutional environment, we should expect channels of adjustment around revenue-seeking behavior to emerge more slowly. It may be that the local wage ordinance provides a compelling frame for fundraising campaigns or advocacy work with policy makers, but those responses may not immediately emerge because of the unique organizational contexts and professional norms that shape the work of nonprofits.

Reconsideration of Site Locations

A final channel of adjustment commonly discussed in the minimum wage literature involves efforts by firms to relocate to places where labor costs are lower. Although it is possible for nonprofits to shift office locations or the place where they provide services, nonprofits choose locations that are central to their mission, funding, and work. Professional norms and organizational culture in these circumstances make it difficult for many nonprofit organizations to simply pack up and leave. Moreover, nonprofit organizations, particularly nonprofit human services organizations, are less likely to move or relocate than for-profit firms because they often find it difficult to locate suitable, affordable office space (Allard 2009).

To this point, we find the work of nonprofit organizations in our sample to be closely connected with the city itself. Roughly three-quarters of Seattle nonprofits surveyed indicated they served customers or clients at a Seattle place of business (see table 2). Nearly half of nonprofits in each wave report providing services to customers or clients located in Seattle locations. About one-third serve clients outside of Seattle, and a similar percentage reports having offices or satellite locations outside of Seattle. Perhaps it is not surprising that almost no nonprofit organizations report a change in the location of nonprofit services or office locations in the 18 months following the first phase-in of the minimum wage ordinance. Nor do many nonprofits plan to relocate because of the higher minimum wage (see table 7).

Consistent with these survey results, a few nonprofit executives noted during in-depth interviews that they were keeping the option of relocation open as part of future strategic planning. Such considerations, however, are driven by many concerns, only one of which is labor costs. An executive from a large local nonprofit explained how higher wages and higher rents may shape the location of future sites: “We may have to go back to the numbers. If you look at the business side … for opening a facility … that [higher minimum wage] and the rent … does make it harder to make the case that we can make money.” Another organization’s commitment to the city clashed with pressure from the board to move: “I think the board probably has said, you know, ‘Why are we still there?’ But there’s a reason why we’re here, and [a colleague] mentioned it already, which is [that] even though we’ve added other processes, redundant processes, we still need to be able to keep up with the demands of [stakeholders]. We still need this location to be here.” Nonprofit organizations that participated in our study did not identify relocation as a viable channel of adjustment in the near term—a finding that contrasts with expectations of the literature examining for-profit firms. The nonprofit leaders with whom we spoke, however, characterize relocation as a resource- and time-intensive process better suited for consideration as those organizations develop future plans and make adjustments to rising labor costs in Seattle. Nevertheless, our findings do not suggest relocation will be a common channel of adjustment for nonprofit organizations in the short or long term.

CONCLUSION

Although the Seattle Minimum Wage Ordinance caused a substantial increase in the local minimum wage rate, we find that many nonprofit organizations had no exposure or only limited exposure to the increase during the initial phase-in of the law. We find through our survey of nonprofit executives that the vast majority of nonprofit organizations with low-wage employees were paying near or above the city of Seattle minimum wage rates that went into effect in April 2015 and at the next step-up in January 2016. Nonprofit organizations in Seattle exposed to the initial phase-in of the ordinance, however, uniformly increased hourly wages for staff and expected to have to continue to do so as minimum wage rates increased over time.

Our study also sought to assess the extent to which expectations about employer adjustments to higher minimum wages rooted in the experiences of for-profit firms will hold for nonprofit organizations as well. Here we find that the organizational features and institutional environments of for-profit and nonprofit organizations differ. Furthermore, these differences should be accounted for when examining how local labor market policies, such as higher minimum wage laws, might affect nonprofits. A sizable share of nonprofits raised prices or fees or were pursuing new revenue strategies to meet higher labor costs associated with the wage ordinance. These adjustments mirror price increases reported by for-profit firms. Several nonprofit organizations also mentioned efforts to manage wage compression issues for those staff just above the new minimum wage rates. Nonprofits appear to be seeking ways to draw upon volunteer labor as a channel of adjustment to higher labor costs, but our analyses provide no consistent evidence that the minimum wage ordinance led to significant decreases in staffing or employment across nonprofits participating in this study. Very few nonprofit organizations reported other types of significant change to operations, such as relocating their operations or changing their service mission, in connection with the minimum wage ordinance.

These findings strongly suggest that nonprofit organizations face a more constrained set of adjustment channels than we would otherwise presume. We argue that the organizational characteristics, institutional environment, professional norms, and community connections unique to nonprofits create choices of appropriate channels of adjustment that differ from those available to for-profit firms. Many nonprofit organizations enter into long-term or fixed-contract-for-service arrangements that set reimbursement rates or fee-for-service amounts and the geographic boundaries of service provision, making it difficult to cut staff or raise prices as a for-profit firm might (Smith and Lipsky 1993; Allard 2009; Smith 2012; Seattle Minimum Wage Study Team 2017). Respondents in our study described efforts, some of them successful, to renegotiate the terms of contracts or to encourage donors to match new needs. These strategies take many months or a few years to implement, meaning that revenue still may lag relative to increased needs. Similarly, relocation, a commonly hypothesized channel of adjustment for for-profit firms, did not appear in the near-term choice set of our respondents. In interviews, nonprofit leaders cited missions and logic models that hinge on serving specific client populations or communities. As population dynamics change, they might consider relocation, but such actions would need to be part of long-term strategic plans. Nonprofit organizations with sites in multiple local jurisdictions may be better able to shift operations outside of a city that increases wages relative to nonprofits only doing business in an area with a higher minimum wage rate. Contracts and funding, however, often are tied to specific places or geographic locations.

We should expect organizational responses to the minimum wage ordinance to vary across nonprofits of different sizes, mission types, and other organizational characteristics. Unfortunately, our data do not permit rigorous cross-type comparisons, but our findings do suggest some other considerations. Nonprofit decisions about relocation, expansion, or consolidation appear to be made in light of many issues, depending on the type of organization. (Minimum wage may play a role, but as one of many factors.) Although the effect of the law may be felt more directly by nonprofit organizations with large numbers or a large proportion of low-wage workers, responses may be determined in large part by the degree to which organizations have access to diverse and flexible revenue streams with growth potential. Larger, better-resourced organizations may be better able to weather higher labor costs than smaller organizations. Similarly, we should expect variation in organizational resources, professionalization, and capacity to be associated with differential ability of nonprofits to advocate around the downstream consequences of higher minimum wage laws or other workplace regulations, again with more advantaged organizations holding greater capacity to advocate on behalf of their programs, funding streams, and clients (Mosley 2010).

It is important to note a few caveats about our data to place these findings in the proper light. Our findings should be read as reactions to the initial step-ups in Seattle’s minimum wage that occurred in a particular labor market context. Our data cover a period in which the minimum wage went from the 2014 state minimum of $9.47 to, at most, $13.00 an hour. The annual step-ups since that time have brought most employers to a $15 an hour minimum that will be adjusted by inflation annually into perpetuity. We expect there to be more substantial nonprofit employer responses in the wake of these consistent increases to $15 an hour or over time as hourly minimums move well past $15 an hour. Our survey data reflect self-reported responses of nonprofits that employed low-wage workers in the city of Seattle at the time the minimum wage ordinance took effect. They therefore reflect the experiences of those nonprofits most likely to have staff members who are subject to the minimum wage ordinance, rather than reflecting patterns in the nonprofit sector overall. The unique economic and labor market context of Seattle during the study period may limit the generalizability of these findings to settings with less growth, less competition for labor, and lower wage rates. In addition, it is important to note that the minimum wage appears to be just one of many contemporary structural or policy-related forces currently shaping nonprofit operating costs and revenue streams (see Smith and Phillips 2016). For many organizations, changes to reimbursement-rate setting, volatility in the implementation of the Affordable Care Act, rising health insurance costs for staff, and compliance with the Seattle paid sick and safe time law posed more direct challenges to revenue and business models than the higher minimum wage. Nevertheless, we believe our data provide important conceptual insight into the channels of adjustment available to nonprofit organizations as they respond to higher minimum wage laws.

On the basis of this Seattle-based study, statutory provisions or requirements to evaluate local minimum wage laws should foster further research considering consequences for nonprofit organizations. Our study suggests many pathways forward for such scholarship. First, we believe longitudinal studies of nonprofits using mixed-methods research designs hold great promise for better understanding how local labor market regulations affect the work of nonprofit organizations. Although surveys and administrative data may help reveal key differences in staffing or program funding, studies using in-depth interviews or other qualitative data-collection techniques will generate conceptual insight into how nonprofits adjust advocacy, coalition building, or fundraising strategies in response to higher minimum wage laws (see Fyall 2016). Second, there is room for scholars to use institutional perspectives to strengthen our theoretical insights into nonprofit channels of adjustment. For example, institutional theory should guide research exploring how minimum wage laws alter the prioritization of fairness and equity values within nonprofit organizations. Other work might explore how nonprofits manage internal job class hierarchies or status as they grapple with pay equity and wage compression (Knudsen 2017). Similarly, it is critical to understand how nonprofits work with funders, both public and philanthropic, to adjust grants and contracts to account for rising local minimum wages. And there is need for a stronger understanding of how local actors lobby state and federal agencies for greater funding or programmatic changes on behalf of nonprofits. Finally, future research also should assess how models of service provision, fee structures, and client recruiting or eligibility determinations shift in response to higher labor costs and local workplace regulations. Given their critical position within local communities as employers, building blocks of civic community, and caregivers for our most vulnerable residents, it is essential that researchers advance theoretical and empirical understandings of how local minimum wage increases and workplace regulations may affect downstream nonprofit strategy and practice.

Our findings also offer considerations for social workers and nonprofit leaders to weigh as higher minimum wage laws are adopted in a growing number of communities and states nationwide. First, higher minimum wage rates appear to change the competitive advantage in the hiring market previously enjoyed by nonprofits paying just above minimum wage. As a result, nonprofits may find it harder to maintain staffing. Similarly, social work professionals should be attentive to the effect of higher minimum wages on nonprofit performance. We do not have clear evidence that higher minimum wages improve morale or productivity, but nonprofit managers should be aware of how higher minimum wages can compress internal wage ladders and transform workplace cultures or social structures. Greater reliance on volunteers, one prominent channel of adjustment, also could compromise service quality or effect if volunteers lack proper training or skill. Social work professionals on the front lines of nonprofit work today should be mindful of how higher minimum wages may present different challenges to different types of organizations. Smaller or less formalized nonprofits may face challenges in raising pay without compromising services. Meanwhile, large regional nonprofits with multiple locations may have difficulty tracking which employees are subject to which wage rates.

Our findings also offer guidance for social work advocacy efforts in support of higher wages. Campaigns for higher wages should include calls for federal government agencies, state agencies, and national charitable philanthropy to modify contract arrangements or reimbursement rates due to local wage ordinances and push for adjustments to ensure the health of the nonprofit service sector (Romich 2017). Such efforts are particularly important to ensure that smaller, more vulnerable, community-based nonprofits representing diverse and historically marginalized communities are able to operate effectively. Social work professionals also must be attentive to the long-term effect of higher minimum wage rates on family life and child well-being, as we are still learning how such regulations shape the labor market opportunities of households with children and adolescents transitioning to adulthood (Hill and Romich 2018). In addition, social work advocacy should focus on the interactions between minimum wage laws, higher work earnings, and public assistance program eligibility. Many public assistance programs and work supports, such as the Supplemental Nutrition Assistance Program, child-care subsidies, and housing assistance, phase out eligibility as income levels rise above a certain level, which expose program participants to “implicit marginal tax rates” that reduce program benefits or subsidies for every additional dollar earned (Romich 2006; Holt and Romich 2007; Romich and Hill 2017). Nonprofits should expect that both employees and clients may be affected. Because many low-wage workers with dependent children qualify for tax credits and means-tested benefits, increases in the minimum wage are likely to trigger reductions in these sources of support.

Finally, it is important to underscore that the nonprofit response to the minimum wage ordinance in Seattle is still unfolding and evolving. As one respondent indicated, “I think that we’re so early in this process; it must be really hard for you to gauge the effects because it’s so early. I think in subsequent years it may be easier to measure.” Indeed, we should expect the strategic planning required for major changes in nonprofit revenue or service models to involve time-consuming assessment of risk and downstream consequence. Many nonprofit organizations also may be waiting to see the longer-term implications of the minimum wage ordinance for the broader labor market, and the nonprofit sector specifically, before making any significant decisions or changes. Many nonprofits operate in seemingly constant uncertainty about future federal or state spending levels (Allard 2009), which may make it difficult for organizations to anticipate precisely how they may respond to higher human resource costs. There is a rush to make immediate assessments of how higher minimum wage rates affect business practice and employment. But scholars, practitioners, and policy makers alike should expect the short-run effect to differ from longrun consequences, both positive and negative. Any rush to judgment risks looking past the complexity higher minimum wages introduce into nonprofit business models, which may lead to a distorted perception about the effect of local workplace regulations on the organizations often charged with aiding the most vulnerable members of society.

APPENDIX A

SEATTLE’S MINIMUM WAGE ORDINANCE PHASE-IN SCHEDULE

TABLE A1.

Seattle Minimum Wage Ordinance Phase-In Schedule by Employer Size and Whether the Employer Pays toward Employee’s Medical Benefits

	Small Employers*		Large Employers†
	Does Employer Pay toward Employee’s Medical Benefits and/or Does Employee Earn Tips?		Does Employer Pay toward Employee’s Medical Benefits?
Year	Yes ($)	No ($)	Yes ($)	No ($)
2015	10.00	11.00	11.00	11.00
2016	10.50	12.00	12.50	13.00
2017	11.00	13.00	13.50	15.00
2018	11.50	14.00	15.00
2019	12.00	15.00
2020	13.50
2021	15.00

Source.—Seattle Office of Labor Standards (2017).

Note.—After the minimum wage reaches $15.00 an hour, it will be adjusted each year on January 1, based on the Consumer Price Index for the Seattle-Tacoma-Bremerton Area.

^* Small employers are defined as employing 500 or fewer employees nationally.

^† Large employers are defined as employing 501 or more employees nationally.

APPENDIX B

GUIDE FOR SEMISTRUCTURED IN-DEPTH INTERVIEWS

Thank you for participating in this research project conducted by Professor Scott W. Allard from the University of Washington designed to understand the effect of the Seattle minimum wage ordinance on nonprofits. Today I want to ask you a few questions about how the ordinance may be affecting your organization and clients. We will not be discussing sensitive matters relating to clients or business practice, and we will not be asking for your opinion or evaluation of the ordinance as law. You may decline to answer any question or end the interview at any time. The interview will last approximately 30 minutes.

Notes will be taken during the interview. A digital audio recording of the interview and subsequent dialogue will be made. Responses will be kept confidential and your identity will not be disclosed at any time.

I would like to start with a few basic questions at the outset. (Follow-up probes for detail.)

• Please confirm that your organization is a nonprofit with 501(c)(3) status.

• Please describe the services you provide and your core client populations.

  • Do you place clients in jobs in Seattle?

• Describe the types of placements or outcomes your organization seeks to accomplish with clients.

• How long has your organization been operating programs in Seattle?

• Does your organization provide other services?

• How many sites? If multiple sites, how do the sites vary?

• How many FTEs do you employ?

• Do you have employees who are paid hourly? What share of your staff are hourly workers?

• What is the range of hourly earnings for staff who are paid hourly?

• Do you offer employees health-care insurance coverage? What share takes it up?

  • Probe for how many employees earn less than $15 an hour today and how many earn less than $12 an hour.

As you know, the city of Seattle has enacted a minimum wage ordinance to increase the minimum hourly wage for workers in Seattle to $15 by 2019 for many employers. The first step-up to $11 an hour went into effect April 1. (Follow-up probes for detail.)

• How familiar are you with the ordinance?

• Do you have any minimum wage employees at your organization?

• Have you reached out to the city for clarification or assistance?

  • If so, was the response helpful?

• Have you received assistance from other sources?

Next, I would like to learn more about your work with clients and how that work may be changing. (Follow-up probes for detail.)

• Has the change in minimum wage affected your clients’ ability to find and keep a job? Explain.

• Are clients earning more? How much more?

• Are clients aware of the change in the minimum wage? Do they mention it to you or other staff? What kinds of conversations do you have with clients about the minimum wage?

• Are employers (or potential employers) aware of the changes in the minimum wage? Have they expressed any concerns to you or other staff?

• Are you considering any changes to your work with clients or services in response to these noted shifts in the labor market opportunities for clients?

• Are you aware if the ordinance has had an effect on the firms hiring your clients?

  • Less hiring?
  • Fewer hours?
  • Different skill set?

(If they have staff subject to the ordinance) What effect has the ordinance had on your organization? (Follow-up probes for detail.)

• Administrative systems?

• Morale of clients or staff?

• Changes in fundraising?

• Have you been working with your board to address issues that are emerging?

Finally, thinking ahead to January 1, the next scheduled step-up in the local minimum wage—going up to $12 an hour for most organizations and firms. (Follow-up probes for detail.)

• Are you anticipating that higher step-up to affect your clients’ earnings or placements?

• Are you discussing any programmatic changes to adjust to future step-ups in the minimum wage?

APPENDIX C

TABLE C1.

Nonprofit Survey and In-Depth Interview Participant Sample Sizes by Industry

NAICS Code for Wave 1 Nonprofit Organizations	Number in Survey Sample
Accommodation and food services	3
Arts, entertainment, and recreation	3
Construction, real estate, rental and leasing	3
Educational services	7
Health care and social assistance	59
Professional, scientific, and technical services	4
Public administration	3
Retail/wholesale trade	10
Other services	27
Nonprofit human services (no NAICS code)	19
Total wave 1 survey sample	138
Type of Nonprofit Organization—In-Depth Interviews	Number Completing In-Depth Interview
Arts and culture	3
Health-care services, elder-care services, or services for the disabled	7
Human services (employment services and food assistance, housing assistance, services for immigrants)	19
Total in-depth interview sample	29

Sources.—City of Seattle Business License database; in-depth interviews of Seattle nonprofit organizations.

Note.—North American Industry Classification System (NAICS) codes reflect self-reported classification. Categories are collapsed to maintain the confidentiality and anonymity of in-depth interview respondents.