A sectoral comparison of wage levels and wage inequality in human services industries

The authors explore differences among for-profit, nonprofit, and local government organizations in wage levels and inequality. Based on the intrinsic-motivation perspective and agency theory, the authors hypothesize that compared to for-profit organizations, nonprofit and local government organizations (a) are less likely to provide financial incentives, (b) pay lower or higher compensation to their employees, depending on a host of factors, and (c) have less wage inequality. The authors use wage data for five narrowly defined industries in a single state (Minnesota) where all types of organization produce the same service, employ employees with similar job titles, compete in the same labor markets, and face similar regulations. They also employ detailed data from a survey administered in two of these industries. The empirical analyses lend support for the theoretical hypotheses. However, the differences across sectors are small in magnitude.