The Economic and Social Impact of Nonprofits

Nonprofit organizations often operate in the background, but they shape much of the world around us—whether it’s helping families in need, advocating for the environment, or enriching communities with arts and culture. Unfortunately, despite their positive impact, nonprofits are facing unprecedented challenges.

Consider this: 74% of nonprofits have job vacancies, and while 71% have seen a rise in demand for their programs and services, more than two-thirds of nonprofits are being forced to cut back on what they offer in the next year or two, largely due to rising operating costs.

Even more, 2023 marked only the fourth time in four decades that donations didn’t grow year over year. That’s a troubling trend, especially when 78% of people agree that nonprofits are vital to our local economy and make our communities more desirable places to live.

Given the challenges ahead, it’s worth taking a deeper look at the economic and social impact of nonprofits.

Nonprofits’ economic impact

Nonprofits are often known for their role in providing community support and advancing social progress, but their influence extends far beyond altruism—they also play a vital role in the U.S. economy.

Historically, nonprofits have been the third-largest private employer in the U.S., growing jobs four times faster than for-profit organizations. As of 2022, over 300,000 nonprofit organizations accounted for 12.8 million jobs, equating to 9.9% of all non-government jobs.

Nonprofits contributed $1.4 trillion to the U.S. economy, accounting for 5.6% of the GDP

To put this into perspective, that’s more than the entire restaurant industry, which employs about 12.47 million people, and isn’t far below the retail sector, which employs around 15.7 million. This not only highlights the sheer size of the nonprofit sector but also emphasizes its role as a critical part of the economy.

But it’s not just about jobs. In 2022, nonprofits contributed $1.4 trillion to the U.S. economy, accounting for 5.6% of the GDP. This figure represents a diverse range of services and activities that span various sectors, from education and healthcare to arts and community development.

The multiplier effect of nonprofit employment

Nonprofits’ impact goes deeper once you consider the multiplier effect, which describes how each job is linked to employment in other industries.

In other words, when a nonprofit hires workers, it also creates demand for supplies and services, leading to backward linkages that support supplier jobs. These might be roles like IT services, office supply store workers, or event coordinators working behind the scenes, with one study estimating that nonprofits spend nearly $1 trillion annually on goods and services.

In the case of the museum industry, every 100 jobs created is linked to an estimated 152.2 additional jobs.

There are also “induced jobs,” which arise when the earnings of the nonprofit and supplier workers flow back into the local economy. This might mean someone using their salary to shop at local businesses, eat at restaurants, or pay for childcare, creating additional economic activity.

For instance, in the case of the museum industry, every 100 jobs created is linked to an estimated 152.2 additional jobs (75.7 from suppliers and 76.5 induced). And while the exact multiplier varies by industry, the overall ripple effect is clear: nonprofits don’t just support their direct employees, they sustain employment in a wide range of industries.

Community reinvestment

In 2023, Americans gave $557.16 billion to charitable organizations, with the top recipients being religion, human services (such as food banks, housing support, and employment services), education, grantmaking foundations, and public society benefits (including national donor-advised funds, rights and legal advocacy funds, and economic development groups). These funds aren’t just for keeping the lights on. For every dollar a nonprofit receives, a significant portion is reinvested into local services, programs, and initiatives that directly benefit communities.

For example, a nonprofit focused on workforce development might use its funds to offer free training programs, helping individuals hone the skills needed to secure a better job. The success of these individuals then allows them to spend their earnings in the community, further enhancing economic stability.

Nonprofits’ social impact

Beyond the statistics, nonprofit organizations have an undeniable impact on our society.

Think about what it means to be a nonprofit. Unlike for-profit businesses, which exist to create and keep a customer so they can generate returns for owners or shareholders, nonprofits exist to generate returns for society. By definition, all revenue beyond operating costs is invested in the nonprofit’s mission to further its work—whether that’s feeding the hungry, protecting the environment, or providing access to healthcare.

Nonprofits in the United States fill in the many gaps that are left between what businesses do well and what the government provides. In fact, a recent survey shows that Americans have more confidence in nonprofits to address important issues like poverty, healthcare, and the economy than they do in businesses or the government.

Nonprofits in the U.S. fill in the many gaps that are left between what businesses do well and what the government provides.

The U.S. boasts one of the most vital nonprofit sectors in the world and this is a contributing factor in our sustained economic health. Many societies lack a robust nonprofit sector and rely almost exclusively on the government or the private sector to address all of society’s needs. This sacrifices the entrepreneurial energy that nonprofits bring to the complex challenges any society faces.

Take education, for example. Beyond the many nonprofit schools, organizations are tackling the challenges posed by limited resources and opportunity gaps. Groups like Teach for America aim to bridge these gaps by providing high-quality teachers to underserved schools. They do this more efficiently than the government might and more equitably than might be possible in a for-profit context. Their work fills a gap that provides tangible benefits and real results, such as increasing high school graduation rates from 78% to 92% in the Rio Grande Valley, where around 260 alumni and corps members live and work, and it does so with a high degree of efficiency.

Healthcare is another arena where nonprofits play a major role. For one, nearly half (49.2%) of the 4,644 Medicare-enrolled hospitals in the U.S. are nonprofit, and their yield in terms of patient outcomes has been found to be equal to, if not superior, than those of for-profit hospitals. Plus, unlike for-profit hospitals, which redirect profits to investors and executives, nonprofit hospitals reinvest their earnings into improving care quality. There are also plenty of organizations dedicated to treating global health issues, such as Helen Keller Intl, which reached 73 million people in 20 countries in their efforts to help families access nutritious food, prevent malnutrition, and combat blindness and vision loss.

Nonprofits step in where governments or business ventures are slow, inequitable, or disinterested.

When you zoom out and look at the global picture, the impact of nonprofits only grows, even as each society employs a slightly different model for how the sector functions. On the transnational level, international NGOs work tirelessly on global issues like disaster relief and human rights advocacy, which are often hard for governments to deal with on their own. In 2024, for instance, global humanitarian organizations, such as the International Rescue Committee, will assist an estimated 188 million people in 72 countries with life-saving assistance and protection. Nonprofits step in where governments or business ventures are slow, inequitable, or disinterested.

Finally, nonprofits’ impact can be felt in our day-to-day lives. Fun trips to the zoo, educational visits to a local museum, or engaging performances in community theaters—these are all experiences made possible by nonprofits. Their healthy existence improves our quality of life and strengthens our communities, making them more vibrant and connected places to live.

Communicating the value of nonprofits

Nonprofits are more than just peripheral organizations working in the background. They’re lifelines for countless people in need, advocates for positive change, and key players in our nation’s economy. However, the current landscape presents serious obstacles to the continued health of the nonprofit sector in the United States.

With rising operating costs and a shift in giving trends, executive directors and CEOs in the nonprofit sector are being forced to navigate unprecedented financial challenges while continuing to serve those in need. There are real threats to the tax laws that have served as a bedrock element of philanthropic giving in the U.S. Nonprofits cannot exist in a vacuum, ignored and underappreciated—support and awareness from the community are essential.
If you’re part of a nonprofit, you already know the value of your work. However, communicating it effectively can be difficult. The business tools and strategies that apply in the commercial world, such as brand strategy, are equally important in the nonprofit world. At Tronvig, we’ve been working for a quarter of a century doing our best to find creative ways to help our clients make the world better. Many of those clients are nonprofits. Please reach out to us if you need to clarify your brand position, rethink your market, or build a more robust set of operational practices to fulfill your organizational mission.

*AI statement: I, Therese Nguyen, attest that I am the author of this article, but I generated an outline of the content using ChatGPT 4. I then wrote and edited the post in order to align the article with the standards for this blog.

Photo by Avel Chuklanov