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A 30-year growth spurt?

The proportion of total output contributed by nonprofits has risen consistently, even during recessions

The nonprofit sector in the U.S. has grown substantially in recent years. A survey from the National Center for Science and Engineering Statistics found that, from 1997 to 2007, nonprofit revenue grew 33% faster than overall U.S. GDP. The Bureau of Economic Analysis defines nonprofits as tax-exempt institutions, specifically those serving households in 5 major categories: religious and welfare organizations, medical care, education and research, recreation, and personal business associations. The graph above shows that the share of the nonprofit sector in GDP has indeed increased. The interesting part is that it has increased every year, especially in recession years.

The scatter plot above confirms this: By putting the share of GDP on the vertical axis and the index of recession probability on the horizontal axis, we obtain a point for every year in the sample. The points tend to follow a positive slope, which indicates that this grows more when there’s a higher likelihood of recession. In fact, the sector has proven to be quite resilient: According to the Bureau of Labor Statistics, nonprofit employment increased 8.5% from 2007 to 2012, growing every year during the Great Recession. Nonprofits also employ 1 in 10 U.S. workers, and the proportion is likely to grow, given current trends. So, why does nonprofits’ share of GDP increase more significantly in recessions? The answer likely has to do with disproportionate growth of nonprofits and disproportionate lack of growth in other sectors.

Nonprofits promote the public good. So, during economic downturns, they may have greater opportunity to increase their output. In fact, nonprofits can play a central role in economic recovery, for example, by directly remediating problems associated with recessions (such as unemployment) through welfare spending and expanding economic opportunities through education. On the other hand, other sectors of the economy experience disproportionate decreases in growth compared with nonprofits. Durable goods manufacturing and construction industries accounted for more than 28% of GDP in the second quarter of 2007; two years later, they accounted for less than 22%. As other components of GDP shrink, the nonprofit output tends to rise.

How these graphs were created: Search for “gross output nonprofits” and select the relevant series. In the “Edit Graph” tab, search for “nominal GDP” and select the not seasonally adjusted series. Click “Add.” In the formula tab, type (a/b)*100 to yield the percentage. To transform the first graph into the second, change the units to “percent change.” Select “Add Line” and search for “recession indicator” and add it to the graph. Change its frequency to “Annual” with the default averaging. In the format tab, change the graph type to “Scatter.”

Suggested by Maria Hyrc and Christian Zimmermann.

View on FRED, series used in this post: DNPERC1A027NBEA, GDPA, JHGDPBRINDX

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