IRS Data Shows Largest Nonprofits Have Biggest Economic Impact
On a monthly basis the IRS releases a huge file with summary data about all the charities in its Master File of Exempt organizations. The financial data is limited, but it's enough to show some broad characteristics of charities as economic players. The National Center for Charitable Statistics in turn makes the IRS master file data available for some standard queries, if you can figure out how to do it. Their lastest data is from January, 2006, and I've summarized it in a PDF file to download (67.8K).
The lastest data shows the same pattern: very large organizations account for most of the economic impact of the nonprofit sector. Less than 2,000 organizations with gross receipts over $100 million account for 63% of the income of all the organizations combined. About 11,000 organizations between $10 million and $100 million account for an additional 23%.
On the other hand, the 178,000 organizations with income under $1 million account for only 3% of the reported income. It's a much more pronounced disparity than the typical 80-20 rule: this is closer to an 80-3 rule.
There's a fundamental misunderstanding of this basic reality of charities. There's a persistent belief that because small organizations are so numerous, they must have an economic impact in the aggregate. But it just isn't so.
And there's Robert Egger, who makes flat out statement in his book Begging for Change that 25% of nonprofits are unnecessary. When you look at economic impact, 25% is a gross understatement. More than 90% of nonprofits could go out of business and there wouldn't be a noticeable impact on employment figures.
I don't think nonprofits are in business to provide employment -- they're here to accomplish their missions. Their impact on the economy, large or small, is a happy side effect. To say a large number of nonprofits don't matter because their impact on employment is small is to miss the point of what nonprofits are all about.
I agree that a large number of nonprofits are unnecessary. But that's because they're ineffective, ineffecient, redundant, or engaged in useless missions -- not just because they happen to be small. If 90% of nonprofits went away, the impact on the economy might be negligible, but the impact on the good works they do would be catastrophic.
Posted by: Jeff Brooks | February 24, 2006 at 12:49 PM
Just wanted to say that I agree with Jeff Brooks. The small charities are really important. They might be less effective in raising attention, but they are often effective in achieving their goals.
The problem might be that the small charities need to be more visible and findable. Now they are somewhat 'outshouted' by the big charities, who can afford big marketing efforts.
Posted by: Julius | April 29, 2006 at 12:29 PM