Where is the Warm Glow? The Labour Market in the Voluntary Sector

Abstract

Why do people work in the voluntary sector? Is the sector distinct, with characteristics that differentiate it from the private and public sectors? Is it important to consider the existence of the so-called ‘third sector’ when analysing behaviour in the labour market? Is altruism really an important motivation for workers in this sector? This dissertation is concerned specifically with the labour market in the voluntary sector: that is, workers who are the paid employees of independent nonprofit organisations. Using a large, national dataset, we explore empirically the predictions of the economic theory of voluntary organisations. In particular, is there evidence for a ‘warm glow’, the extra utility that workers receive for working towards a goal that they share with their employer? Does this glow exist, and is it brighter in the voluntary sector? We examine in turn sector differences in wages, working hours, and find evidence that employment in the voluntary sector is significantly different in some characteristics from both the private and public sectors. The main economic theories of voluntary sector wage-setting rely on some formulation of ‘warm glow’ utility or intrinsic motivation derived from working for an organisation with a mission shared by motivated employees. This leads to a prediction of lower wages in the voluntary sector. The empirical findings in the existing literature have focussed on US data, and the results have been mixed. Using pooled cross-sectional and panel datasets based on UK employment data between 1997 and 2007, we show that there is some evidence of warm-glow wage discounts in the sector for male workers, but that these wage differences have been eroded as the sector has grown. Although there is not a significant sector wage difference found for women, there is evidence that they have also experienced faster wage growth in the voluntary sector than the private. There are significant sector differences in working hours within the Health & Social Work industries, particularly in overtime working. Workers in the voluntary sector work more hours of unpaid overtime, whilst those in the private sector work more hours of paid overtime. Controlling for overtime hours has a significant effect on sector wage differentials. In particular, accounting for unpaid overtime results in evidence of a warm-glow wage discount for female workers. We analyse this data at a time when the sector has been growing dramatically, driven by government policy to reform public services. Our findings suggest that this policy has had unintended consequences for the voluntary sector labour market.