Studies find nonprofits' use of flexible labor negatively affects operational outcomes, lacks long-term financial benefit, study finds

LAWRENCE — Businesses, government and public service organizations have all been told to do more with less in recent years. That push, often in the name of efficiency, has led to decentralization and nonprofits increasingly using more flexible labor. 

New research from the University of Kansas has found that when nonprofits rely on labor not provided by full-time employees, it affects their operational outcomes and can provide short-term financial benefits, but not long-term fiscal improvement.

In recent decades, nonprofits have adopted the use of temporary employees, contractors and consultants to perform more of their work. Driven by the New Public Management movement, this shift has seen more than a 56% increase in Americans doing flexible labor as their primary employment. But little research has examined the effect it has in the nonprofit sector. 

Hala Altamimi, assistant professor of public affairs & administration at KU, has published a pair of studies examining the effects of flexible labor on the operational outcomes and financial influences on nonprofits in the arts sector.

Results show increasing dependence on flexible labor has resulted in negative operational outcomes and a lack of long-term financial benefit for nonprofits.

Operational outcomes

Altamimi and Qiaozhen Liu of Florida Atlantic University conducted a study examining how flexible labor has affected operational outcomes at arts-based nonprofits. They found increased use of such labor resulted in lower attendance at the organizations’ events.

“It’s driven by this efficiency narrative that you need to do more with less,” Altamimi said of increased use of flexible labor. “Through New Public Management reform, there has been a push to adopt more flexible labor across business, government and public, nonprofit sectors. There has been this trend, but what does it mean in terms of effectiveness and finance? That’s what we want to learn about nonprofits. We found there was a negative effect. The more an organization depended on flexible labor, there was a significant drop in attendance. We also found that this was driven by flexible labor in core roles.”

The researchers analyzed data from 2008 to 2018 collected by DataArts, an organization that collects data from more than 18,500 organizations from across all 50 U.S. states. The study was published in the journal Public Management Review.

Altamimi and Liu considered core roles to be those directly related to program delivery, such as program production and service delivery, as they are directly related to a program’s operational performance and ultimate success. Roles such as administration and fundraising were considered periphery, because while those roles are essential, they are less ingrained in the organization’s core competencies.

The researchers considered the effects flexible labor has in a nonprofit from institutional, motivational and relational aspects:

• They argue increased use of flexible labor can have negative effects on a nonprofit’s operational outcomes as the organization's institutional purpose is different than that of a business where profit and efficiency are the primary goals. 
• Similarly, motivation for working in a nonprofit sector is often different as employees state they often believe in the mission of the organization and work there, even if they are not paid as much as employees in other sectors. 
• In relational aspects, nonprofits rely on building social capital to acquire resources and build community partnerships, which can be more difficult to do with flexible labor.

“Our study challenges the push to do more with less. If you put in less, you get less. Your effectiveness can suffer with more reliance on flexible labor,” Altamimi said.

Financial influences of flexible labor

In a separate study, Altamimi and Liu examined the influence increasing flexible labor use can have on nonprofit organizations. While it often provided short-term financial benefits, results showed nonprofits that increased reliance on flexible labor did not experience long-term improvement to their financial well-being.

The authors examined the same dataset from DataArts as the operational outcomes study. The financial research was published in the journal Nonprofit Management and Leadership.

Nonprofits, like many businesses and government organizations, face budget shortfalls and difficult decisions on how to best use limited resources. Altamimi said they do not argue nonprofits should not use flexible labor but they should be mindful of how they use it and in what roles.

“I feel this is a cautionary message. The use of flexible labor can be a very attractive option, especially for organizations that are facing budget pressures,” Altamimi said. “It is good to think about how it is going to be used. Yes, it can provide you with cost savings or improved liquidity in the short term, but because there is not long-term financial improvement or fiscal efficiency, maybe there are some negative aspects, like not having intrinsic motivation among employees.”

The study identified organizations’ increasing flexible labor use achieving cost savings and increased liquidity to weather financial challenges in the short term. However, those organizations did not show long-term improvement in measures such as solvency and profitability. There was not a long-term negative financial effect on those organizations, but the authors caution that a lack of negative effects should not be interpreted as improved financial position.

Altamimi, who has also published research on what drives adoption of flexible labor in nonprofit organizations, said the studies are part of her larger body of research to examine the effects of decentralization and pushes to adopt private sector practices in the public sector.

Ultimately, the findings show use of flexible labor is neither something for nonprofits to avoid, nor rely upon too greatly.

“We’re trying to say nonprofit organizations should be mindful,” Altamimi said. “Yes, you might get short-term benefits financially, but without a long-term benefit and with possible negative influences on your operational outcomes, you may want to rethink how you use flexible labor. It is not a growth strategy.”