In March 2020, the World Health Organization declared COVID-19 a global pandemic. As a result, employment decreased across all industries and sectors, including private, government, and nonprofit sectors, having an indelible and lasting impact on our workforce.

In the first year of the pandemic, a record 4.5 million quit their jobs. U.S. employment fell by approximately 7.3%, with employment in the private sector decreasing by 8.8%, followed by the nonprofit sector at 8.1% (Source). According to the Bureau of Economic Analysis, the U.S. has not seen an economic downturn so severe since the end of WWII, resulting in unemployment increasing from 3.6% to 13% in the second quarter of 2020 (Source) and causing gross domestic product to fall “at the fastest quarterly rate ever for the United States (Source).”

Starting in the fourth quarter of 2020 and continuing through March 2023, the third year of the pandemic, U.S. employment rates fully recovered across all sectors; however, our workforce, particularly within the nonprofit sector, has yet to recover from its impact fully.

State and Local Nonprofit Employment Trends

In Indiana, unemployment rates spiked to 17% at the beginning of the pandemic due to executive orders restricting specific economic activities. By the end of 2020, the first year of the pandemic, employment rates had adjusted to 5%; however, many Hoosiers did not return to work for various reasons, including health risks, family responsibilities, work-related stress, and disapproval of employers' handling of the pandemic (Source).

In a March 2023 report, Kirsten Grønbjerg, Distinguished Professor and Director of the Indiana Nonprofits Project at Indiana University, provides insights on our state’s labor market, stating that Indiana nonprofit organizations lost jobs in 2020 for the first time since 1995 (Source). Indiana's nonprofit sector experienced a 5% job loss during the first year of the pandemic. Social assistance nonprofit organizations, most closely associated with the human services sector, saw a 7% decline in jobs, meaning not all jobs were recovered and significantly less, by percentage, of jobs were recovered compared to other industries. However, due to the federal Paycheck Protection Program (PPP) and other philanthropic-led initiatives, payroll among social assistance agencies saw an 11% increase overall. Research indicates that the federal PPP program provided an infusion of resources into the nonprofit social assistance sector that helped temporarily protect 62% of all jobs in Indiana (Source).

However, government and philanthropic initiatives aimed at protecting nonprofit jobs could not prevent the wave of voluntary turnover that will plague the sector long after the impact of the pandemic and the job market stabilized. According to a 2021 survey of central Indiana nonprofit employees, 54% of workers were considering leaving their jobs within a year, with 40% reporting that they would seek other employment within the next three months (Source). In comparison, these impending nonprofit employee leaves in central Indiana are higher on average than other national and international rates (Source).

The Emergence of a Labor Crisis

Since the onset of COVID-19, the nonprofit sector has experienced extreme difficulties retaining talent. According to the National Council of Nonprofit Organizations (NCNO), the sector is experiencing workplace shortages, limiting the ability of nonprofit organizations to deliver on their respective missions and services to the community. The NCNO calls the post-pandemic environment a workforce crisis that needs to be addressed (Source).

National employment trends shed additional light on potential staffing challenges impacting nonprofit service delivery and staffing levels. Recent reports indicate that the voluntary turnover rates for nonprofit organizations are between 20% and 25% compared to just 12% for all U.S. industries (SHRM Source; Social Impact Article Source). The intense pressures, uncertainty, and unpredictability of the pandemic have had a profound and lasting impact on the nonprofit workforce, particularly when examining employee retention and turnover rates, two of the most common measures of organizational health.

A New Normal – The Post-Pandemic Labor Market

Experts suggest that the pandemic disrupted century-long workplace norms and workplace cultures, creating The Great Resignation, a term coined to explain a record number of people voluntarily leaving their jobs due to fundamental shifts in power in the workplace. Labor economists quickly point out that Americans stay in the workforce but renegotiate employment terms, searching for better jobs that provide more benefits, flexible work schedules, and better work environments. For example, a 2021 McKinsey survey of nearly 6,000 individuals reported that 40% of U.S. workers who quit during the pandemic left without a new job (Source).

Some of the most widely documented reasons why workers voluntarily left their employers include poor response to COVID-19, job insecurity, toxic workplace cultures, unsustainable workloads, failure to recognize performance, unrealistic expectations, hyperconnectivity, diminishing work-life balance, working longer hours, and most importantly, extreme stress and burnout (Source) (Source). To help combat labor market disruptions and retain talent, employers responded by focusing on workers' well-being and being more sensitive to their talent's needs, including, but not limited to, focusing more on listening to employees, fairness, equity, and inclusion, providing mental health supports, offering hybrid or remote work options and flexible schedules, and extending or enhancing paid time off benefits for more employees (Source).

Up next: Part Two - The impending labor shortage within the nonprofit sector is a significant threat to achieving social impact.