Journal of Economic Behavior & Organization Vol. 43 (2000) 423–446 Wage equity and employee motivation in nonprofit and for-profit organizations Laura Leete 1 Public Policy Research Center, Willamette University, 900 State Street, Salem, OR 97301, USA Received 18 July 1998; received in revised form 5 July 1999; accepted 8 July 1999 Abstract In this paper, I argue that because nonprofit organizations rely disproportionately on intrinsically motivated employees, they provide a particularly interesting context for examining the relationship between wage dispersion and employee motivation. If certain hypotheses put forth in the literature on psychology and employee motivation are correct, then wage dispersion should be less apparent in the nonprofit sector than in the for-profit sector. I examine labor market data from the 1990 US Census on nonprofit and for-profit employees and find a strong link between wage equity and sector of employment. This finding is supportive of the view that wage equity is related to worker motivation. Alternative explanations for the observed wage patterns are examined and rejected. © 2000 Elsevier Science B.V. All rights reserved. JEL classification: J31; L31 Keywords: Wage equity; Worker motivation; Nonprofit institutions 1. Introduction A new interest in the relationship between the economics of labor markets and the psychol- ogy of worker motivation has developed in recent years. Economists and others have been exploring previously neglected concepts, such as the relationship between organizational structure, worker motivation, envy, pay, and workplace performance (see Rabin, 1998). In this paper, I argue that because nonprofit organizations rely disproportionately on intrin- sically motivated employees, they provide a particularly interesting context for examining some of these issues. If certain hypotheses put forth in the literature on nonprofit organi- zations, psychology and employee motivation are correct, then wage dispersion should be E-mail address: lleete@willamette.edu (L. Leete). 1 Fred H. Paulus Director for Public Policy Research and Associate Professor of Economics and Management. 0167-2681/00/$ – see front matter © 2000 Elsevier Science B.V. All rights reserved. PII:S0167-2681(00)00129-3