The Financial Implications of Flexible Labor Use in Nonprofit Organizations

ABSTRACT Labor flexibility is becoming increasingly common, yet its organizational implications for the nonprofit sector remain largely unexplored. This study examines the relationship between flexible labor use and nonprofit financial outcomes by analyzing longitudinal data (2008–2016) from the U.S. arts and cultural subsector. The results of two‐way fixed‐effects models show that flexible labor arrangements can help nonprofits reduce direct labor costs, providing short‐term financial benefits. However, flexible labor has no significant impact on long‐term financial performance, which we attribute to the motivational basis of nonprofit employees that may drive their selection into the sector. Although flexible labor can lead to increased long‐term costs, this potential drawback is often counterbalanced by the strong intrinsic motivation of nonprofit employees. This study contributes to the debate on labor flexibility, explains the theoretical mechanisms linking it to financial outcomes, and offers practical insights for nonprofits navigating this trend in pursuing financial sustainability.