Is a Shakeout Needed in the Human Service Sector?

Not unless you think every restaurant should be a McDonalds or Burger King.

With the Recession and its corresponding fiscal crises for state and local governments comes the complaint that the human services provider sector needs to be more efficient, that there are simply too many nonprofits. But how many is too many?

A review of the U.S. Census 2012 Statistics for U.S. Businesses reveals that the range of sizes of establishments in the human services sector looks about like the range of business sizes in other industrial sectors. Sixty-nine percent (69%) of Health Care and Social Assistance establishments in Illinois have fewer than 20 employees. But that figure is similar to Manufacturing (63%), Real Estate (74%) and Accommodations and Food Services (60%). And we rarely hear anyone complaining that there are simply too many small neighborhood restaurants. The comparison holds true across employer sizes until we reach the Fortune 500s, where there are fewer social service providers.

Like other small businesses, successful human service providers fill particular niches in neighborhoods, provide a unique product or serve a particular clientele. Where human service providers differ is that their biggest paying customer is typically a unit of government, and the remainder of their paying customer base – usually foundations and individual donors – is smaller than that of most retailers, although not necessarily smaller than that of wholesalers or sellers of other business-to-business services. But recently government has been a tough customer.

At the end of the day, it’s about having paying customers. State and local government cuts in purchased services inevitably impact their human service provider contractors, resulting in closures and economic pressure for efficiencies or industry consolidation – just as happens in the private sector with shifts along the demand curve. So whether or not there “should” be fewer nonprofits or human services providers, in the near term, there probably will be.