Religious Market Competition and Clergy Salary: Evidence from SBC Congregations in the South

I Introduction A GROWING LITERATURE HAS PLACED the analysis of religious institutions under the umbrella of the economics discipline and, more specifically, the analysis of decision making in not-for-profit organizations. This literature has included attempts to define the output of religious organizations, the nature of the variables being maximized, the delivery of the services offered, the organizational and industry structure, competition between institutions, and more. (1) More recently, attention has been steered toward the compensation practices of churches and particularly how the level of compensation is related to the differing institutional structure of religious denominations. Not surprisingly, market forces influence salary structures in churches, as is the case in other markets and institutions. For example, McMillan and Price (2003) show that, with the exception of the largest Protestant congregations, clergy in churches with higher degrees of centralized control receive higher pay than those employed by churches with greater congregational autonomy. A natural extension to their study of input market concentration would be a test of the concentration-earnings hypothesis for religious output markets. Specifically, do more concentrated religious output markets result in higher clergy compensation? An extensive literature regarding the concentration-earnings hypothesis already exists. In general, these traditional studies of output market concentration and wages conclude that rent sharing does, in fact, occur for workers employed in more concentrated for-profit industries, ceteris paribus. These studies thus support the theory that suggests higher levels of concentration are associated with higher profits, some of which are shared with the workers. While many of these studies are very carefully done, they typically focus on either industry-level aggregated data or individual worker data with two to three digit industry characteristics. (2) Our study adds to the established body of religion, labor market, and industrial organization literature in at least three ways. First, our data are establishment level and allow us to link county-level church and socioeconomic data. Establishment-level data are superior to either industry-level or individual worker data because the hypothesis that we are testing--that the higher profits often earned by firms in more concentrated industries are shared with workers--is a firm-level hypothesis. Second, our empirical test of the concentration-earnings hypothesis investigates the effects of concentration from both narrow and broad market definitions. Third, our study tests the concentration-earnings hypothesis for firms in a nontraditional setting--firms providing a religious product. We utilize very abundant and unique detailed data, drawn from a survey of individual congregations in the southeastern United States that are affiliated with the Southern Baptist Convention (SBC). The data set provides a rich empirical environment in which to study the behavior of congregations within the dominant Protestant denomination, which is homogeneous with respect to polity and congregational autonomy, but heterogeneous with respect to congregational age, membership totals, age distribution of members, urban-regional setting, financial strength, market structure, growth rates, and compensation practices. Our ability to link each church with county-level religious market information and socioeconomic data is unique for this type of study. Two county-based Herfindahl indices are calculated to measure output market concentration: one for SBC churches within the county and another for all other religious denominations within each county. Using regression analysis, we test the impact of religious market competition on SBC clergy salary and conclude that greater concentration among Southern Baptist Churches within a given county area has a positive impact on clergy salaries. …