This paper estimates differences in labor costs between nonprofit and for-profit firms in the day care industry. A theoretical model which draws on the property rights literature as well as recent theories of nonprofit labor markets predicts that the magnitude and sign of the nonprofit salary differential will depend on specific characteristics of the samples analyzed. Empirical results reveal that in the most competitive segment of the day care industry, the nonprofit salary differential is insignificant. However, in the less competitive, government subsidized segment of the industry, the nonprofit differential is significantly positive; it ranges from 5 to 10 percent.