Social enterprise governance and labor equity: the emerging role of work-integrated social enterprises in a niche labor market

• Date: 04 April 2024
• Pages: 402-420
• DOI: https://doi.org/10.1108/IJPSM-05-2023-0134
• Published date: 04 April 2024
• Subject Matter: Public policy & environmental management,Politics,Public adminstration & management
• Author: Misun Lee,Ralph S. Brower,Daniel L. Fay

Social enterprise governance

and labor equity: the emerging

role of work-integrated social

enterprises in a niche labor market

Misun Lee, Ralph S. Brower and Daniel L. Fay

Askew School of Public Administration and Policy, Florida State University,

Tallahassee, Florida, USA

Abstract

Purpose –This paper analyzes how a national social enterprise policy encourages the social missions of social

enterprises and uncovers the relationships between social enterprise governance and labor equity, an area that

has been rarely studied in nonprofit governance studies.

Design/methodology/approach –The study analyzes the effects of four legal requirements for work-

integrated social enterprises (WISEs) codified by the Social Enterprises Promotion Act (SEPA, 2007) in South

Korea. Then, it relies on panel regression analysis (2020–2022) to examine how the compositions of the

governance of WISEs are related to their hiring and wage equity.

Findings –The institutional arrangements required by SEPA have resulted in positive social impacts for most

WISEs. However, the results of regression models show that individual participant groups in the WISE

governance achieved mixed results depending on the labor issue.

Research limitations/implications –Generally, this research explores the concept of diversity and its

utility in nonprofit governance, with a particular focus on targeted diversity policies, demonstrating that

governance arrangements influence the success of these policies.

Practical implications –The findings bring new insights for policymakers about “altruistic economic

entities.”For practitioners in social enterprises, the results of the regression models underscore the importance

of understanding the participant composition of decision-making meetings.

Originality/value –This study sheds light on labor equity, which government-certified social enterprises

should achieve from the perspective of nonprofit governance.

Keywords Social enterprise, Labor market policy, HRM

Paper type Research paper

Introduction

Unemployment is a global issue, yet it places a more significant burden on vulnerable job

seekers (Woest, 2018). In South Korea, social enterprises have rapidly grown to address the

employment issue since the enactment of the Social Enterprise Promotion Act (Bidet and

Eum, 2011;Choi et al., 2020). The Asian financial crisis in 1997 shattered the Korean

expectation of lifelong jobs, leading to an increase in unemployment from 3% to 7% in 1998

(Kim, 2010). The private labor market did not function well, prompting laid-off workers to rely

on public welfare programs as their income fell below the poverty level (Bidet et al., 2018). To

tackle this labor market dysfunction, the South Korean government implemented various job

creation policies over a decade. However the effects have been evaluated as limited because

the jobs provided were low-paid and temporary, leading to criticism from civil society (Bidet,

2012;Kim and Moon, 2017;Park and Wilding, 2013).

The Social Enterprises Promotion Act (SEPA) has facilitated social enterprises in

obtaining government certification, tailored benefits and subsidies, thereby supporting the

provision of essential social services and the creation decent job opportunities (Article 1). This

government-engineered tradition of social enterprise is rooted in the successful leadership

experiences of the government in promoting economic growth of global companies such as

IJPSM

37,3

402

The current issue and full text archive of this journal is available on Emerald Insight at:

https://www.emerald.com/insight/0951-3558.htm

Received 2 May 2023

Revised 15 October 2023

7 December 2023

4 January 2024

Accepted 22 February 2024

International Journal of Public

Sector Management

Vol. 37 No. 3, 2024

pp. 402-420

© Emerald Publishing Limited

0951-3558

DOI 10.1108/IJPSM-05-2023-0134

Samsung, LG and Hyundai (Jung et al., 2016). Two distinctive features of the policy include

the legal categorization of the social missions of the enterprises (Park and Wilding, 2013).

Moreover, all government-certified social enterprises are required to have a “democratic

decision-making structure,”involving interested parties and serve to realize the social

missions.

Nonprofit governance studies have examined the relationship between nonprofit boards

and organizational outcomes (Brown, 2005;Brown and Guo, 2010). Jaskyte (2012) specifically

underscores the heterogeneity of nonprofit governance to elucidate the connection between

diversity in nonprofit governance and organizational effectiveness. This study introduces a

stakeholder theory. It delineates the role of WISE governance infostering labor equity among

a diverse range of stakeholders in South Korea.

To investigate the relationship between governance composition and labor equity in

WISEs, this study employees panel regression analysis (N52,296), sourced from the

“Voluntary Public Disclosure of Management Performance”(VPDMP) Three indicators of

labor equity are utilized: (1) the ratio of vulnerable employees to total employees, (2) the ratio

of the average wage of vulnerable employees to nonvulnerable employees and (3) the gap in

the average wage of vulnerable employees from the national minimum wage. Governance is

measured using three schemes: (1) diversity index, (2) the ratio of external decision-makers

and (3) the ratio of each stakeholder.

This article explores how WISE governance promotes labor equity of WISEs. It starts by

explaining the need for the SEPA and institutional requirements for WISEs, followed by

theoretical explanations of nonprofit governance. The methodology and measurements are

then detailed. Descriptive analyses are used to assess labor equity, and regression analyses

are used to test the relationship between governance and labor equity. The study concludes

by discussing the altruistic behavior of WISEs in a niche labor market.

Socio-economic background of emerging social enterprises

Numerous studies have delved into the emergence of nonprofits and their interplay with

public policy. Salamon’s seminal work underscored their pivotal role in augmenting

government welfare programs, providing a thorough account of the proliferation of

nonprofits in the United States (Salamon, 1987). Further research by other academics has

scrutinized the impact of regional nuances on the evolution of social enterprise development,

revealing the influence of national context (Cooney et al., 2016;Defourny and Kim, 2011;

Defourny and Nyssens, 2017). This article synthesizes a comprehensive view of the socio-

economic and institutional factors that foster the rise of social enterprises in South Korea.

Labor market downturn

The 1997 East Asian financial crisis wrought significant repercussions for South Korea,

manifesting as heightened unemployment rates and economic turbulence. Before the crisis,

South Korea boasted a robust economy, marked by substantial savings and modest inflation

rates (Rodier, 2014). Furthermore, at that juncture, East Asia accounted for 30% of global

purchasing power. Consequently, the onset of the crisis came as an unforeseen shock

(Bustelo, 1998).

To settle a debt of US$58 billion to the International Monetary Fund (IMF), South Korea

implemented sweeping economic reforms. These reforms led to substantial social and

economic consequences (Rodier, 2014). They required that individuals, businesses and

governmental bodies undergo extensive neoliberal restructuring with an extraordinary

number of layoffs (Crotty and Lee, 2002). Consequently, the unemployment rate surged, more

than doubling from 3% to 7% in the year 1998 alone.

Role of work-

integrated

social

enterprises

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