Work Integration Social Enterprises with Different Legal Forms: Performance Comparison between Nonprofit, for-Profit, and Cooperative Organizations

1. Background and Purpose

The different legal forms taken by social enterprises vary significantly depending on the economic and social contexts of each country, and the laws and systems related to social enterprise therein. The most notable characteristic of social enterprise legal forms in South Korea is that the portion of for-profit organizations has increased over the past ten years. However, there has yet to be any empirical research examining how these changes in legal form specifically affect the performance of social enterprises. Therefore, the purpose of the current study is to examine whether there are any differences in performance when social enterprises, which have the same objective of employing vulnerable groups(WISEs), take different legal forms.

2. Methods

This study utilized the performance data of all certified social enterprises collected by the Korea Social Enterprise Promotion Agency in 2021(n= 1,990). The independent variable, legal type was coded along three groups: nonprofit organizations, for-profit organizations, and cooperatives. The first dependent variable, social performance, was constructed and measured using five items. The second dependent variable, financial performance, was measured utilizing five items. For multiple regression, six organizational characteristics were included as control variables. For the analyses, ANOVA tests and multiple linear regression analyses were conducted.

3. Results

Regarding the social performance of WISEs, for-profit WISEs had a lower number of vulnerable employees (B=-0.212, p <.001) and a lower work integration ratio (B=-0.104, p <.001) than nonprofit WISEs. However, working hours (B=0.176, p<.001), monthly income (B=0.296, p<.001), and hourly income (B=0.304, p<.001) were all higher among for-profit WISEs compared to nonprofit organizations. Cooperative WISEs also showed similar patterns as for-profit organizations. Regarding the financial performance of WISEs, compared to nonprofit WISEs, for-profit WISEs had lower government grants (B=-0.110, p<.001), lower private donation (B=-0.061, p<.05), lower public market sales (B=-0.129, p<.001), and lower net income (B=-0.091, p<.01), although they did have higher private market sales (B=0.122, p <.001). Cooperative WISEs had a lower level of net income compared to nonprofit organizations (B=-0.063, p<.05).

4. Conclusions and implications

The results showed that, even though all work integration social enterprises pursue the same objective of integrating vulnerable groups into employment, their performance varies depending on the legal form they have taken. The results of this study show that WISEs taking the legal forms of nonprofits play the most significant role in employing vulnerable groups such as low-income individuals, elderly people, and people with disabilities. Further, contrary to the traditional belief that nonprofit organizations are less adept at revenue generation than for-profit organizations, the current findings showed that nonprofit WISEs generate better net income than for-profit WISEs by utilizing diverse revenue sources such as government funding, private donations, and public sales. This study makes a significant contribution in systematically examining the differing performances achieved by different legal forms of WISEs through empirical research using data from certified social enterprises in South Korea.