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The Size of SSE (Social and Solidarity Economy) and Income Distribution in the European Union: Implications for Developing Countries

5th Emes International Research Conference on Social Enterprise, June 29-July 3, 2016

Chung Yoo, June 2016

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Summary :

According to OECD report the third sector institutions are particularly relevant for communities that are affected negatively from economic restructuring and social changes driven mainly by the globalization process (OECD, 2009). Unfortunately, however, the concept is not always clearly defined and various researchers use as many approaches and definitions as available depending on their orientation of the discussion. In their book for the ILO, Fonteneau et al (2011) defined the social and solidarity economy (SSE) as a concept that refers to enterprises and organizations which specifically produce goods, services and knowledge while pursuing economic and social aims and fostering solidarity. The EU on the other hand stresses a definition that emphasizes the behavior of the actors who are either private or formally organized institutions comprising of both the business and market sector or sometimes non-market sector. Such differences in definition make it much more challenging to measure its size and performance in society since it is sometimes less clear if an organization belongs to this sector. (European Commission, 2013). This paper conceptualizes SSE focusing mainly on cooperatives, mutuals, associations, and arguably volunteers, following the analysis of the latter. We would like to test whether SSE is beneficial to the economy as a whole. Since there are too many variables to explain GDP growth and objectives of SSE are not directly related to a growth in income, we mainly focus on its effect on the distribution of income. It is generally expected that if the size of SSE increases, income distribution will be improved. There are two empirical issues included in this testing. First, we do not easily find a proxy for measuring the size of SSE in the economy. Second, we should find a performance measure in the economy related with income distribution which is expected to have a strong correlation with the size of SSE. The former constraint is more critical. A reliable data is only available for EU countries, which is surveyed in 2010 (European Commission 2013). They published the number of cooperatives and its employment compared to total employment, number of people active in voluntary social service, and mutuals and associations. With these limitations of data in mind, we do some regressions. The results of our analysis is as follows.

1) Cooperative employment as a proxy has an ambiguous effect on income distribution; it is found to improve Gini but the statistical significance is weak. Its effect on relative income share is positive (meaning worsened income distribution) and significant.

2) Total employment in SSE as a proxy shows a strong positive correlation with both income distribution indices, meaning that its expansion hurts income distribution.

3) The ratio of the number of volunteers among population has a strong and significant negative correlation with income distribution indices, meaning that its expansion improves income distribution.

One challenging observation to note is that the number of volunteers (divided by population) has a strong negative correlation with bad income distribution. This may imply the relative importance of this sector as a means of improving income distribution. One interpretation may be that as higher percentage of people are involved in volunteer activities, more people will be open to an idea of cooperation and help, leading to a better income distribution.

Another observation in need of careful explanation is the reason why more relevant proxy variables like cooperative employment and total employment in SSE do not show the expected result. These variables either show weak statistical result or wrong signs. This may come from reversed causation (i.e., bad income distribution encourages people to be more involved in SSE activities) or improper data quality. This result, however, should not be interpreted as saying that policies expanding the size of SSE per se is meaningless. A limitation of our research is that we only cover a cross-sectional data for developed countries. One major implication is that socio-economic factors surrounding the economy may be more important for an expansion of SSE than deliberate policies directed for an increase in the size of the sector; SSE may be responding to bad income distribution. This means that people are motivated to participate in SSE movement under some circumstances imposing unfavorable consequences.