The underground economy in Canada, 2011
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In 2011, the estimated upper bound for total underground economy activity was $40.9 billion. This is equivalent to 2.3% of gross domestic product. This proportion trended down from a high of 2.6% in 1994 until 2001 when it reached its current level of 2.3%. This proportion has remained relatively stable in the decade that followed.
The underground economy can be defined as consisting of market-based economic activities, whether legal or illegal, that escape measurement as a result of their hidden, illegal or informal nature. For the purpose of this study, some illegal activities (such as drug trafficking and prostitution) have been excluded.
In 2011, the four most significant industries in terms of underground economy activity were construction (28%), finance, insurance, real estate, rental and leasing and holding companies (13%), retail trade (12%) and accommodation and food services (12%). These four industries together accounted for almost 65% of the total underground economy value added.
Household final consumption expenditure accounted for about 65% of underground economy activities in 2011. Business gross fixed capital formation accounted for another 28%, and net trade (exports minus imports) for 7%. Underground economy activities related to household final consumption expenditure could have reached as much as $1,948 per household in 2011. The top five categories are food and beverage services ($405 per household), paid rental fees for housing ($369 per household), tobacco ($154 per household), alcoholic beverages ($142 per household) and food ($113 per household).
Over 48% of all the income from underground economy activities went to households in the form of wages and tips. Corporations received the second highest share (28%), followed by unincorporated businesses at 24%. Wages paid under the table and undeclared tips accounted for an estimated $19.7 billion in 2011 at an upper bound, equivalent to 2.2% of the published estimates of compensation of employees. This amount represents $1,406 per job in the business sector in 2011.
Note to readers
This study provides data on the underground economy in Canada. This update includes revised data for 1992 to 2009 and new data for reference years 2010 and 2011.
It presents underground economy estimates based on the three methods of measuring gross domestic product (GDP), the expenditure-based approach, the income-based approach and the industry-based approach. The study also provides an estimate of underground economy without the effect of inflation.
With this update, the underground economy estimates are fully integrated with the revised framework of the Canadian System of National Accounts.
Readers should be careful in interpreting the results of this study. First, estimates presented give an upper bound, as recommended by the Organisation for Economic Co-operation and Development handbook on measuring the non-observed economy. In order to derive these bounds, assumptions were made to estimate the maximum potential underground activity beyond what is already included in GDP using standard methods. Second, because of their nature, it is difficult to obtain information on underground economy activities so that the estimates necessarily rely on assumptions, weak indicative information and various indirect methods. Third, the official GDP already includes some implicit and explicit adjustments for underground economy activity. For these reasons the estimates calculated in this study cannot simply be added to the official GDP to arrive at a measure of GDP including underground economy activity. Estimates are also less likely to be as accurate or reliable as other Canadian Economic Accounts estimates.
The System of macroeconomic accounts module, accessible from the Browse by key resource module of our website, features an up-to-date portrait of national and provincial economies and their structure.
The paper "The Underground Economy in Canada, 1992 to 2011" is now available as part of the Income and Expenditure Accounts Technical Series (Catalogue number13-604-M). From the Browse by key resource module of our website choose Publications.
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