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Assessing unreported economic activity

Assessing unreported economic activity

Posted on: 10/12/2018 | Author: ATB Financial's Economics + Research Team

​​Whether it’s something as simple as a haircut in exchange for an oil change or as complex as smuggling thousands of dollars of illegal cigarettes across the Canadian border, unreported and hidden transactions play a large role in our economy.

Statistics Canada estimates unreported economic activity—or the “underground economy”—totalled $51.6 billion in 2016. That’s about 2.5 per cent of the entire Canadian economy. At $5.8 billion, Alberta’s underground economy was the smallest relative to the size of the total economy (1.9 per cent).

According to Statistics Canada, the underground economy is defined as “market-based economic activities, whether legal or illegal, that escape measurement because of their hidden, illegal or informal nature.” Some illegal activities, such as those related to drugs and prostitution, have been excluded in these tabulations. Statistics Canada notes activities related to cannabis have also been excluded in this report.

Part of the reason why Alberta’s underground activity is so small compared to its total economy is because of the dominance of the oil and gas sector—one in which activity is difficult to hide. No one buys a bitumen upgrader with a bag of cash!

Three industries accounted for more than half of Canada’s underground economic activity: residential construction (26.6 per cent), retail trade (13.5 per cent) and accommodation and food services (12.1 per cent). Wages not accounted for in payroll records and tips on undeclared transactions totalled $24.2 billion in 2016, equivalent to 2.3 per cent of official compensation of employees.

Underground economy, graph

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