Press Release
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| 17 April, 2008 | |
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Underground Economy - It Costs Us All by K. Jacobs _____________________________________________________________________________ In a recently released report, the OCS estimates total losses to governments and government agencies from underground activity in the Ontario Construction Industry in the range of $1.6 billion to $2.7 billion, with our best estimate being $2.0 billion. The growth of the underground economy has many negative implications for both the construction industry and government, ranging from unfair competition to significant lost revenue to governments. OCS first initiated research on the underground economy in 1994 in response to a growing concern expressed by contractors and construction unions. In 1997, OCS presented its concerns to the Ontario government in a report outlining the impact of the underground economy on key government Ministries. To draw further attention to this urgent public policy challenge, OCS commissioned a study in 1998 on the magnitude of the underground economy in Ontario’s construction industry and the estimated tax losses to the federal and provincial governments and contribution losses to the WSIB. At that time, we estimated annual revenue losses at $1.1 billion. In 2001, updated estimates of the underground economy resulted in an average revenue leakage of $1.3 billion. Clearly, the problem still persists today as our most recent study for the period 2003-2005, revealed average revenue losses at $2 billion. Underground activity in the construction industry comprises more than just cash transactions which account for a relatively small portion of underground activity (less than 10%). By far the more common form of non-compliance is styling employees as independent contractors for the purpose of avoiding costs that arise from conventional employment relationships. Statistics reveal that the proportion of so-called ‘independent operators’ in Ontario’s construction workforce ballooned in the 1990s, peaking at 24% in 2000. The change in worker status was almost wholly attributable to a change in employer practice with respect to how construction workers were styled in their employment relationship. The practice of styling workers as ‘independent operators’ was supported and encouraged by the decision to continue the statutory exemption of ‘independent operators’ from WSIB coverage. In 2001, OCS published a report entitled “Attacking the Underground Economy in the ICI Sector of Ontario’s Construction Industry” which explored the independent operator problem and proposed possible solutions, including revoking the current exemption for independent operators and creating a level playing field by requiring mandatory coverage. Our current research shows a reduction in the rate of underground activity which could be attributed to increased audit and enforcement efforts as well as an unwillingness of workers to accept ‘independent status’ during this healthy construction business cycle. However, the reductions in the rate of underground activity do not imply lower overall numbers. There are more underground workers today than in previous estimates and the amount of underground income continues to increase. Our current study estimates total underground employment at 84,500 workers who, in turn generate incomes totaling over $2.8 billion. Underground employment is up by 19% from our first study for the period 1995-1997 where we estimated 70,900 workers generating total incomes of $2 billion. OCS, in cooperation with our labour and management partners, continues to liaise with the Ontario and Federal government regarding the impact of the underground economy on Ontario’s construction industry. Over the next few months, we will finalize a communication strategy to further encourage the government to take action. Katherine Jacobs (OCS) |
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