Executive summary

The paper examines how the unincorporated sector evolved in terms of self-employment and gross domestic product (GDP) from 1987 to 2005. It redresses the lack of economic data on this sector by estimating GDP by industry arising from unincorporated self-employment. The methodology to calculate unincorporated GDP is based on Rispoli (2009).

The paper investigates a number of issues associated with how the sector has changed over this period. They are outlined below:

How did unincorporated self-employment and GDP evolve from 1987 to 2005?

1. Unincorporated self-employment initially rose during the 1990s (a period of high unemployment), but began to decline in the latter half of the decade (when unemployment was lower). It grew at 2.7% per year from 1987 to 1999 while declining by 0.5% from 2000 to 2005. Unincorporated GDP tracked corporate GDP throughout most of the 1990s (growing 4.7% per year from 1987 to 1997), but grew at a slower rate from 1997 to 2005, averaging 3.8% per year compared to corporate GDP of 6.4% per year.
2. During the period, there was a compositional shift away from goods-producing industries towards services, for unincorporated self-employment and GDP. The share of unincorporated GDP in service industries increased from 67.8% in 1987 to 76.5% in 2005. Within service industries, there was a substantial shift towards finance and professional services. Within the goods-producing industries, there was a noticeable shift away from agriculture, while construction grew. Similarly, the share of total self-employment in service industries increased from 63.4% in 1987 to 74.6% in 2005.

What relationship existed between the economic climate and unincorporated and incorporated self-employment rates?

1. Generally, the two components of self-employment reacted differently to the macroeconomic climate.
2. The rate of unincorporated self-employment is positively correlated with change in the unemployment rate in the long run.
3. The rate of incorporated self-employment was not related to changes in the unemployment rate but was positively correlated to the underlying long-run trend in the economy as measured by real GDP.