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Quantifying the impact of Canada’s second-hand economy

Lindsay Tedds is an associate professor of economics in the School of Public Administration at the University of Victoria, and visiting professor in the School of Public Policy at the University of Calgary

There has been a lot of focus lately on estimates and forecasts for Canadian gross domestic product and what these mean for our economic well-being. Yet GDP provides an incomplete picture of economic activity in this country because of its focus on current production and traditional market-based transactions. While it is generally well known that GDP omits underground economic activity and household production, it is less well known that it also omits second-hand transactions.

Second-hand transactions refer to the acquisition and disposition of used goods. They include a wide array of both monetary and non-monetary trades related to a growing assortment of both commercial and personal goods that take place across an expanding number of platforms. And the Internet has played a key role in increasing second-hand transactions because it makes it easier for those selling and those seeking items to engage in trade, regardless of their geographic location.

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Despite the acceptance that the second-hand economy is an important source of economic activity in Canada, little is known about participation in this economy and its magnitude. This is why the Second-Hand Economy Index is so significant – it allows us to generate important insights about the second-hand economy and its contribution to Canadians' economic well-being.

The second annual survey results, available here (Kijiji sponsors the index), reinforce the perception that the second-hand economy is an important source of economic activity. Over all, it is estimated that the value of the direct and indirect effects of the second-hand economy are up to $36-billion. In addition, nearly 85 per cent of Canadians have participated in second-hand trades, which is more than the proportion that participate in Canada's labour force.

A significant finding from the survey is that the direct effects related to second-hand transactions do not represent activity that has simply been shifted away from the market for new goods. A full two-thirds of second-hand transactions represent economic activity that would not have otherwise occurred. This means that $19-billion of the overall value represents additional economic activity directly attributed to the second-hand marketplace.

The result is due to the fact that second-hand goods are, on average, 50 per cent less expensive than the equivalent new goods. Because individuals who are otherwise excluded from the market for new goods are able to obtain needed products at an affordable price, the second-hand economy increases Canadians' purchasing power, raises their economic well-being and narrows economic inequality.

For the remaining one-third of transactions, representing approximately $9-billion, that do replace purchases of new goods, the potential loss to that market is offset by three benefits. First, individuals selling goods in the second-hand economy are using the income earned ($833 a Canadian on average), in part, to purchase new goods. Second, because individuals are saving about $480 a year by buying second-hand goods, these savings are also used, in part, to purchase new goods. Third, this new spending creates a snowball effect as any spending represents income for somebody else, who also spends it, and so on.

These indirect benefits can be measured using the income spending multiplier, a widely accepted concept in Canada. The Department of Finance recently estimated this multiplier to be between 1.2 and 1.3, suggesting that the total value of these indirect effects of the second-hand economy to be up to $8-billion. This means that any potential crowd-out of new purchases is nearly offset.

Canadians also benefit from the second-hand economy through the jobs supported and the tax revenue generated by second-hand transactions. Despite most second-hand transactions not being subject to income or sales tax, the sector still contributes at least $1-billion in tax revenue to the federal government.

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The 2015 survey about second-hand practices clearly provides vital information about this sector. The results show the growing significance of the second-hand economy in Canada and its contribution to economic activity and the well-being of Canadians. And given the benefits to Canadians struggling in these harsh economic times, raising awareness of the economic benefits of this sector can also help improve economic inequality: By highlighting its contribution to the economy, we can advance policy formation in support of the sector. Such policies should focus on increasing the promotion, accessibility and acceptability of the second-hand economy.

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About the Author

Lindsay Tedds is an Assistant Professor of economics in the School of Public Administration at the University of Victoria. More

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