18th International Roundtable on Business Survey FramesBeijing, China
17 - 22 October 2004Session 4 — Classification Issues
Implementing a Major Revision to the Industry Classification System
Ron S. Jarmin and Edward D. WalkerUnited States Census Bureau
2
North American Industry Classification System—1997
Background North American partners Canada, Mexico, and
the U.S. developed NAICS collaboratively NAICS provides 3-country comparability for
industries The U.S. adopted NAICS in 1997 NAICS is a major structural and conceptual
departure from its U.S. predecessor, the Standard Industrial Classification (SIC)
The Census Bureau’s Business Register implemented NAICS in 1997
3
SIC
V
ers
us
NA
ICS
OLD U.S. Standard Industrial Classification–1987
NEW North American Industry Classification System–1997
Divisions Sectors No of U.S. Industries
Code Major Groups Title
No of Indus-
tries Code Title New Total
A 01-09 Agriculture, Forestry, and Fishing 58 11 Agriculture, Forestry, Fishing and
Hunting 20 64
B 10-14 Mining 31 21 Mining 0 29 C 15-17 Construction 26 23 Construction 3 28
D 20-39 Manufacturing 459 31-33 Manufacturing 79 474
22 Utilities 6 10 E 40-49
Transportation, Communications and Public Utilities
67 48-49 Transportation and Warehousing 28 57
F 50-51 Wholesale Trade 69 42 Wholesale Trade 0 69 52 Finance and Insurance 23 42 H 60-67 Finance, Insurance, and
Real Estate 53 53 Real Estate and Rental and Leasing 15 24 44-45 Retail Trade 17 72
G 52-59 Retail Trade 64
72 Accommodation and Food Services 10 15
51 Information 20 34
54 Professional, Scientific, and Technical Services 28 47
56 Administrative and Support and Waste Management and Remediation Services
29 43
61 Educational Services 12 17 62 Health Care and Social Assistance 27 39 71 Arts, Entertainment, and Recreation 19 25
I 70-89 Services 150
81 Other Services (except Public Administration) 19 49
[No SIC counterpart; classified in the divisions of establishments managed.]
– 55 Management of Companies and Enterprises 1 3
J 91-97 Public Administration 27 92 Public Administration 2 29 K 99 Unclassifiable – [No NAICS counterpart.] – –
Total 1,004 Total 358 1,170
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Characteristic SIC 1987 NAICS 1997
Classification based on a consistent economic concept
NoAd hoc mix of production-
and market-oriented industries
YesProduction processes
Codes
• Alphabetic divisions, A–J
• 2-digit major groups• 3-digit industry groups• 4-digit industries• 6-digit processing
codes
• 2-digit sectors• 3-digit subsectors• 4-digit industry groups• 5-digit NAICS
industries• 6-digit National
industries• 8-digit processing
codes
Structure 10 Divisions
20 Sectors(Disaggregation and
reorganization for services-producing
industries)
Industries 1,004 total
• 1,170 U.S. industries, total
• Net gain of 166 industries
• 358 industries defined separately for the first time (70% in services)
• 300 industries revised substantially
SIC
vers
us N
AIC
S
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SIC versus NAICS
SIC/NAICS Relationships 614 SIC industries each go to a single NAICS industry 390 SIC industries consist of 2 subindustry parts or
more that go to different NAICS industries(1,357 such subindustry parts, total)
80 SIC industries consist of 2 subindustry parts or more that go to NAICS industries in different sectors
401 NAICS industries consist of 2 subindustry parts or more that come from different SIC industries
Overall, relationships may be 1:1, 1:many, many:1, or many:many
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NAICS Implementation
The Census Bureau’s Goals Complete transition for the 1997 reference
period Make implementation as complete and
accurate as possible Keep additional cost to a minimum Keep additional response burden to a minimum Provide statistical presentations that ease the
transition for data users
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NAICS Implementation
The Census Bureau’s Strategies Use 1997 Economic Census as the
implementation vehicle• Our most comprehensive, broad-based economic
collection• Tightly integrated with the Business Register, which
the census updates• Rich variety of specialized content for assigning
industry codes• Extensive, detailed industry statistics that are optimal
for introducing the new classification system
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The Census Bureau’s Strategies—Continued Classify establishments according to both
NAICS and SIC for the 1997 reference period• Requirement for presenting 1997 data on both bases• Additional subindustry detail
– NAICS components of SIC industries– SIC components of NAICS industries
• Bridge SIC coding scheme– SIC-based root (4 digits)– Suffix (2 digits) captures additional subindustry detail– Meets requirement for continued support of SIC-based
surveys through 2001– Fits existing data structures and processing systems– Translates to a distinct NAICS industry and a distinct SIC
industry
NAICS Implementation
1,971 industry/subindustry classes, total
9Bri
dg
e S
IC I
llu
str
ati
on
OLD Standard Industrial Classification—1987
NEW North American Industry Classification System—
1997 Code Title
Bridge SIC
Code Code Title
5413 Architectural, Engineering, and Related Services
8712 Architectural Services 871200 541310 Architectural Services
0781 (Part) Landscape Counseling and Planning (except Horticultural Consulting)
078120
8748 (Part) Business Consulting Services, NEC (Urban Planners and Industrial Development Organizations)
874820
541320 Landscape Architectural Services
8711 Engineering Services 871100 541330 Engineering Services
7389 (Part) Business Services, NEC (Drafting Services) 738913 541340 Drafting Services
7389 (Part) Business Services, NEC (Home and Building Inspection Services) 738912 541350 Building Inspection Services
8713 (Part) Surveying Services (Geophysical Surveying) 871320
1081 (Part) Metal Mining Services (Geophysical Surveying and Mapping)
108120
1382 (Part) Oil and Gas Field Exploration Services (Geophysical Surveying and Mapping)
138220
1481 (Part) Nonmetallic Minerals Services, Except Fuels (Geophysical Surveying and Mapping)
148120
541360 Geophysical Surveying and Mapping Services
7389 (Part) Business Services, NEC (Map Making Services) 738909
8713 (Part) Surveying Services (except Geophysical Surveying) 871310
541370 Surveying and Mapping (except Geophysical) Services
8734 (Part) Testing Laboratories (except Veterinary Testing Laboratories) 873410 541380 Testing Laboratories
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Administrative Data
Important source of data, including industry codes• Business Register maintenance• Economic census observations—i.e., for smaller single
units excluded from direct collection
NAICS implementation by suppliers• Internal Revenue Service: 1998 (available early 1999)• Social Security Administration: 1999• Bureau of Labor Statistics: 1997 – 2000• Methods varied
Role in Census Bureau’s NAICS implementation• Minor for 1997—too late (nonemployers an exception)• Important for Business Register maintenance—1998 and
later
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1996 Refiling Collections
Targeted establishments in 80 SIC Industries that had parts going to different NAICS SectorsExample: Metal Mining Services- Part to NAICS Sector 21—Mining- Part to NAICS Sector 54—Professional, Scientific, and Technical Services
Important preparation for economic census collection• 454 questionnaires tailored to fairly narrow industry groups• Content varied markedly from sector to sector
OLD Standard Industrial Classification—1987
NEW North American Industry Classification
System—1997 Code Title
Bridge SIC
Code Code Title
1081 Metal Mining Services
1081 (Part) Metal Mining Services (Except Geophysical Surveying Services) 108110 213114 Support Activities for Metal Mining
1081 (Part) Metal Mining Services (Geophysical Surveying Services) 108120 541360 Geophysical Surveying and Mapping
Services
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1996 Refiling Collections
Single Units Special survey
• 215,829 single units• December 1996 mailing• March 1997 follow-up
Questionnaire• 1 page• 17 versions for groups of
related industries• Listed bridge SIC
industry/ subindustry descriptions
Respondent asked to select one description that best fit the business’ primary activity
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1996 Refiling Collections
Multiunits Done by means of the 1996 Company Organization Survey
(COS) Sample modified to include companies with establishments in
80 industries targeted for refiling• 50,698 enterprises with 1.1 million establishments, total• 67,973 establishments targeted for refiling
Presented inventory of establishments and requested updates to industry code and other items for each one
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01-2345678 Enter codefrom Insert K
Any Mining Services Company
XYZ Enterprises
123
456 Any Street
Any City AB 43210
9876543210 00 108100 10 40 000
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1996 Refiling Collections
Multiunits—Continued Inventory list directed
respondent to an industry coding insert• 11 versions for groups of
related industries• Listed bridge SIC industry/
subindustry descriptions Respondent asked to select
one description that best fit the business’ primary activity and recorded the code on the inventory list
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1997 Economic Census Collections
Standard Forms Sent to
• All multiunits• Larger single units• A sample of smaller single units
454 versions tailored to groups of related industries Content
• Basic economic measures: sales/receipts/revenue, payroll, employment, and other items that varied by sector
• Specialized items important for assigning bridge SIC codes—e.g.,– Detail of sales/receipts/revenue (by class)– Kind of business (bridge SIC industry/subindustry descriptions)– Materials consumed (by class)– Selling characteristics– Employees by occupation
3.4 million establishments
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1997 Economic Census Collections
Sector-Specific Classification Forms Sent to smaller, partially classified single units—1.2
million 28 versions tailored to groups of related industries Content
• Kind of business– Bridge SIC industry/subindustry descriptions with check boxes– Respondent asked to pick the one description that best fit the
business’ primary activity
• Some versions had other classification inquiries—e.g.,– Method of selling– Selling characteristics
Retail trade and wholesale trade
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1997 EconomicCensus Collections
General Classification Form Sent to unclassified single units
of any size—0.4 million Content
• Business or activity inquiry– Bridge SIC industry/subindustry
descriptions with check boxes– Respondent asked to pick the
one description that best fit the business’ primary activity
• Sources of sales, receipts, or revenue
• Materials consumed (manufacturers)
• Class of customer Once classified, larger single
units were sent a standard form as described earlier
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1997 Economic Census Classification Methods
Industry coding edits• Applied complex rules• Considered a variety of classification data from standard forms
Clerical coding• Used industry coding procedures and reference material• Primary uses:
– Classification form responses that required interpretation– Referrals from industry coding edits– Industry descriptions from nonemployers’ tax data
Analytical coding• Used industry expertise and reference material• May have contacted respondent for clarification• Primary uses:
– Difficult cases referred by clerical coding units– Classification errors identified by macro-analytical review of data
products
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1997 Economic Census Classification Methods—Continued
NAICS classifications from 1998 tax data—nonemployers only
Statistical modeling procedure• Parameters
– Based on subpopulation of establishments with a complete 6-digitbridge SIC
– Determined relative distribution of units from each 2-, 3-, 4-, or 6-digit bridge SIC to the corresponding set of 6-digit bridge SICs
• Method– Assumed similar bridge SIC distributions for partially and
completely classified establishments– Preserved the distributions observed for completely classified
establishments– Used 3 uniformly distributed digits from the establishment’s EIN as
a distribution index– Assigned a 6-digit bridge SIC code to each establishment by
referring its SIC and distribution index to the distribution parameters
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1997 Economic Census Classification Methods—Continued
Statistical Modeling Procedure Illustrations Parameters for Bridge SIC Modeling Procedure
Distribution within SIC Code (In)
SIC Code (In)
Cumulative Distribution Parameter (> Index )
Bridge SIC Code
(Out) Percent Cumulative Percent
Corresponding NAICS Code
870000 178 871100 17.8% 17.8% 54133
870000 248 871200 7.0% 24.8% 54131
Example 1 870000 249 871310 0.1% 24.9% 54136
870000 278 871320 2.9% 27.8% 54137
870000 1000 Etc. 72.2% 100.0% Etc.
871000 639 871100 63.9% 63.9% 54133
Example 2 871000 890 871200 25.1% 89.0% 54131
871000 894 871310 0.4% 89.4% 54136
871000 1000 871320 10.6% 100.0% 54137
871100 1000 871100 100.0% 100.0% 54133
Procedure
1. Identify the first row that matches on SIC code (in)
2. Compare the establishment’s 3-digit index (based on EIN) to the cumulative distribution parameter
• If INDEX < PARAMETER, assign corresponding bridge SIC code (out)
• Else, advance to next row and repeat Step 2
Illustrations of the Bridge SIC Modeling Procedure
Example ID
EIN (Index based on positions 7 – 9)
SIC Code (In)
Bridge SIC Code (Out)
1 0123456248 123456248 870000 871310
2 0123456789 123456789 871000 871200
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1997 Economic CensusData Products
Note: Data are shown for selected industries used in the paper’s illustrations.
Comparative Statistics for the United States on a 1987 SIC Basis—1997 [Includes only establishments with payroll. Data are in current dollars and have not been adjusted for inflation.]
N – Comparable data not available
Establishments Receipts ($1,000)
Paid employees Annual payroll
($1,000) SIC 1987 SIC Description
1997 1992 % chg 1997 1992 % chg 1997 1992 % chg 1997 1992 % chg
1081 Metal mining services 203 251 -19.1 341,888 350,441 -2.4 3,066 2,973 3.1 110,070 104,612 5.2
1382 Oil and gas exploration services
1,197 1,473 -18.7 818,607 964,629 -15.1 7,039 12,930 -45.6 215,996 423,687 -49.0
1481 Nonmetallic minerals services, except fuels
172 N N 190,942 188,932 1.1 1,874 N N 63,551 N N
7389 Business services, not elsewhere classified
69,376 52,375 32.5 62,276,780 32,885,901 89.4 867,462 523,650 65.7 17,597,943 9,783,317 79.9
8711 Engineering services 52,526 41,834 25.6 88,180,688 65,245,236 35.2 730,048 657,609 11.0 35,337,890 27,246,839 29.7
8712 Architectural services 20,602 17,875 15.3 16,988,338 11,244,379 51.1 146,702 121,675 20.6 6,468,524 4,408,064 46.7
8713 Surveying services 9,025 8,418 7.2 3,453,489 2,280,177 51.5 56,880 45,324 25.5 1,712,316 1,089,694 57.1
8734 Testing Laboratories 5,488 4,540 20.9 6,442,964 4,763,614 35.3 82,024 70,462 16.4 2,708,782 1,998,829 35.5
8748 Business consulting services, not elsewhere classified
17,853 12,628 41.4 8,687,728 4,573,223 90.0 77,341 52,456 47.4 3,191,884 1,766,156 80.7
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1997 Economic CensusData Products
NAICS Industry
SIC 1987 Components
NAICS-Based Industry Statistics for the United States with Distribution Among 1987 SIC-Based Industries—1997 [Includes only establishments with payroll.]
NAICS SIC Pt Description Estab-
lish- ments
Receipts ($1,000)
Paid employees
Annual payroll
($1,000)
541330 Engineering services 52,526 88,180,688 730,048 35,337,890
8711 Engineering services 52,526 88,180,688 730,048 35,337,890
541360 Geophysical surveying & mapping services
587 1,087,786 9,905 445,595
1% of 1081 20 Geophysical surveying services only for metal mining, contract basis
21 3,783 41 1,101
63% of 1382 20 Geophysical surveying services for oil & gas fields, contract basis
213 518,667 2,907 104,681
4% of 1481 20 Geophysical surveying services for nonmetallic minerals (excluding fuels)
17 8,313 62 2,877
16% of 8713 20 Geophysical surveying 336 557,023 6,895 336,936
Pt – Part
The symbol is used as a link to the 1992 figures shown in Comparative Statistics. Note that there are links only for SIC industries, not for NAICS industries.
Comparable NAICS/SIC
Note: Data are shown for selected industries used in the paper’s illustrations.
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1997 Economic CensusData Products
1987 SIC-Based Industry Statistics for the United States with Distribution Among NAICS-Based Industries—1997 [Includes only establishments with payroll.]
SIC NAICS Pt Description Estab-
lish- ments
Receipts ($1,000)
Paid employees
Annual payroll
($1,000)
8712 Architectural services 20,602 16,988,338 146,702 6,468,524
541310 Architectural services 20,602 16,988,338 146,702 6,468,524
8713 Surveying services 9,025 3,453,489 56,880 1,712,316
51% of 541360 10 Geophysical surveying & mapping services (pt)
336 557,023 6,895 336,936
95% of 541370 10 Surveying services 8,689 2,896,466 49,985 1,375,380
Pt – Part
Comparable SIC/NAICS
SIC 1987IndustryNAICS Components
Note: Data are shown for selected industries used in the paper’s illustrations.
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Time Series Considerations
The adoption of NAICS causes a disruption in industry level time series data used by policymakers and researchers
Also affects the confidential micro data sets used at Census and its Research Data Centers
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Time series (cont.)
Example of the problem
Table 5. Sample Bridge Between SIC 3578 and NAICS
NAICS Description
Value of Shipments
($1,000) Share of
Shipments Paid
Employees Share of
Employment
SIC 3578 – Calculating & Accounting Machines, Except Electronic Computers
2,014,806 100% 7,683 100%
333313 Office Machinery Manufacturing 144,380 7% 966 13%
334119 Other Computer Peripheral Equipment Manufacturing
1,870,426 93% 6,717 87%
Source: Bayard and Klimek (2003)
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Time series (cont.)
Historical NAICS Classification Methodology• Bayard and Klimek (2003) develop a method to
recursively assign NAICS codes to historical Census of Manufactures data
• 4 ways to assign codes1. Product Code based assignment2. One to One SIC – NAICS mappings3. Longitudinal establishment linkages4. Statistical Model
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Time series (cont.)
Uses, status and next steps• Methodology has been used to develop NAICS based
time series data for Plant Capacity and Industrial Production
• Also used for Census Benchmarking exercise for Retail and Wholesale surveys
• Current plans to recode Longitudinal Business Database (i.e., all establishments in the Bureau’s business register going back to 1975)
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Lessons Learned
Minor discrepancies between final NAICS specification and census classifications Causes:
• NAICS refinements continued into early 1998– Detailed industry definitions– Determining industry placement for 35,000 specific activities
• December 1997 census mailout required questionnaire content had to be made final during the first half of 1997
Result: Some industries published on an “as collected” basis
Lessons:• Expect last-minute changes• As much as possible, allow industry classification system to
stabilize before implementing it• Be prepared to adapt to definitional uncertainty
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Lessons Learned
1996 multiunit refiling produced low item response rate for reclassification inquiry Causes:
• Use of traditional collection instrument with minimal change– Designed primarily for collecting company organization
information– Not optimal for collecting classification updates
• Classification insert did not work well Result: costly follow-up and supplementary
classification activity Lesson: A better design was needed
Data users will demand time series continuity