Measuring and improving the NACE coding in the Business register International Roundtable on Business Survey Frames October 21-26, Wiesbaden Norbert Rainer, Thomas Karner Measuring and improving the NACE coding in the Business register Session 3

Overview Introduction Primary sources for the NACE code in the Austrian BR Classification notification Analysis of the changes of the NACE code Correctness of the NACE Code Stability of the NACE Code Concludings remarks Session 3

Introduction Correct activity code for an enterprise means: Sophisticated issue for business registers Difficult and complex work (e.g. complex activity profiles) Information quite scarce Activity profiles may change over time Negative correlation: The complexity increases with the decrease of the enterprise „big“ enterprise (e.g. a refinery) often has an obvious activity and they more likely take part on surveys Small enterprises (e.g. IT area) has to be flexible in reacting on market changes (software, trade, repair, consultancy, training, …) Session 3

Introduction Goal: Concept for the measuring and improving the quality of the NACE Code Limited resources (e.g. staff) in the business register No more additional burden for the enterprises Implementation of NACE Rev. 2 as a starting point Basic idea: Concentrade on those activities where The probability of a correct NACE coding is smaller (correctness rate) The probability the a enterprise changes it‘s activity to a different NACE section is higher (stability rate) Session 3

Primary sources for the NACE coding Four sources for the Austrian business register Company register  official, public register covering companies Social security register  employers Tax register  tax subjects Membership register of the Austrian Economic Chamber compulsory membership (except free lancers) only source on the level of local units The sources have to be used together and simultaneously So all information needed to fulfill the current EU regulation is available Session 3

Primary sources for the NACE coding Problems Each source has it‘s own identifier system  matches are performed on basis of name, adress, … Coverage of the sources is different  company < social security < economic chamber < tax Definition of units is different Concepts dealing with population changes are different Only social security register and tax register provides NACE code Done by the staff of these administrations  first contact with unit (activity changes??) Textual information provided by the unit (tax/security form) Quality quity low (1/3 of the codes different) Sole information in many cases (small enterprises) Session 3

Classification notification Federal Statistics Law (2000) obliges Statistic Austria to inform the enterprises on their classification code Enterprises need the code for other administrative procedures (e.g. financial promotion, …) Procedure Enterprise does not accept the classification E. provides information about the economic activity to Statistics Austria (kind of questionnaire included) Statistics Austria has 4 weeks time to accept the statement of the enterprise ( correction of NACE code) or to forward it to the federal ministery ( not neccessary up to now) Session 3

Classification notification Dispatch New Enterprises in the BR Change of name or adress Change of the NACE code On demand Start in the year 2001 65.000 notifications mailed 7% received back (60% NACE corrections) That means overall in 4,2% a correction of NACE code was neccessary Session 3

Classification notification What about the remaining 93%? NACE code correct??? Classification notification ignored??? From 2007 onwards Enterprises are asked to give feedback (special form) also when the classification is correct. 26% CN-okay cases in 2007 Session 3

The Correctness of the NACE code Analyses of the changes of the NACE code The Correctness of the NACE code Session 3

Analyses of the changes of the NACE code Definition of a rate of correctness (CR) Period: from 2000 onwards  long term structure All enterprises without activity changes  including the already closed ones Problems: No differentiation because of: Real change in main activity Mergers or simular events Interpretation of NACE has to be corrected Session 3

Analyses of the changes of the NACE code Correctness Rate – first results I Section Number of enterprises (legal units) Number of enterprises (legal units) without NACE change Correctness rate (CR) Manufacturing 41.829 35.253 84,3% Energy 1.939 1.708 88,1% Construction 39.499 36.425 92,2% Trade 129.585 114.816 88,6% Hotels, restaurants 75.852 71.842 94,7% Transport 26.327 24.906 94,6% Finance 12.048 11.027 91,5% Business act. 130.287 108.465 83,3% Education 4.687 4.079 87,0% Health 30.965 29.359 94,8% Personal services 38.618 34.351 88,9% Sum 531.636 472.231 Session 3

Analyses of the changes of the NACE code Correctness rates for special activites High rate of correctness Cemetries (99%) Hairdressers (98,1%) Legal activites (98,8%) Taxi operation (97,6%) Retail trade of tabacco (98,1%) Veterinary activities (99,8%) Dental surgeon (99,0%) Reasons? Special education activity is obvious per se traditional activities ( name of enterprise provides information) Yellow pages, membership in organisations Session 3

Analyses of the changes of the NACE code Correctness rates for special activites Smaller rates of correctness Computer and related activities (50-60%) Catering (78.5%) University (32,8%) ... Reasons? Interpretation more difficult No predominant activity? The industry is developing Change of NACE interpretation (university lecturers) Session 3

The stability rate of the NACE code Analyses of the changes of the NACE code The stability rate of the NACE code Session 3

Analyses of the changes of the NACE code Stability rate of NACE code on section level Session 3

Analyses of the changes of the NACE code All in all around 45.000 changes (2000 till 2006) Net changes are nearly balanced 55,4% of these changes result in the same section This ratio is above the average in Health (70,9%), trade (62,6%), business services (61,6%) and hotels and restaurants (58,7%) and it‘s lower in Education (36,5%), Construction, (36,6%), Personal services (36,9%) Reasons? Construction  architectural services? IT-services  trade? Manufacturing  trade? ...  next step of analyse Session 3

Analyses of the changes of the NACE code Detailed analyse of construction 36,6% change within section 29,6% moved to business services Mainly: Engineering activities Letting of own property Development and selling of real estate Holding companies 14,1% moved to manufacture Furniture Metal structures and parts of structures Builders carpentry and joinery Session 3

Analyses of the changes of the NACE code Detailed analyse of manufacture 44,8% change within section 25,1% moved to trade Mainly: Wholesale of other machinery for use in industry Retail sale of hardware, paints and glass Repair n.e.c. 14,3% moved to business services Letting of own property Holding companies Engineering activities Other business activities n.e.c. Session 3

Analyses of the changes of the NACE code Detailed analyse of health 70,9% change within section 25,1% moved to business services Mainly: Business and management consulting Letting of own property 7,5% moved to personal services Other servies activities (e.g. esotericism) Physicall well-beeing activities Session 3

Analyses of the changes of the NACE code Detailed analyse of education 36,5% change within section 34,4% moved to business services Mainly: Business and management consulting 10,3% moved to health Social work Phsychotherapists and other human health activities Session 3

Concluding remarks Differences between the correctness rates (CR) could be found Some sections or activites have high CR‘s Classification work has to be concentrated on the activites with lower CR Relations between activities were identified Plan for the furture: Classification check lists for the staff of the BR When activity „A“ changes, which new activities have the highest probability Session 3

Concluding remarks BR concepts has to be expanded Results may be biased Data from the BR without special quality or „NACE-history“ variables  various reasons for NACE changes possible, but not identifiable: Information on the reasons for NACE change Information about quality checks ... NACE Rev. 2 Implementation as a perfect occasion In 2008 a classification notification is mailed to every enterprise of the BR A lot of information will result, which has to be integrated into a „strong“ new BR software tool Session 3

Thank you for attention ! THE END Thank you for attention ! Session 3