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Labor Market InformationCurrent Employment Statistics North American Industry Classification System (NAICS)
Since 1997, the Bureau of Labor Statistics has been in the process of converting its statistical programs to a new system of industry classification. The Standard Industrial Classification (SIC) system that was first developed in the 1930s is being replaced by the North American Industry Classification System (NAICS). The ES-202 Covered Employment and Wages program has completed the conversion of all Kansas employers covered by unemployment insurance to the new system. The Current Employment Statistics program will convert to NAICS with the publication of January 2003 employment, hours and earnings estimates in mid March. 2003. The Occupational Employment Statistics program is currently collecting survey data under NAICS. The first use of NAICS in Occupational Employment Statistics publications is expected to occur sometime in 2004. The change from SIC to NAICS is not just another update of the old system. The focus is now on how products and services are produced rather than what is produced. This change is so significant that restructuring of SIC information to NAICS is not possible. The lack of availability of historical data will present challenges to many data users in the immediate future. In the long term, however, users will have more detailed data that more accurately reflects the evolving economy that currently exists.
In the late 1930s, the United States government developed SIC for use in the classification of businesses by type of activity performed. This system of industry classification facilitated collection, analysis and publication of establishment data and promoted comparability of statistics among United States government entities, State agencies, research organizations and other users of labor market information. The SIC was revised periodically, with the last revision occurring in 1987. Over the years, changes in the United States and world economies brought the effectiveness and accuracy of the SIC into question. The United States economy evolved from one that was primarily agricultural in nature to one that was dominated by manufacturing. In recent years, technology and service based industries have increased significantly in importance. In 1991, the United States government began to examine new approaches to the classification of economic activities. Mexico and Canada joined in the process of development of the North American Industry Classification System (NAICS) that subsequently replaced the United States 1987 SIC and the classification systems of Mexico and Canada. The North American Industry Classification System, United States, 1997 Manual was published in 1998. The continuing changes in the world economy resulted in the 2002 revision of NAICS. To enhance comparability among the three countries, modifications to the construction industry sector were enacted. Also, the 2002 version added additional classifications for developing industries relating to technology and the Internet. The North American Industry Classification System, United States, 2002 Manual was published in 2002. Periodic revisions of NAICS are planned, with the next update scheduled for 2007.
NAICS is the new standard for the classification of businesses. It is not a revision of the old system, but a new and more comprehensive method of classification. While the emphasis of SIC was on the manufacturing segment of the economy, NAICS focuses on the identification of new and emerging activities, such as service and high technology industries. In the determination of classification, NAICS examines production processes while SIC primarily considers the product that results from the activity. Under NAICS, establishments are aggregated into 20 general industry sectors, with a number of new service sectors created to reflect the evolving world economic situation. This compares to the 10 divisions available under the SIC system. Divisions and sectors for the two classification systems are listed below.
NAICS also provides increased detail over what was available under the SIC system. This improved detail necessitated expanding the length of the identifying codes to six digits from the four used under SIC. It should be noted that there is no relationship between the numeric codes of the two systems. With the new system, every segment of the economy has been redefined and restructured, creating a complete time series break. Because of these major changes, development of historical SIC data comparable to NAICS is nearly impossible. Selected examples of these important differences are listed below.
In addition to the types of restructuring noted above, some NAICS industries did not have an individual SIC code but were grouped into miscellaneous or “not elsewhere classified” categories with many types of businesses.
NAICS is an industry classification system for establishments based on the grouping of similar production processes. As previously noted, NAICS consists of 20 industry sectors that include general types of related economic activities. The first two digits of the six-digit NAICS code designate the sectors and their general function. The following information details NAICS sectors, their two-digit codes, and distinguishing activities as provided in the North American Industry Classification System, United Sates, 2002 Manual. 11 Agriculture, Forestry, Fishing and Hunting-Activities of this sector are growing crops, raising animals, harvesting timber, and harvesting fish and other animals from farms, ranches, or the animals’ natural habitats. 21 Mining-Activities of this sector are extracting naturally occurring mineral solids, such as coal and ore; liquid minerals, such as crude petroleum; and gases, such as natural gas; and beneficiating (e.g., crushing, screening, washing, and flotation) and other preparation at the mine site, or as part of mining activity. 22 Utilities-Activities of this sector are generating, transmitting, and/or distributing electricity, gas, steam, and water and removing sewage through a permanent infrastructure of lines, mains, and pipe. 23 Construction-Activities of this sector are erecting buildings and other structures (including additions); heavy construction other than buildings; and alterations, reconstruction, installation, and maintenance and repairs. 31-33 Manufacturing-Activities of this sector are the mechanical, physical, or chemical transformation of material, substances, or components into new products. 42 Wholesale Trade-Activities of this sector are selling or arranging for the purchase or sale of goods for resale; capital or durable nonconsumer goods; and raw and intermediate materials and supplies used in production, and providing services incidental to the sale of the merchandise. 44-45 Retail Trade-Activities of this sector are retailing merchandise generally in small quantities to the general public and providing services incidental to the sale of the merchandise. 48-49 Transportation and Warehousing-Activities of this sector are providing transportation of passengers and cargo, warehousing and storing goods, scenic and sightseeing transportation, and supporting these activities. 51 Information-Activities of this sector are distributing information and cultural products, providing the means to transmit or distribute these products as data or communications, and processing data. 52 Finance and Insurance-Activities of this sector involve the creation, liquidation, or change in ownership of financial assets (financial transactions) and/or facilitating financial transactions. 53 Real Estate and Rental and Leasing-Activities of this sector are renting, leasing, or otherwise allowing the use of tangible or intangible assets (except copyrighted works), and providing related services. 54 Professional, Scientific, and Technical Services-Activities of this sector are performing professional, scientific, and technical services for the operations of other organizations. 55 Management of Companies and Enterprises-Activities of this sector are the holding of securities of companies and enterprises, for the purpose of owning controlling interest or influencing their management decision, or administering, overseeing, and managing other establishments of the same company or enterprise and normally undertaking the strategic or organizational planning and decision making of the company or enterprise. 56 Administrative and Support and Waste Management and Remediation Services-Activities of this sector are performing routine support activities for the day-to-day operations of other organizations. 61 Educational Services-Activities of this sector are providing instruction and training in a wide variety of subjects. 62 Health Care and Social Assistance-Activities of this sector are providing health care and social assistance for individuals. 71 Arts, Entertainment, and Recreation-Activities of this sector are operating or providing services to meet varied cultural, entertainment, and recreational interests of their patrons. 72 Accommodation and Food Services-Activities of this sector are providing customers with lodging and/or preparing meals, snacks, and beverages for immediate consumption. 81 Other Services (except Public Administration)-Activities of this sector are providing services not elsewhere specified, including repairs, religious activities, grant making, advocacy, laundry, personal care, death care, and other personal services. 92 Public Administration-Activities of this sector are administration, management, and oversight of public programs by Federal, State, and local governments. As noted, the first two digits of the six-digit NAICS code represent the industry sector, the third indicates the subsector, the fourth designates the industry group, and the fifth digit denotes the NAICS industry. The sixth digit refers specifically to the national industry of one of the three partner countries. The subsectors, industry groups and NAICS industries are combinations of establishments or worksites based on production processes. According to NAICS, defined processes narrow with each digit of the code.
In Kansas, NAICS codes are assigned by the Kansas Department of Labor (KDOL), Labor Market Information Services (LMIS) when an establishment begins business in the state. This agency also reviews existing employer codes on a three-year cycle to insure that classifications for all employers are accurate and up to date. As in all states in the United States, Kansas’ industry coding activities are funded and directed by the US Department of Labor, Bureau of Labor Statistics. This allows for uniformity and comparability of industry coding throughout the country. Establishments are classified according to their primary activity. If an establishment has more than one activity, the industry code assignment is usually made to reflect the primary activity. This may be determined by the relative share of production costs and capital investment, revenues or employment. NAICS United States was designed for statistical purposes to assist in the collection, analysis, reporting and publication of economic information and to promote comparability of United States statistical data. Industry codes are also used for other, secondary purposes. In Kansas, NAICS codes may be used in determination of tax rates and as one eligibility factor for business tax incentives. In addition, some private insurance firms examine industry codes when setting insurance rates for companies. Despite this variety of uses, the user should be aware that non-statistical applications of industry codes were not a factor in the development of NAICS.
Since the SIC system of classifying economic activities of business was developed in the 1930s, the United States and world economies have undergone remarkable change. NAICS reorganizes industry classifications and focuses on the identification of new and emerging industries such as high technology and services industries. NAICS industries are classified by similar processes, examining how products and services are created. SIC emphasizes what is produced. NAICS is designed to provide a comprehensive measure of economic activity and to more accurately reflect our changing economy. Developed in cooperation with Canada and Mexico, the new system allows comparability of industry and economic data among North American countries. NAICS is an entirely new method of classifying business activity. With the new system, every segment of the economy has been redefined. Because of these major changes, comparisons of NAICS and SIC totals and projections are not possible. Initially, the implementation of NAICS will present problems for data users, as time series data are important for trend analysis and economic forecasting. However, in the long run, NAICS will more accurately reflect the current evolving economy and provide more useful and accurate information to statisticians and other data users.
Additional information on NAICS may be accessed at the following sites: http://www.bls.gov/ces/cesnaics.htm The North American Industry Classification System, United States, 2002 Manual includes definitions for each industry, frequently asked questions regarding classifications and tables matching NAICS 1997 and 2002. To order the 1400-page 2002 Manual, in print, call the National Technical Information Service (NTIS) at (800) 553-6847 or (703) 605-6000. The 1250-page 1997 Manual, showing the correlation of 1997 NAICS and 1987 SIC is also available. The 1997 manual is available on CD-ROM and the 2002 CD can be pre-ordered at NTIS. NTIS may also be contacted at the following address.
National Technical Information Service
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