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Combining Administrative Records and Business Registers to Estimate Quarterly Employment in Nonprofit Organizations in the USA. Martin H. David Professor, Emeritus, Univ. of Wisconsin – Madison Associate Scholar, Urban Institute ICES3, 21 June 2007
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Combining Administrative Records and Business Registers to Estimate Quarterly Employment in Nonprofit Organizations in the USA Martin H. David Professor, Emeritus, Univ. of Wisconsin – Madison Associate Scholar, Urban Institute ICES3, 21 June 2007 Views expressed here do not reflect policies and estimates of the Department of Labor or the Bureau of Labor Statistics.
Acknowledgements • Bureau of Labor Statistics • provided access to the QCEW via its research enclave. • Rick Clayton, David Talan, Amy Knaup, and Merissa Piazza advised and commented on earlier reports. • Center For Nonprofits, Urban Institute • provided its IRS databases and funding. • Tom Pollak and Linda Lampkin provided technical information about IRS information returns. • Jen Auer and Kendall Golladay assisted and provided useful checking on inconsistencies in the IRS_QCEW match.
What failures? Estimates badly understated not timely not published Flawed Information returns Censor employment “Public Sector Failures” (Niskanen) Employment in charitable organizations • Which agencies? • Statistical agencies • Census • IRS/SOI • BLS • IRS/TEGO • OMB/OIRA
Defining private nonprofit organizations • Constitutionally exempt • Religious congregations • Exempt under income tax law §501(c) • Charitable Organizations (501(c)(3)) • e.g. Education, Hospitals, Social Services, Research, Arts, Advocacy • Other exempt (not 501(c)(3)) • Governments • Membership orgs & Assoc. • Credit Unions, Coops, Mutual Ins. etc.
Why study Nonprofits? • SIZE: Nonprofit employment 8-13 million 2003q1 • GROWTH: larger than private sector (Salamon 2005) • NEED: Timely national and area data used to understand availability of charitable services • Example: disaster response to Katrina • How many employees could respond? • INCENTIVES: For-profit / nonprofit entities differ. • Performance of nonprofits • a public issue because of subsidy from tax system. • Productivity of nonprofit workers • needed to understand outcomes of nonprofit activity • Commingling nonprofit with for-profit obfuscates understanding of both sectors.
Published employment for nonprofits • Economic Census • Limited coverage of NAICS sectors • 61 Education • Excludes many educational institutions • 62 Health & Social services • 71 Arts, sports & entertainment • 813 Religious, grantmaking, civic, prof. orgs. • 5-year estimates, • publication in 2005 for 2002 data • Not classified into 501(c)(3) and others • Small enterprises imputed from IRS data • employment data censored
Unpublished employment for nonprofits Elicited on IRS Form 990 • Strengths • filed annually by larger nonprofits • comprehensive data • Classifications • Exemption: differentiate 501(c)(3), others • Industry classified by NTEE • Weaknesses • Incomplete • No employment for smaller organizations • 20% non-response for large organizations • Unavailable • Not timely (due to fiscal years, filing calendar)
Employment reports on Form 941 • Limitations • No indicator for nonprofits • Applies to employers with more than $2500 of liability for payroll and income tax withholding • Value • captures most employers that withhold income taxes or FICA • Quarterly report • Q1 reference period identical to Form 990 • captures employment missing from Form 990 • 20% of 990 filers fail to report employment • late filers provide notimelyinformation
Proposed estimates from matched data Exempt identified by: • IRS Form 990/990-EZ and • IRS Registry of exempt entities • includes defunct orgs. Employment from: • IRS/Form 941 • quarterly since 2005 • larger payroll employers • Form W-2 (low payroll employers)
Can we match nonprofits to Forms 941? • Feasible procedure established for match to BLS/QCEW • A similar procedure applies to Form 941 • Match entails two merges • A. Link Form 990/990-EZ to Form 941 by EIN • B. For EIN’s that are identified as exempt (Registry) and have no Form 990 • Link Registry to Form 941by EIN • Matching errors require • deleting mismatched EIN’s (3.5% in QCEW) • weighting for matches that fail because of error in recording EIN (1.2% in QCEW)
OutlineFocus is on operating charities, 501(c)(3) • Matching records to improve estimates • Details of QCEW matching process • “Enhanced” employment estimates • Implications, conclusions
Estimates from matched data Exempt identified by: • IRS Form 990/990-EZ and • IRS Registry of exempt entities • includes defunct orgs. Employment from: • BLS/QCEW • UC liable employers • filed quarterly
Gain/Loss from matching • QCEW-Form 990 matchedby EIN • increases measured nonprofit employment • allows imputation for nonreporting Form 990 filers • some reported 990 employees not eligible for UC • classified by both NAICS and NTEE • measures extent of multi-establishment employers • Unmatched Form 990 include • Employers not liable for UC • Employers who are censored in QCEW • Employees who are truncated • Nonemployers
Nonprofit employment & organizations by class of exemption, 2003 (000’s)
Coverage of 501(c)(3) match • For US, est. 43% match rate (98% employers) • For US, est. 34% no wage and no employees • Match covers 57% of all filing employers • For all matches, • NTEE, NAICS industry classifications • Allocation of employment to worksites • Comparable legal names
Matching errors (ME) • Can ME be ignored? • Only if no selectivity in observed matches • Only if no interest in multiple variable regression. • Match failures (false negatives) lead to incomplete coverage and bias. • Example: Distribution of employment by size is flawed in enterprise level statistics • 2 smaller employers are tallied when interstate employer can not be matched across states Okolie (2004). • Problem exists even though aggregate employment is correct. • Regression inconsistent (Scheuren-Winkler 1997)
Outline • Matching records to improve estimates • Details of QCEW matching • “Enhanced” employment estimates • Implications, conclusions
IRS public information on nonprofits(to be matched to QCEW) • Form 990/990-EZ • Coverage: Most entities with revenues > $25,000 • NCCS Census available from filings for 1999-2003 • Over 95% match the Registry (byEIN) • Extract of Registry • Coverage: All entities operating under IRS approval • Used to match QCEW in this study, when no Form 990 is available (<10% of 501c3) • Registry a “gold standard” for EIN • less than 4/10,000 registry ein’s are invalid.
Nonprofit liability for UC(induces QCEW records) • 1/3 nonprofits employ no one. • Exclusions from UC • 30 states exclude employers of 1-3 employees. • Not available for matching • Many employees are excluded: • Part-time workers (35 states) • Students and interns (most states). QCEW employment understates actual employment in nonprofit organizations
Early warnings of match errors • 2% QCEW records lack ein’s in 2000 • Substantial numbers of QCEW match to IRS Registry and not to IRS information returns (990/990-EZ) • Some matches link tiny organizations to behemoths whose payroll is far larger than organization expenses.
Removing False Positive Matches • Test relationship between organization expenses (Form 990) and payroll (QCEW) • Reject match where 0.2 expense < payroll • Delinked 3% of matched organizations • Registry matches: Scan Legal name and industry class • Reject where NAICS sector = 52, 8x • Reclassify where exempt entity is linked to business association, labor union • Delinked 5% of Registry matches • 3.3% organizations delinked
Weighting to offset false negative matches • A few QCEW EIN’s are invalid • 1.9% in 2000q1, 1.4% in 2003q1 • States range from 0.4% to 5.8% in 2001q1 • Rates decline with increasing number of employees • Fit probit to level of employees by state, s • Calculated nonresponse weight, controlled to state totals by year
Outline • Matching records to improve estimates • Details of QCEW matching process • “Enhanced” employment estimates • Implications, conclusions
Circles show where QCEW finds employment not reported on Form 990.
Circles show where Form 990 reveals employment not in QCEW (lower bound estimates).
Outline • Matching records to improve estimates • Details of QCEW matching process • “Enhanced” employment estimates • Implications, conclusions
What have we learned? • Nonprofit employment is large • 13.3m in all • 11.7m in 501(c)(3) • Prior estimates need to be refined • Matching errors can not be ignored • Form 990 estimates need imputation • Registry matches improve coverage • Part of nonprofit employment is not measured anywhere
Where do we go from here? IRS/TEGO • IRS/TEGO can and should • resolve false positive matches • require wage-paying organizations to report employees • revise Form 990-EZ to include counts of employees
Where do we go from here? IRS/SOI • Publish nonprofit employment numbers. • IRS measurement is more complete than BLS, • 1.0+ million employees not in QCEW • Imputing employment for nonreporting organizations is possible • More then 600,000 employees can be found • Estimate nonprofit employment with Form 941 match for best coverage. • captures some Form 990-EZ employment • imputation with low MSE. C. Employment on match to W-2 needs study.
Where do we go from here? BLS • Can make publication of nonprofit employment part of the OEUS program • This would be efficient • past estimates match selected states at haphazard intervals using different methods. • Yearly estimates, with a 9-month lag • indicator that can be benchmarked to more universal coverage in IRS Form 990 & 941 • Should support continuing research on the IRS-QCEW match to produce BED estimates
Comments? Contact: david@ssc.wisc.edu
Matches of QCEW that use EIN • Nonprofit employment: matched to IRS Registry • Salamon 2005, Gronbjerg 2005, Michigan nonprofit research 2004 • Enterprise statistics on employment dynamics • Okolie 2004 • Quality of business registers: match to Census records. • Spletzer and Elvery 2005, 2006 • Match errors a problem in all of these studies
Matching errors (continued) • Cross-linked records (False positive matches) vitiate classical regression estimators. • Scheuren and Winkler 1997 • Absurd relationships are suggested by inclusion of false positives in linked data. • 2 donor files: A. correct ID; B. false ID • Match produces links to 2 distinct records in donee file – Error!
IRS regulates nonprofit sector • Exemption from corporate income tax • automatic for religious congregations • otherwise, approved by IRS under IRC 501(c) • contributions to c(3) tax deductible • c(4) membership organizations • other subsections include many entities • Rules • Governance; no distribution of excess revenue • Annual information reports to public required. • IRS information about exempt entities disclosable!
Findings: Probability of invalid ein • State-by-state • Dominant pattern • probability decreases as employees increase to 10, then nearly constant • negative time trend • A few states • probability not monotonic decreasing with less than 11 employees • May have positive trend
Weighting for failed matches • Use probability of invalid ein, θis, to calculate weights for matched data • Sum θis by state, giving θ.s . • ks =(Actual sum invalid ein) / θ.s • wt i s =1/(1 – θisks) assuming η≈0 • Calculate weighted sum, by state • Establishments • Employment
Borrowing strength from QCEW matches • Previous slide demonstrated how we can extrapolate to excluded states using match rates in included states. • Now we investigate consistency of QCEW and Form 990 reports. • Consistency provides a basis for estimating the universe of employers.
Consistency of employment, wage reports • Internal to Form 990 • Compensation > 0 ↔ employees > 0 • FN no employees, positive wages • FP employees, no wages • Comparing Form 990 to QCEW • Employees on March 12 should agree • FN QCEW employees, Form 990 none • FP QCEW none, Form 990 employees • Consistency allows us to estimate proportion of organizations with no employees (not in universe of study)
Consistency of employee reporting: Form 990 - QCEW Consistency of compensation & employees, Form 990 Note: 95% of Form 990 FP are QCEW TP Only 2/5 of Form 990 TN are QCEW TN. * less than 0.5%
Employees, counted by employer • BLS • Current employment statistics (CES) • monthly for 160,000 organizations • focus: private, nonfarm, non-household • QCEW • quarterly “census” of UC employers • available 9 months after quarter • analyzed for employment dynamics • no reliable exempt classifier