Presentation on theme: "1 Combining Administrative Records and Business Registers to Estimate Quarterly Employment in Nonprofit Organizations in the USA Martin H. David Professor,"— Presentation transcript:
1 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.
2 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.
3 Preliminary Whats the problem? –Why is it important? Who are the actors?
4 Public Sector Failures (Niskanen) Employment in charitable organizations What failures? Estimates –badly understated –not timely –not published Flawed Information returns Censor employment Which agencies? Statistical agencies Census IRS/SOI BLS IRS/TEGO OMB/OIRA
5 Public sector failures Federal statistical agencies –fail to identify employment in charitable organizations available estimates are not timely IRS regulatory function is weak –Information returns not adequately checked for completeness, consistency –Errors in EIN identifiers occur OIRA leads to foolish truncation of information Disclosure review creates unnecessary restriction of information about charities.
6 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.
7 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.
8 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
10 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)
11 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 no timely information
12 Payroll reports on Form 944, W-2 Both –annual filing by small employers –capture payroll –cover Form 990-EZ filers Not filing Form 990/990-EZ are identified through Registry of exempt organizations W-2 provides annual employee counts More multiple counts of jobs than in quarterly reports
13 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)
14 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 EINs that are identified as exempt (Registry) and have no Form 990 –Link Registry to Form 941by EIN Matching errors require –deleting mismatched EINs (3.5% in QCEW) –weighting for matches that fail because of error in recording EIN (1.2% in QCEW)
15 Outline Focus is on operating charities, 501(c)(3) 1Matching records to improve estimates 2Details of QCEW matching process 3Enhanced employment estimates 4Implications, conclusions
16 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
17 Gain/Loss from matching QCEW-Form 990 matched by 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
18 Nonprofit employment & organizations by class of exemption, 2003 (000s) IRC subsection: 501(c)( ) Employment (wtd.) Organizations All 13,300 343 (c)(3) plus* 11,700 277 Remainder 1,600 66 * Includes some organizations with subsection NA
19 Where do organization estimates come from? 501(c)(3) charitable organizations, 2003 254k Census of Form 990/990EZ, EIN identifier A.34k in MA, MI, NY, WY (censored) B.83k match to QCEW –79 k - comparable employment measures on QCEW and Form 990 C.137k do not match QCEW 23k IRS Registry EIN matches to QCEW (no Form 990) –Improves coverage of exempt entities 277k charitable organizations, 501(c)(3)
20 Where do estimates come from? (cont.) not 501(c)(3) 66k Registry matches, EIN identifier –Some Form 990 are available (not in Census of (c)(3)) –QCEW employment, payroll available –No corroborating Form 990 information available
21 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
22 Steps in matching Find identifier common to both files Employer Identification Number – EIN Determine multiplicity of matches organization may have multiple worksites Assess false positive matches Remove from analysis files Calculate likelihood of false negative matches Weight actual matches, conditioning on correlates of match failure
23 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)
24 Outline 1Matching records to improve estimates 2Details of QCEW matching 3Enhanced employment estimates 4Implications, conclusions
25 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 (by EIN) 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 eins are invalid.
26 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
27 Linking the record systems Registry QCEW 990/-EZInformation ________________________________Orgs.Estabs. 1Y YYyy 2Y YN-y 3Y NY-y 4N YYyy 5 N NYy - 6Y NNUninformative N YNUninformative N NNNo data False positive matches occur in 1 - 4. False negatives imply too many records in 5 and 6.
28 Early warnings of match errors 2% QCEW records lack eins 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.
29 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
30 Weighting to offset false negative matches A few QCEW EINs 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
31 Outline 1Matching records to improve estimates 2Details of QCEW matching process 3Enhanced employment estimates 4Implications, conclusions
32 T2 QCEW matches to Forms 990, 501(c)(3) organizations, 2003q1* Included statesExcludedTotal Matched?states YesNo AForm 990-EZ442753 proportion of Forms 9900.080.790.131.00 BForm 990799527201 proportion of Forms 9900.390.470.131.00 CSubtotal NCCS Census8313734254 proportion of Forms 9900.330.540.131.00 DRegistry-QCEW matches23 -- 23 ETOTAL10613734277 proportion of total0.380.500.121.00 FEstimated matches**13210 GUNIVERSE1191580277 proportion of universe0.430.571.00
33 T3. QCEW and Form 990 Employment: 2003, 501(c)(3), in 000's QCEW emp.IRS employment SourceMatch?Orgs.RawWtd.RawImputedAugmented 990, inc. Yes796,7806,9306,8317,463 No95 1,005 990-EZ, inc. Yes410 NA10 No42 Subtotal2206,7906,9407,8368,478 RegistryYes231,7241,777NA 1,777 Available states2438,5148,71710,255 990, exc. 27 1,485 990-EZ, exc. 7 NA Total 277NA 9,3219,96311,740 Circles show where QCEW finds employment not reported on Form 990.
34 T3. QCEW and Form 990 Employment: 2003, 501(c)(3), in 000's QCEW emp.IRS employment SourceMatch?Orgs.RawWtd.RawImputedAugmented 990, inc. Yes796,7806,9306,8317,463 No95 1,005 990-EZ, inc. Yes410 NA10 No42 Subtotal2206,7906,9407,8368,478 RegistryYes231,7241,777NA 1,777 Available states2438,5148,71710,255 990, exc. 27 1,485 990-EZ, exc. 7 NA Total 277NA 9,3219,96311,740 Circles show where Form 990 reveals employment not in QCEW (lower bound estimates).
35 Nonprofits by class of exemption, 2003 (000s) IRC subsection: 501(c)( ) Employment (wtd.) Organizations All 13,300 343 (c)(3) plus 11,700 277 Remainder 1,600 66
36 Outline 1Matching records to improve estimates 2Details of QCEW matching process 3Enhanced employment estimates 4Implications, conclusions
37 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
38 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
39 Where do we go from here? IRS/SOI A.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 B.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.
40 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
41 Where do we go from here? Advocates for NGOs No progress will be made without cogent argument that –Nonprofits benefit the society –Nonprofit activity needs to be adequately measured –Measuring employment is low-hanging fruit.
43 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
44 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!
45 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!
46 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
47 Weighting for failed matches Use probability of invalid ein, θ is, to calculate weights for matched data –Sum θ is by state, giving θ.s. k s =(Actual sum invalid ein) / θ.s –wt i s =1/(1 – θ is k s ) assuming η0 Calculate weighted sum, by state –Establishments –Employment
48 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.
49 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)
50 FNFPTNTPTotal FN19120 FP*11 TN1*1 TP27677 Total202277100 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%