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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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slide1

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
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.
public sector failures niskanen employment in charitable organizations
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
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
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
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
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
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
slide10

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
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)
outline focus is on operating charities 501 c 3
OutlineFocus is on operating charities, 501(c)(3)
  • Matching records to improve estimates
  • Details of QCEW matching process
  • “Enhanced” employment estimates
  • Implications, conclusions
slide13

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
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
coverage of 501 c 3 match
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
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)
slide18

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
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
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

slide21

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
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
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
slide24

Outline

  • Matching records to improve estimates
  • Details of QCEW matching process
  • “Enhanced” employment estimates
  • Implications, conclusions
slide29

Outline

  • Matching records to improve estimates
  • Details of QCEW matching process
  • “Enhanced” employment estimates
  • Implications, conclusions
what have we learned
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
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
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
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
matches of qcew that use ein
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
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
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
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
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
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
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)
slide42

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
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
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