Volume 5, No.1
Spring 1999

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North American Industry Classification System: New Way to Organize Industries for the Global Economy

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North American Industry Classification System:
A New Way to Organize Industries for the Global Economy 
By: Mitch Dewey Daniels 

Conversion to the North American Industry Classification System (NAICS, pronounced “nakes”) has already begun. A joint project of Mexico, Canada, and the United States, NAICS was developed in response to the rapidly changing industrial composition and organization of both US and world economies and to provide common industry definitions for the three North American countries. It will replace the SIC (Standard Industrial Classification) system, in existence since the late 1930s. For those of you who are frequent users of our Labor Market Information products, the following series and reports are organized by the Standard Industrial Classification and released by the Illinois Department of Employment Security, Economic Information and Analysis Division:

• Current Employment Statistics
• Monthly Report on Employment, Hours, Earnings
• Private Nonagricultural Extablishments and Employment
• Long and Short-Term Employment Projections

In the transition from SIC to NAICS, changes in organization, number of sectors, and the introduction of new industries will present problems for analyzing data over time. The primary difficulty for data collectors will most likely be the significant loss of time series data used to study trends and changes over time, to seasonally adjust economic statistics, and to project future economic and workforce activity. This and other transition obstacles will impact the collection, analysis and presentation of data from a large number of federal agencies, thereby creating many challenges for planning and legislative entities at all levels. My apologies to my friends and colleagues who are data collectors, but I shall not dwell on their slight nightmare any longer in this article. Let us begin to celebrate the changes and additions to economic and workforce information that will be forthcoming as the decades-old Standard Industrial Classification (SIC) system is replaced.

WHY NAICS IS BETTER THAN SIC

While the SIC system admirably provided the framework necessary to collect and analyze data on the manufacturing and other goods-producing segments of our economy, it has failed to keep pace with the technological changes which the economy has experienced in recent years in service-related activities. NAICS identifies these emerging economic activities and provides for a system to continue to capture these changes as business interests adapt and expand. Specific economic data for the variety of industries separately identified with NAICS (both those better defined and new and emerging), which are generating a significant portion of the expanding economic activity in the United States, will provide numerous benefits which will far outweigh any negative impact. See the chart at left for some samples of the more than 350 new NAICS industries. Once the transformation to NAICS is completed, our ability to understand the dynamics of our modern economy and the intricacies of its workforce will be greatly enhanced. This improvement in the measurement and calibration of current performance and economic statistics will eventually serve as the basis for broad amplification of policy- setting processes in both the private and public sectors. NAICS will not only allow for better analysis of local, state and national data, but will also provide the taxonomy necessary for the collection and examination of economic, production, trade, and workforce data with our partners in the North American Free Trade Agreement (NAFTA). Finally, the structure of NAICS will permit the comparison of international data at the sector level of its structure with the United Nations’ International Standard Industrial Classification of All Economic Activities, Revision 3 (ISIC Rev. 3).

MORE SECTORS, MORE INDUSTRIES

    As mentioned above, the first organizational level in the NAICS will use 20 sectors to classify groups of industries at the broadest level. Within these sectors, NAICS revises or replaces around 60 percent of the industries defined under the Standard Industrial Classification (SIC). Thus, NAICS will provide detailed industry classifications on 1,170 industries in the United States, an increase of about 15 percent over the SIC. Like the SIC system, NAICS codes are organized into multi-level hierarchical classification groups that build up from the detailed industry level. The greatest change to the old SIC divisions is the breakup of the Services division into seven new sectors in NAICS. The new sector which will surely have the most effect on measuring our economy is the Information Sector. It contains 4 subsectors, 9 industry groups, and 34 industries, 20 of which are new.

    A detailed schedule of the conversion to NAICS is also available at the Internet site listed at the end of this article. However, as mentioned above, collection of data using the new taxonomy has already begun. Presentation of data using the NAICS coding structure will begin with the release of 1997 Economic Census this year and continue through the year 2004. Users of employment and wage data collected and distributed by the Economic Information and Analysis Division of the Illinois Department of Employment Security should begin to see reports using NAICS by mid-2003. For additional information, access the Census Bureau’s NAICS Internet site at: www.census.gov/naics