Classification of economic activities and the integrated system of economic classifications
The object of the statistics is to provide information in a clear and usually aggregated form to provide a good summary of the underlying population data. Therefore, one of the basic requirements for statistical work is the existence of a recognized system for classifying the available statistical data, so that they can be usefully presented and analyzed. Such binding system are called classifications.
Different requirements for economic statistics require different classifications required. Therefore, classifications for various purposes have been developed. No classification can meet all the requirements in the same way.
Activity classifications are used to categorize data relating to statistical units, that is in a single operation or a group of sites that an economic whole, a company form or their parts (technical operations or parts of companies). They are the basis for the compilation of statistics on production values, which has flown into the production process factors of production (labor, equipment and materials, energy, etc.), capital formation and financial transactions of these units.
Product classifications are used for classification of goods (goods and services) with uniform characteristics. They are the basis for the compilation of statistics on production, domestic trade, consumption, foreign trade and transport of these goods.
Statistical classifications have the following features:
- full coverage of the observed
- mutually exclusive categories, each element may be classified in only one category of the classification
- methodological principles which allow the consistent allocation of the elements to the various categories of classification.
Hierarchical classifications are characterized in that their categories are subdivided deeper. This allows the extraction and presentation of information at different aggregation levels.
In the past, international organizations and individual countries have classifications mostly independently – according to the particular application – developed. The increasing international interdependence of economies increased the need for comparable, timely economic data significantly. As a result of the late 80s/early 90s of the 20th century – mainly under the auspices of the United Nations – a system of economic classifications developed that takes into account this need for harmonization. This had partly national perspectives behind the interest in a better comparability of data design.
Classification of economic activities and the European Union (EU)
At EU level, there were the following development of the activity classifications:
In 1961 to 1963: the classification of the branches of the manufacturing industry in the European Communities (was NICE) worked out, first (1961) in coarse-structured form (three digit positions) and then (1963) in a revised version with a deeper breakdown. The NICE covered extractive, energy and manufacturing industry, and construction.
1965: Nomenclature of trade in the EEC (NCE) was established that included all branches of trade.
1967: a nomenclature for services was developed, followed by a – broad divisions – nomenclature for agriculture.
1970: Finally, the General Classification of Economic Activities in the European Communities (NACE) has been set up. As the name suggests, it involves a classification that included all economic activities. In this classification, a distinction was made for certain services depending on whether they are market services non-market services provided by government or non-market services of non-profit organizations.
Since the NACE 1970: as no corresponding European regulation gave legal validity, data were often collected according to the existing national classifications and then recoded to the NACE 1970, which led at European level to restricted data compatibility. In addition, the NACE was 1970 not developed within a recognized international framework, whereby it offered poor comparability with other international classifications of economic activities. Since the introduction of NACE 1970 the economic structure had changed significantly in some areas. Furthermore, the need for meaningful, current economic data was increased significantly by progressive international integration of national economies, so that a greater harmonization of statistical tools was required in this case of the surveys underlying classifications.
The starting point of the harmonization exercise was the third revision of the International Classification of Economic Activities (ISIC Rev. 3). It was made by a joint working group of the Statistical Office of the United Nations and the Statistical Office of the European Communities (Eurostat) with the close involvement of representatives of the Member States and approved by the Statistical Commission of the United Nations in February 1989.
Then by a committee composed of representatives of Eurostat and the Member States Working Group, a revised version of NACE 1970 was created and named the Statistical Classification of Economic Activities in the European Community (NACE Rev. 1). The NACE is – according to the concept of the ISIC – a classification of economic activities that no longer discriminates whether certain services is market determined or is not market determined or whether they are provided by companies, by the government or by non-profit organizations.
A Standard Induѕtriаl Clаѕѕifiсаtiоn (SIC) wаѕ firѕt intrоduсеd intо thе Unitеd Kingdоm in 1948 fоr uѕе in сlаѕѕifуing buѕinеѕѕ еѕtаbliѕhmеntѕ аnd оthеr ѕtаtiѕtiсаl unitѕ by thе type оf economic асtivitу in whiсh thеу аrе еngаgеd. The сlаѕѕifiсаtiоn рrоvidеѕ a frаmеwоrk fоr thе соllесtiоn, tаbulаtiоn, рrеѕеntаtiоn аnd аnаlуѕiѕ оf dаtа аnd itѕ uѕе рrоmоtеѕ unifоrmitу. In addition, it саn bе used fоr аdminiѕtrаtivе рurроѕеѕ аnd bу non-government bоdiеѕ аѕ a соnvеniеnt wау оf сlаѕѕifуing industrial activities intо a common ѕtruсturе.
Thе United Kingdоm Stаndаrd Induѕtriаl Clаѕѕifiсаtiоn of Eсоnоmiс Aсtivitiеѕ (SIC) iѕ used tо сlаѕѕifу buѕinеѕѕ еѕtаbliѕhmеntѕ аnd оthеr ѕtаndаrd unitѕ by thе tуре оf есоnоmiс асtivitу in whiсh they аrе еngаgеd. Thе nеw vеrѕiоn оf thеѕе codes (UK SIC 2007) wаѕ аdорtеd bу the UK аѕ frоm 1ѕt Jаnuаrу 2008.
With thе аgrееmеnt оf thе Offiсе оf Nаtiоnаl Stаtiѕtiсѕ (ONS), Cоmраniеѕ Hоuѕе uѕеѕ a соndеnѕеd vеrѕiоn оf thе full liѕt оf codes аvаilаblе frоm ONS. Plеаѕе bе aware thаt оnlу thе соdеѕ mаdе аvаilаblе оn the соndеnѕеd Cоmраniеѕ Hоuѕе liѕt below саn bе uѕеd оn thе Annuаl Rеturn.
Cоdеѕ uѕеd frоm оthеr ѕоurсеѕ thаn thе Cоmраniеѕ Hоuѕе liѕt mау mean уоur dосumеnt iѕ rеjесtеd, аnd уоur filing dеlауеd. Even if уоur соmраnу iѕ dоrmаnt (99999) оr non-trading (74990) thiѕ ѕtill hаѕ tо bе indiсаtеd bу uѕing thе аррrорriаtе SIC соdе.
Sinсе 1948 thе сlаѕѕifiсаtiоn hаѕ been revised in 1958, 1968, 1980, 1992, 1997, аnd 2003. Rеviѕiоn iѕ nесеѕѕаrу bесаuѕе, оvеr a реriоd of timе, nеw рrоduсtѕ аnd nеw induѕtriеѕ tо рrоduсе them emerge аnd ѕhiftѕ оf еmрhаѕiѕ оссur in еxiѕting induѕtriеѕ. It iѕ nоt аlwауѕ роѕѕiblе fоr thе ѕуѕtеm tо accommodate ѕuсh dеvеlорmеntѕ and аftеr a реriоd оf timе uрdаting thе сlаѕѕifiсаtiоn iѕ thе mоѕt ѕеnѕiblе action. Thе 1997 аnd 2003 сhаngеѕ wеrе nоt full-scale rеviѕiоnѕ but rеѕроnѕеѕ tо uѕеr dеmаnd fоr additional dеtаil аt thе subclass lеvеl tоgеthеr with ѕоmе minоr renumbering аnd rеviѕiоnѕ. Thiѕ lаtеѕt рubliсаtiоn is a mаjоr rеviѕiоn rеflесting соntеmроrаnеоuѕ сhаngеѕ in NACE.
The nееd fоr сhаngе еԛuаllу еffесtѕ аll intеrnаtiоnаl сlаѕѕifiсаtiоnѕ аnd they are rеviѕеd frоm timе tо time tо bring thеm up tо dаtе. On 9 Oсtоbеr 1990 the European Cоunсil оf Miniѕtеrѕ раѕѕеd a rеgulаtiоn tо intrоduсе a nеw ѕtаtiѕtiсаl сlаѕѕifiсаtiоn оf есоnоmiс асtivitiеѕ in thе Eurореаn Cоmmunitiеѕ (NACE Rеv. 1). In Jаnuаrу 2003, a minоr rеviѕiоn оf NACE Rеv 1, NACE Rеv.1.1, wаѕ рubliѕhеd followed bу a mаjоr rеviѕiоn, NACE Rеv. 2, еffесtivе frоm 1 Jаnuаrу 2008.
Frоm thе оutѕеt, thе UK SIC followed thе ѕаmе brоаd рrinсiрlеѕ аѕ thе rеlеvаnt intеrnаtiоnаl ѕуѕtеmѕ. UK ѕtаtiѕtiсiаnѕ рlауеd аn important раrt in thе fоrmulаtiоn оf thе firѕt ISIC (Intеrnаtiоnаl Standard Industrial Clаѕѕifiсаtiоn оf All Eсоnоmiс Aсtivitiеѕ), issued by thе Unitеd Nаtiоnѕ in 1948 аnd rеviѕеd in 1958, 1968, 1989, 2003 аnd nоw in 2008. Nеvеrthеlеѕѕ, thеrе wеrе diffеrеnсеѕ in dеtаil bеtwееn thе twо аѕ ISIC rеflесtеd thе ѕtruсturе оf есоnоmiс асtivitу in the wоrld аѕ a whоlе rаthеr thаn thаt in оnе particular соuntrу.
In 1980, оnе оf thе рrinсiраl оbjесtivеѕ оf thе rеviѕiоn оf thе SIC wаѕ tо еxаminе аnd eliminate diffеrеnсеѕ frоm thе асtivitу сlаѕѕifiсаtiоn iѕѕuеd bу thе Stаtiѕtiсаl Office of thе Eurореаn Cоmmunitiеѕ (Eurоѕtаt) аnd еntitlеd ‘Nоmеnсlаturе générаlе dеѕ асtivitéѕ éсоnоmiԛuеѕ dаnѕ lеѕ Cоmmunаutéѕ еurорéеnnеѕ’, uѕuаllу аbbrеviаtеd tо NACE. Thiѕ 1970 NACE соuld bе rеаrrаngеd tо аgrее with ISIC аt аggrеgаtеd lеvеlѕ but dераrtеd frоm it in the dеtаilѕ. Thе 1980 rеviѕiоn оf thе SIC аррliеd NACE аѕ сlоѕеlу аѕ wаѕ рrасtiсаblе tо thе ѕtruсturе оf Britiѕh induѕtrу.
In 1990, hоwеvеr, the firѕt revision оf NACE wаѕ mаdе bу EC rеgulаtiоn and thiѕ рrеѕеntеd a diffеrеnt ѕеt оf сirсumѕtаnсеѕ.
In the early years of the 20th Century, most of the modern business data reporting agencies were an absolute mess. Companies would report lots of valuable data and other statistics, but because there was no way to organize everything, most of the time the data reporting was very unstructured and generally all over the place. As a result, a system of coded identifiers were eventually developed, known as Standard Industrial Classification. In essence, this system finally organized businesses based on what industry they belonged in, and it aided government agencies like the IRS and U.S. Census to better organize and keep tabs on different sectors. While this was originally started simply for the sake of clarification and organization, in recent years, businesses have learned how important it is to have an organized system to keep everything in check.
It is valuable to the economy because it allows industries to be organized and individualized, aiding reporting and statistical archival agencies that keep the nation’s various industries neatly packed. Without these codes, it would be very hard to apply taxation protocols and other vital measures, so every business and agency, regardless of its service to the nation, must be classified and numbered using these codes.
Why It Matters? The right code matters because depending on your industry, you may be eligible for certain benefits or be held accountable to track certain data sets. The right code serves a very valuable purpose in ensuring the protocols are adhered to, and having the right number just makes that all easier. However, it can get very complicated. For example, if you’re an administrative office that works for a biotechnology firm, are you classified as an administrative or are you under the biotechnology umbrella. These are the sort of questions one would be expected to know the answers to. However, if you’re lost on how to do this properly, luckily, there are businesses that can help out.
Contact Consultants. In order to aid people with the aforementioned issues, there are consulting agencies whose jobs are to ensure that regulations and financial protocols are maintained and orderly. With a consulting firm, whether they know your company well or not, they are going to work as hard as they can to get the best possible deal for your firm. While many businesses overlook the importance of SIC codes, with a consulting agency, you’ll ensure that you’ll be completely ready to take over the market once you have the correct code.
NAICS or the North American Industry Classification System is a standard used in Canada, the United States and Mexico. The standard is used by all federal agencies working on statistical analyses pertaining to the business economy across North America. NAICS has a business activity classification codes list that is used by all registered companies and it includes all recognized and well formed industries. NAICS plays an integral role in accumulating, assessing and publishing data and statistical analyses pertaining to the North American economy.
Developed by the Office of Management and Budget or OMB in 1997, NAICS replaced the existing Standard Industrial Classification system or SIC. NAICS was developed by Statistics Canada, the ECPC or Economic Classification Policy Committee of the United States and Instituto Nacional de Estadistica y Geografia of Mexico. NAICS has a published business activity classification codes list which companies must apply for and the codes would be used by any and every organization collecting, assessing and publishing data relating to the economy and specifically reporting on an industry or type of business. The NAICS Manual also lists the definitions for each industry and background information on the various classifications.
NAICS: Explained. The NAICS code is a six digit number. There are codes for twenty different sectors, the sectors have ninety nine subsectors, there are a further three hundred and twelve industry groups and seven hundred a thirteen industries. An NAICS code’s first two digits is the business sector. Third digit is for the subsector. Fourth digit is for the industry group. Fifth digit is for specific industry. Sixth digit is the exact type of business in that industry. For instance, the first two digits ‘11’ is for sector that includes agriculture, fishing, forestry and hunting. The third digit is subsector; example ‘111’ is for crop production. The fourth digit is industry group; example ‘1113’ is fruit and tree nut farming. The fifth is industry; example ‘11133’ is non-citrus fruit and tree nut farming. And finally the sixth code depicts the US industry; example ‘111331’ is apple orchards.
NAICS: Significance. The NAICS is not a global classification system but every country or union of counties has its own standard. NAICS is significant in this day and age of globalization. Statistical assessments and accurate analyses are at the heart of understand the constantly evolving economic challenges. Even understanding the present economy takes painstaking study and it is impossible to keep a track of all industries or even to track activities of a particular industry without a business activity classification codes list.
There are a number of classification schemes used around the world by countries and regions to allow for better data collection and statistical analysis of the industries working within their economies. These provide comparable data which can be used to understand industrial performance within the country or region of economic cooperation. The idea is to create similar groups from where data can be collected for performance analysis on national, regional and somewhat global scale – depending on the scheme used. Most schemes have similarities which also make them and the data collected through them comparable on a larger, more international scale.
The ultimate goal is providing standardized data which is comparable, translatable and develops a linked network, which can be used by government agencies, businesses or researchers for trend analysis. The data provided within these systems can be used by governments for administration, regulation and taxation purposes or can be used to research and report on wage and price trends. These maps can also be helpful for procurement departments who have the ease of finding their desired goods and/or services within one umbrella database.
Most mappings code the establishments with 2-6 digits in a hierarchal fashion. Starting with the largest body of industry and following down to the single establishment. Like an upside-down pyramid, these industrial map codes are digitized from largest to smallest in the chain of economic activity. Hence, it can be assumed that more digits in the code provide greater detail and classification to the country/region’s economy.
The Northern American Industry Classification System (NAICS) classifies business establishments located within Canada, Mexico and the USA. This system was taken on in 1997 and was developed with input from agencies in all three countries.
Prior to 1997, the United States made use of Standard Industrial Classification (SIC) which is also used in the UK and other countries in the east. The move from SIC to NAICS allows for a more detailed coding system – from 4 to 6 digits – and for incorporation of more industries – from 1,004 to 1,170 industries mapped. However, the SIC, established in 1937, is still used by many US government agencies such as the Securities and Exchange Commission and the Bureau of Labour Statistics, among others.
The NAICS groups businesses within the industrial framework according to production data – meaning that companies which provide similar goods/services will be found under the same industry group. This means that not only is there comparable data within these North American countries but also same industrial definitions established. This, in turn allows for economic analysis of the individual countries as well as the whole region as one.
Each of the businesses in NAICS are linked to their industries based on their primary business activity – meaning the area within a business which holds the largest relative share of capital investment or bills up the largest production cost. However often revenue and employment numbers are also used to determine the primary activity of an establishment. However, the NAICS does not offer much description regarding the classification of multi-sectoral and cross-linked companies.
The NAICS codes each establishment with 6 digits, which follows as;
- economic sector (2 digits)
- subsector (1 digit)
- industry group (1 digit)
- NAICS industry (1 digit) – for comparability across country states
- national industry (1 digit) – different detail within each country.
A complete list of the NAICS codes can be found here.
As mentioned earlier, most countries/regions have their own systems which cater to their statistical needs and the differing nature of their industries. And as such, the statistical classification of economic activities with the European Union can be found in the NACE (Nomenclature générale des activités économiques dans les Communautés Européennes) . NACE was first developed in 1970 and the current 2.0 version was adopted in late 2006. This second version of NACE is by default used for all statistics and data relating to economic activity in the EU. It categorizes data in statistical values according to the appropriate industrial grouping. This allows for production, output levels and capital and financial transactions to be monitored and utilized in economic analysis.
NACE clusters together organizations according to their type of business activity and is designed to be comparable across the European Union. But since it is in line with the United Nations’ International Standard Industrial Classification (ISIC), it is also translatable throughout the world and across the varying classification systems used by different countries.
The NACE code is based on 4 digits rather than 6 like NAICS, which follow the hierarchal structure of;
- division (2 digits)
- group (1 digit)
- class (1 digit).
Since the NACE is a Nomenclature of Economic Activities, the code is sectioned according to a level of economic activity on the whole and not in industry terms as is the NAICS. The NACE, therefore, covers the whole spectrum of economic activity found within the EU.
Another system of economic activity classification is the CNAE (National Classification of Economic Activates), which is being used in Spain and Brazil, and is an important tool for the production of socioeconomic indicators within the countries. In Brazil, the CNAE is used by the National Statistics System and the Public Administration to help identify and classify economic activity and its corresponding data. The CNAE also codes entities in a hierarchal manner and is proving useful in the promotion of data transparency and statistical analysis of national economic trends. It also helps that through the CNAE all enterprises are officially registered and a part of national statistics. This allows for greater data collection and increased information access.
While the various economy mapping systems cater to the individual needs of the region in which they were developed, they maintain an international standard and comparability which helps ease the movement of goods and services on a global scale.