For over sixty years, the Standard Industrial Classification (SIC) system has served as the structure for the collection, aggregation, presentation, and analysis of the US economy. The SIC has provided a rich library of past, present, and future economic trends.

The SIC system was developed in the 1930’s at a time when manufacturing dominated the US economic scene. Over the last 60 years there have been numerous revisions to the SIC system, reflecting the economy’s changing industrial composition. However, despite these revisions, the system has received increasing criticism about its ability to handle rapid changes in the US economy. Recent developments in information services, new forms of health care provision, expansion of services, and high tech manufacturing are examples of industrial changes that cannot be studied under the current SIC system.
 

Developed in cooperation with Canada and Mexico, the North American Industry Classification System (NAICS) represents one of the most profound changes for statistical programs focusing on emerging economic activities. NAICS, developed using a production oriented conceptual framework, groups establishments into industries based on the activity in which they are primarily engaged. Establishments using similar raw material inputs, similar capital equipment, and similar labor are classified in the same industry. In other words, establishments that do similar things in similar ways are classified together.

NAICS uses a six digit hierarchical coding system to classify all economic activity into twenty industry sectors. Five sectors are mainly goods-producing sectors and fifteen are entirely services-producing sectors. This six digit hierarchical structure allows greater coding flexibility than the four digit structure of the SIC. NAICS allows for the identification of 1,170 industries compared to the 1,004 found in the SIC system.

Alternate NAICS Structure

In order to facilitate data analysis and presentation, the US Bureau of Labor Statistics developed an Alternate Aggregation Structure for NAICS. This design allows for easier presentation of data in press releases and other publications, and permits the release of information that would otherwise be suppressed due to confidentiality rules. The structure contains two domains – Goods Producing and Service Producing – with twelve supersectors containing the twenty NAICS sectors.

It will be possible to derive two-thirds of all four digit SIC codes from the new NAICS system "either because the industry definition has not changed or because the new industries are sub-divisions of old SIC’s that can be recombined." However, for the remaining industries time-series breaks were unavoidable. Familiar terms like Manufacturing, Retailing, and Services that were formerly used in everyday conversation to describe our economy will lose some historical meaning.¹ The Services division, which represents nearly forty percent of our state’s employment, will now be broken into eight industry sectors; restaurants, which represent one-third of Rhode Island’s Retail Trade, will be in a new sector – Accommodations and Food Services, and the Manufacturing division will no longer include the Publishing industry. NAICS will also assign codes to auxiliary establishments reflecting the primary activity of the establishment as well as the company.

While the loss of fifty years of time-series data is troublesome, the Economic Policy Classification Committee concluded that it is "unproductive to collect and maintain time series data that have questionable value."

Assigning NAICS Codes

The Labor Market Information Unit of the Rhode Island Department of Labor and Training assigns NAICS codes to all registered businesses in the same manner the SIC code was assigned. Information on the primary activity of each establishment within a company will continue to be requested at the time of registration and periodically reviewed through the Annual Refiling Survey. This information is used to assign the proper NAICS code to all establishments in the state.

In 1998, LMI began surveying existing employers in order to assign the proper NAICS code. The department will maintain both SIC and NAICS codes for all employers until the end of 2003.
 

US Census Bureau's Official NAICS web site

Rhode Island Department of Labor and Training
Labor Market Information
1511 Pontiac Avenue
Cranston, RI 02920-4407

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