METHODOLOGY, ESTIMATES & COMPARABILITY_______CHARACTERISTICS OF BUS. OWNERS =>SURVEY METHODOLOGY The data in this report were developed by collecting information through a mail sample survey and matching it to data compiled for SMOBE and WOB. (See Appendix B (SMOBE and WOB publication) for methodology). Any business which filed an IRS form 1040, schedule C (individual proprietorship or self-employed person), form 1065 (partnership); or 1120S (subchapter S corporation) in 1992 is included in the survey universe. A subchapter S corporation is a special IRS designation for legally incorporated businesses with 35 or fewer shareholders who, because of tax advantages, elect to be taxed as individual shareholders rather than as corporations. For businesses filing those forms, the IRS provided the Census Bureau with the following information: * Name and address of the firm * Employer identification number of the firm * Social Security numbers (SSN's) of the owners for filers of Form 1040 Schedule C * Principal industrial activity code (see COMPARABILITY OF 1987 and 1992 DATA) * Dollar receipts * Legal form of organization The following information was obtained for each firm from the Census Bureau's 1992 Economic Census files, including SMOBE and WOB: * Standard industrial classification (SIC) code (See INDUSTRY CLASSIFICATIONS.) * Geographic code * Legal form of organization code * Number of employees, annual payroll, and receipts for firms with paid employees * Number of business owners, partners or shareholders * Race, ethnicity, and gender for the majority of the firm's owners The 1992 CBO survey used five sampling frames based on the classification of the firm in the SMOBE/WOB: 1) Hispanic; 2) Black; 3) Other minority [Asians and Pacific Islanders, American Indians, and Alaska Natives]; 4) Women; and 5) Nonminority male. Each business was eligible for sampling from exactly one CBO frame, to which they were assigned in the following order of precedence: Hispanic, Other minority, Black, Women, and Non-minority male. For tabulation purposes, women-owned businesses sampled in the Hispanic, Other Minority, or Black frames were used to produce the estimates for women-owned businesses. Included in the universe of this survey is any entity for which an IRS 1040, Schedule C (individual proprietorship or self-employed person); 1065 (partnership); or 1120S (subchapter S corporation) was filed for the year 1992. A subchapter S corporation is a special IRS designation for legally incorporated businesses with 35 or fewer shareholders who, because of tax advantages, elect to be taxed as individual shareholders rather than as corporations. The five frames were stratified by state, industry division, and receipts size class before sample selection. The total sample size was 116,557 owners, approximately evenly distributed among the five sampling frames. Owners of Individual Proprietorships and Self-Employed Persons (Filers of 1992 Form 1040 Schedule C ) Each sole proprietor selected from the CBO sample was mailed a Form CBO-1, subtitled "Sole Proprietorship." This report asked the owner and business characteristics of a sole proprietor or self-employed person. The Form CBO-1 questionnaire is shown in Appendix C (publication). Owners of Partnerships and Subchapter S Corporations (Recipients of either 1992 Form 1065 or 1120S) Each partnership or subchapter S corporation selected in the CBO sample was mailed a Form CBO-2, subtitled "Partnership or Subchapter S Corporation - Business Characteristics." This report asked the business characteristics of a partnership or subchapter S corporation. The Form CBO-2 questionnaire is shown in Appendix D (publication). Based on the number of business owners stated in its SMOBE/WOB survey response, up to ten CBO-3 questionnaires were included with each CBO-2 form mailed. Form CBO-3, subtitled "Partnership or Subchapter S Corporation - Owner Characteristics" asks the owner characteristics of a partner or shareholder. It was respectively the responsibility of each partnership or subchapter S corporation to distribute the CBO-3 questionnaires to its 1992 partners or shareholders. The Form CBO-3 questionnaire is shown in Appendix E (publication). =>RELIABILITY OF ESTIMATES The figures shown in this report are, in part, estimated from a sample and will differ from the figures which would have been obtained from a complete census. Two types of possible errors are associated with estimates based on data from sample surveys: sampling errors and nonsampling errors. The accuracy of a survey result depends not only on the sampling errors and nonsampling errors measured, but also on the nonsampling errors not explicitly measured. For particular estimates, the total error may considerably exceed the measured errors. The following is a description of the sampling and nonsampling errors associated with the 1992 CBO. Sampling variability. The particular sample used for this survey is one of a large number of all possible samples of the same size that could have been selected using the same sample design. The estimates derived from the different samples would differ from each other. The relative standard error is a measure of the variability among the estimates from all possible samples. The estimated relative standard errors presented in the tables estimate the sampling variability, and thus measure the precision with which an estimate from the particular sample selected for this survey approximates the average result of all possible samples. Relative standard errors are applicable only to those published cells in which sample cases are tabulated. A relative standard error is an expression of the standard error as a percent of the quantity being estimated. The sample estimate and an estimate of its relative standard error can be used to estimate the standard error and then construct interval estimates with a prescribed level of confidence that the interval includes the average results of all samples. To illustrate, if all possible samples were surveyed under essentially the same condition, and calculated from each sample, then: 1. Approximately 68 percent of the intervals from one standard error below the estimate to one standard error above the estimate would include the average value of all possible samples. 2. Approximately 90 percent of the intervals from 1.6 standard errors below the estimate to 1.6 standard errors above the estimate would include the average value of all possible samples. Thus, for a particular sample, one can say with specified confidence that the average of all possible samples is included in the specified interval. Nonsampling errors. All surveys and censuses are subject to nonsampling errors. Nonsampling errors are attributable to many sources: inability to obtain information for all cases in the universe, imputation for missing data, data errors and biases, mistakes in recording or keying data, errors in collection or processing, and coverage problems. Explicit measures of the effects of these nonsampling errors are not available. However, it is believed that most of the important operational and data errors were detected and corrected through an automated data edit designed to review the data for reasonableness and consistency. Quality control techniques were used to verify that operating procedures were carried out as specified. Approximately 62 percent of the 78,134 firm questionnaires (Forms CBO-1 and CBO-2), and approximately 59 percent of the 116,557 owner questionnaires (Forms CBO-1 and CBO-3) were returned. Responding questionnaires were reweighted to compensate for those that were not returned. This procedure takes into account the sampling frame, industry division, legal form of organization, and receipts size class. It also assumes that nonrespondents in each of the categories possess the same characteristics as the respondents. Since this is never exactly true, nonrespondents with certain characteristics (e.g., deceased, not able to be located) are disproportionately underrepresented in the estimates. =>INDUSTRY CLASSIFICATIONS The system published in the Standard Industrial Classification Manual: 1987 was used to classify firms for this report. Under this system, economic activities are coded on a numerical basis. Related activities are grouped at a primary level by industry division (i.e., manufacturing, construction, retail trade, etc.). Within each industry division, successive levels of detail of the economic activity are defined: major group (two-digit code); industry group (three-digit code); and industry (four-digit code). For example, one hierarchy in wholesale trade is: SIC SIC levels code Description Industry division -- Wholesale trade Major group 50 Durable goods Industry group 506 Electrical goods Industry 5064 Electrical appliances, television and radio sets Data in this report are presented only at the industry division level. This study covers all industries in the SIC system except the following: Major Groups 01 and 02, Agricultural Production; 40, Railroad Transportation; 43, U.S. Postal Service; 86, Membership Organizations; 88, Private Households; 91-97, Public Administration. =>COMPARABILITY OF 1987 AND 1992 DATA The following changes were made in survey methodology in 1992 which affect comparability with past reports: 1. More questions were added to the 1992 survey forms to meet the needs of CBO's primary datausers. This has resulted in additional tables in the 1992 CBO publication. 2. Since the 1987 survey, the number of subchapter S corporations (included in CBO) has risen at a much faster rate than the number of C corporations (not included in CBO). The net result was an approximately 20 percent increase in the CBO universe compared to an approximately 12 percent overall increase in business tax returns. 3. In 1987, classifications for firm data were based on the 1972 SIC Manual. For 1992, classifications are based on the 1987 SIC Manual. The SIC structure was changed to better reflect industry trends. These changes limit the comparability of data between the 1987 and 1992 CBO. 4. There was significant overstatement in the number of employer firms in 1987 due to processing errors. The overstatement primarily affects the number of employers, but minimally affects the employee and payroll numbers. 5. In 1987, data were available from the IRS and SSA to identify the owners of partnerships and subchapter S corporations, their gender and sometime their race/ethnicity. For 1992, all information on these owners came from responses to the 1992 SMOBE, WOB and CBO. =>COMPARABILITY OF SURVEY DATA WITH OTHER ECONOMIC CENSUS DATA Caution should be exercised in comparing data presented in this report with published or unpublished data from other reports of the 1992 Economic Census. Factors that affect comparability of data among the censuses are the industrial scope, business unit covered, receipts size, and coverage of nonemployers. Industrial scope Industry data for all of the other 1992 Economic Census are based on the 1987 SIC Manual (See Industry Classifications). Most of the industries in scope of the other 1992 Economic Censuses were also in scope of this study. However, Major Group 86, Membership Organizations, was within the scope of the 1992 Economic Census, but out of the scope of the 1992 CBO Survey. The following major industry groups were in scope of this study, but not in scope of the other economic censuses (see exceptions below): Major Groups 07, Agricultural Services; 08, Forestry; 09, Fishing, Hunting, and Trapping; and domestically-owned scheduled airlines in industry 4512. In this study, industry 6552 (land subdividers and developers, except cemeteries) is included with the construction industry group, unlike the other economic censuses which include it with industry 65 (real estate). Business unit. Most of the economic censuses are conducted on an establishment or physical location basis; each establishment owned by a firm is individually canvassed and tabulated. In this report, however, the unit tabulated was the firm rather than each establishment of the firm (See "Definitions" for definition of "firm".) Receipts size. Most of the economic censuses determine whether or not a firm may be counted as an active business according to its receipts size. The specified minimums vary by industry. For this study, a firm had only to file a business tax return with business receipts greater than $500 for it to be counted as an active business. Nonemployer firms. Although nonemployer firms are included in this survey, they are omitted from many of the economic census reports. ###