No. 218

September 2002

SMALL BUSINESS

RESEARCH

SUMMARY

Small Business Share of NAICS Industries

by Joel Popkin and Company

2002 [44] pages. Washington, D.C. 20005

under contract no SBA-HQ-01-M-0156

This Small Business Research Summary (ISSN 1076-8904) summarizes one of a series of research papers prepared under contracts

issued by the U.S. Small Business Administration’s Office of Advocacy. The opinions and recommendations of the authors of this study do

not necessarily reflect official policies of the SBA or other agencies of the U.S. government. For more information, write to the Office of

Advocacy at 409 Third Street S.W., Washington, DC 20416, or visit the office’s Internet site at www.sba.gov/advo.

Purpose

In 1997 the United States adopted a new system for

classifying industries, the North American Industrial

Classification System (NAICS), which replaced the

Standard Industrial Classification (SIC) system.

NAICS unifies the classification systems used in the

United States, Canada, and Mexico, and it includes a

more current and detailed accounting of industries,

especially in services and high technology industries.

Since the makeup of industries has changed under

the NAICS definitions, the small business share of

each industry has likewise changed. In this paper, the

authors have recalculated the small business share of

industry using the NAICS definitions.

Overall Findings

The researchers estimated small business shares for

most major NAICS categories. For industries in

which there were only minor definitional changes,

such as manufacturing and construction, the changes

in share between the NAICS-based and SIC-based

estimates were likewise small. Of greater interest

though, is the more detailed picture of the servicesproducing sectors of the economy which the NAICSbased system provides. For example, under the SIC,

a little less that half of the output of the finance,

insurance, and real estate category was attributable

to small businesses, but further detail was not available. Under the NAICS, it is evident that small businesses are concentrated in the real estate industry,

while large businesses predominate in the finance

and insurance industries. Similarly, the small business-dominated SIC services division shows considerably more variation under the NAICS. While most

of the NAICS sectors associated with services are

still small business-dominated, there are a few qualifications. Educational services, for example, appears

be more heavily dominated by large businesses than

the overall services category is.

Highlights

The small business share of manufacturing and mining went from an estimated 27 percent under the SIC

to an estimated 30 percent under the NAICS. This

growth reflects changes in the NAICS category definition. Under NAICS, publishing has been moved

from manufacturing and mining to the information

sector. Publishing, which is large business-dominated, was the largest industry removed from the mining and manufacturing category. With this change, it

is reasonable to expect that the small business share

of mining and manufacturing would increase.

Construction is very similar in definition in both

classification systems, and its small business share

reflects this, remaining unchanged at 90 percent. 

Among the major definitional changes was the

shift of food services from the wholesale and retail

trade category (SIC) to the new accommodation and

food services category (NAICS). Food service has a

large labor component and is small business-domi-
nated; its removal from the SIC-based trade sector

resulted in a small decline in the small business

share of wholesale and retail trade output, and a

slightly larger decline in its share of compensation

(payroll and benefits). The small business share of

trade went from 65 percent (SIC) to 64 percent

(NAICS). The compensation (payroll and benefits)

share of trade was reduced by a little bit more, from

65 percent (SIC) to 62 percent (NAICS).

Some things remain unexplained with these preliminary estimates. The small business share of many

industries’ noncompensation components (capital

inputs, etc.) is much larger than their compensation

components (payroll and benefits) tends to indicate.

While this result may be perfectly valid, it may also

be the result of either definitional differences in the

new data sources or benchmarking issues. 

Small Business Shares by NAICS Industry

NAICS-Based Small Business

Industry Sector Share of Output

Mining and Manufacturing 30

Utilities 22

Construction 90

Trade (Wholesale and Retail) 64

Transportation and Warehousing 40

Information 25

Finance and Insurance 29

Real Estate, Rental and Leasing 74

Professional and Technical, 

Administrative, Support and 

Waste Management 65

Educational Services 43

Health and Social Services 57

Arts, Entertainment, and 

Recreational Services 76

Accommodation and Foodservices 57

Other Services 71

Source: Small Business Share of NAICS Industries, by Joel

Popkin and Company, under contract to U.S. Business

Administration, Office of Advocacy, 2002

Scope and Methodology

Output figures were compiled from a variety of data

sources. (1) Using Census data, the share of wages

and salaries that can be allocated to each business

size was determined; (2) using Census data, the

share of corporate business receipts that can be allocated to large business was determined; (3) using the

corporate receipts shares calculated in step 2, the

IRS corporate Statistics of Income (SOI) data were

used to calculate business size-shares for the noncompensation components of each industry; (4) the

shares were benchmarked where necessary; (5) the

benchmarked shares were applied to the appropriate

component of each industry’s gross product to produce the large and small business components for

each industry.

Ordering Information

The full text of this report and summaries of other

studies performed under contract to the U.S. Small

Business Administration’s Office of Advocacy are

available on the Internet at www.sba.gov/advo/research.

Printed copies are available for purchase from:

National Technical Information Service

5285 Port Royal Road

Springfield, VA 22161

Tel. (800) 553-6847

TDD: (703) 487-4639

www.ntis.gov

Order number: PB2002-108707

To receive email notices of new Advocacy

research, press releases, regulatory communications,

and publications, including the latest issue of The

Advocate newsletter, visit http://web.sba.gov/list.