IMPROVING BUSINESS STATISTICS THROUGH INTERAGENCY DATA SHARING

SUMMARY OF A WORKSHOP

Caryn Kuebler and Christopher Mackie, Rapporteurs

Steering Committee for the Workshop on the Benefits of Interagency Business Data Sharing

Committee on National Statistics

Division of Behavioral and Social Sciences and Education

NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES

THE NATIONAL ACADEMIES PRESS

Washington, D.C.
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Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop IMPROVING BUSINESS STATISTICS THROUGH INTERAGENCY DATA SHARING SUMMARY OF A WORKSHOP Caryn Kuebler and Christopher Mackie, Rapporteurs Steering Committee for the Workshop on the Benefits of Interagency Business Data Sharing Committee on National Statistics Division of Behavioral and Social Sciences and Education NATIONAL RESEARCH COUNCIL OF THE NATIONAL ACADEMIES THE NATIONAL ACADEMIES PRESS Washington, D.C. www.nap.edu

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Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop THE NATIONAL ACADEMIES PRESS 500 Fifth Street, NW Washington, DC 20001 NOTICE: The project that is the subject of this report was approved by the Governing Board of the National Research Council, whose members are drawn from the councils of the National Academy of Sciences, the National Academy of Engineering, and the Institute of Medicine. The members of the committee responsible for the report were chosen for their special competences and with regard for appropriate balance. This study is supported by a contract between the National Academy of Sciences and the National Science Foundation (Number SBR-0112521). The work of the Committee on National Statistics is also provided by a consortium of federal agencies through the same grant from the National Science Foundation. Any opinions, findings, conclusions, or recommendations expressed in this publication are those of the author(s) and do not necessarily reflect the views of the organizations or agencies that provided support for the project. Library of Congress Cataloging-in-Publication Data Improving business statistics through interagency data sharing : summary of a workshop / Caryn Kuebler and Christopher Mackie, rapporteurs. p. cm. Includes bibliographical references. ISBN 0-309-10261-8 (pbk.) — ISBN 0-309-66282-6 (pdfs) 1. United States— Statistical services—Congresses. 2. United States—Commerce—Statistics— Congresses. 3. Commercial statistics—United States—Congresses. I. Kuebler, Caryn. II. Mackie, Christopher D. III. National Research Council (U.S.). Committee on National Statistics. HA37.U55I47 2006 650.072′7—dc22 2006023359 International Standard Book Number-13 978-0-309-10261-2 Additional copies of this report are available from The National Academies Press, 500 Fifth Street, NW, Lockbox 285, Washington, DC 20055; (800) 624-6242 or (202) 334-3313 (in the Washington metropolitan area); Internet, http://www.nap.edu Printed in the United States of America Copyright 2006 by the National Academy of Sciences. All rights reserved. Suggested citation: National Research Council. (2006). Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop. Caryn Kuebler and Christopher Mackie, Rapporteurs. Steering Committee for the Workshop on the Benefits of Interagency Business Data Sharing. Committee on National Statistics, Division of Behavioral and Social Sciences and Education. Washington, DC: The National Academies Press.

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Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop THE NATIONAL ACADEMIES Advisers to the Nation on Science, Engineering, and Medicine The National Academy of Sciences is a private, nonprofit, self-perpetuating society of distinguished scholars engaged in scientific and engineering research, dedicated to the furtherance of science and technology and to their use for the general welfare. Upon the authority of the charter granted to it by the Congress in 1863, the Academy has a mandate that requires it to advise the federal government on scientific and technical matters. Dr. Ralph J. Cicerone is president of the National Academy of Sciences. The National Academy of Engineering was established in 1964, under the charter of the National Academy of Sciences, as a parallel organization of outstanding engineers. It is autonomous in its administration and in the selection of its members, sharing with the National Academy of Sciences the responsibility for advising the federal government. The National Academy of Engineering also sponsors engineering programs aimed at meeting national needs, encourages education and research, and recognizes the superior achievements of engineers. Dr. Wm. A. Wulf is president of the National Academy of Engineering. The Institute of Medicine was established in 1970 by the National Academy of Sciences to secure the services of eminent members of appropriate professions in the examination of policy matters pertaining to the health of the public. The Institute acts under the responsibility given to the National Academy of Sciences by its congressional charter to be an adviser to the federal government and, upon its own initiative, to identify issues of medical care, research, and education. Dr. Harvey V. Fineberg is president of the Institute of Medicine. The National Research Council was organized by the National Academy of Sciences in 1916 to associate the broad community of science and technology with the Academy’s purposes of furthering knowledge and advising the federal government. Functioning in accordance with general policies determined by the Academy, the Council has become the principal operating agency of both the National Academy of Sciences and the National Academy of Engineering in providing services to the government, the public, and the scientific and engineering communities. The Council is administered jointly by both Academies and the Institute of Medicine. Dr. Ralph J. Cicerone and Dr. Wm. A. Wulf are chair and vice chair, respectively, of the National Research Council. www.national-academies.org

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Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop STEERING COMMITTEE FOR THE WORKSHOP ON THE BENEFITS OF INTERAGENCY BUSINESS DATA SHARING CHARLES L. SCHULTZE (Chair), The Brookings Institution, Washington, DC DANIEL R. FEENBERG, National Bureau of Economic Research, Cambridge, MA JOHN HALTIWANGER, Department of Economics, University of Maryland RALPH A. RECTOR, The Heritage Foundation, Washington, DC CHRISTOPHER MACKIE, Study Director CARYN KUEBLER, Research Associate MICHAEL SIRI, Senior Program Assistant

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Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop COMMITTEE ON NATIONAL STATISTICS 2005-2006 WILLIAM F. EDDY (Chair), Department of Statistics, Carnegie Mellon University KATHARINE ABRAHAM, Department of Economics, University of Maryland, and Joint Program in Survey Methodology ROBERT BELL, AT&T Research Laboratories, Florham Park, NJ ROBERT M. GROVES, Survey Research Center, Institute for Social Research, University of Michigan, and Joint Program in Survey Methodology JOHN HALTIWANGER, Department of Economics, University of Maryland PAUL W. HOLLAND, Educational Testing Service, Princeton, NJ JOEL L. HOROWITZ, Department of Economics, Northwestern University DOUGLAS MASSEY, Department of Sociology, Princeton University VIJAY NAIR, Department of Statistics and Department of Industrial and Operations Engineering, University of Michigan DARYL PREGIBON, Google, Inc., New York SAMUEL H. PRESTON, Department of Sociology, University of Pennsylvania KENNETH PREWITT, School of International and Public Affairs, Columbia University LOUISE RYAN, Department of Biostatistics, Harvard University NORA CATE SCHAEFFER, Department of Sociology, University of Wisconsin-Madison CONSTANCE F. CITRO, Director

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Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop Preface The workshop summarized in this report was convened by the Committee on National Statistics (CNSTAT) on behalf of the Bureau of Economic Analysis (BEA) to discuss interagency business data sharing. Recent legislation, particularly the 2002 Confidential Information Protection and Statistical Efficiency Act (CIPSEA), has created new opportunities for sharing among BEA, the Census Bureau, and the Bureau of Labor Statistics (BLS) and has also stirred debate on data sharing, access, and confidentiality issues. The purpose of this workshop was to present strategies for enhancing the ability of statistical agencies to efficiently share administrative and statistical data on businesses, while still protecting respondent confidentiality. More effective interagency data sharing is essential if the statistical agencies are to have access to the most accurate information available and, in turn, continue to improve the quality of data and statistics in a cost-effective and minimally burdensome manner. The workshop focused on the benefits of data sharing to two groups of stakeholders—the statistical agencies themselves and downstream data users, such as researchers and policy makers. Presenters represented four key agencies involved in business data sharing—BEA, the Census Bureau, BLS, and the Internal Revenue Service (IRS)—as well as the Federal Reserve Board, the Congressional Budget Office, and academia. This report provides a summary of the presentations and the discussions that took place. The workshop was not designed to produce recommendations; however, participants persuasively presented arguments in favor of expanding data sharing—emphasizing increased efficiency, reduced respondent burden, and more accurate information for policy makers—and sug-

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Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop gestions on ways to work within (and to change, if necessary) current codes and regulation to make it happen. Workshop presenters and participants also recognized the importance of maintaining high standards for protecting data confidentiality. Steven Landefeld, director of BEA, suggested implementing incremental changes to data-sharing arrangements, including streamlining administrative procedures under CIPSEA; expediting access to research data centers; and modifying IRS procedures, through legislative or regulatory changes, to promote effective use of administrative data for statistical uses. On behalf of CNSTAT, I thank all of the workshop participants, particularly those who prepared detailed presentations, which provided for engaging and productive discussion. We also thank the workshop participants for their insightful comments and fruitful exchange of ideas, as well as for their input as staff drafted this report. We especially thank members of the workshop steering committee—Daniel Feenberg of the National Bureau of Economic Research, John Haltiwanger of the University of Maryland, and Ralph Rector of the Heritage Foundation—for their helpful guidance and leadership in planning and moderating the workshop. Robert Parker provided important consultation to the staff and the committee. We thank him, along with Dennis Fixler, Steven Landefeld, Nick Greenia, Mark Mazur, and George Plesko, for contributing important background papers for the workshop and this volume. We are grateful for BEA’s sponsorship of the workshop and thank Steven Landefeld and Dennis Fixler, in particular, for offering guidance to staff and the workshop steering committee in development of the agenda and in identifying the workshop goals. We would also like to thank the Kauffman Foundation, which is sponsoring a CNSTAT study on improving business data and statistics, whose members provided additional guidance for the development of the workshop program. Christopher Mackie, the staff study director for the workshop, was instrumental in every aspect of the workshop process. He stewarded the planning of the workshop, worked closely with the steering committee and participants, and, in collaboration with Caryn Kuebler, research associate, prepared and revised the report on the basis of comments from reviewers and workshop participants. We thank Michael Siri for expertly managing all the administrative details and workshop arrangements and for his work on the report itself. Christine McShane’s technical editing substantially improved the report’s readability. Connie Citro, director of CNSTAT, provided guidance and support throughout the project. Kirsten Sampson Snyder guided this report through the review process. This report has been reviewed in draft form by individuals chosen for their diverse perspectives and technical expertise, in accordance with procedures approved by the Report Review Committee of the National Re-

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Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop search Council. The purpose of this independent review is to provide candid and critical comments that assist the institution in making the published report as sound as possible and to ensure that the report meets institutional standards for objectivity, evidence, and responsiveness to the study charge. The review comments and draft manuscript remain confidential to protect the integrity of the deliberative process. We wish to thank the following individuals for their participation in the review of this report: Katharine G. Abraham, Joint Program in Survey Methodology, University of Maryland; Daniel R. Feenberg, Information and Research Systems, National Bureau of Economic Research, Cambridge, MA; and Sanders Korenman, School of Public Affairs, Baruch College of the City University of New York. The review of this report was overseen by Julia Lane, National Opinion Research Center and the University of Chicago. Although the individuals listed above have provided constructive comments and suggestions, responsibility for the final content of this report rests entirely with the National Academies. Charles Schultze, Chair Steering Committee for the Workshop on the Benefits of Interagency Business Data Sharing

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Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop Contents PART I WORKSHOP SUMMARY     1   Introduction   3 2   The Benefits of Data Sharing to the Statistical Agencies   13 3   Research and Policy Perspectives on the Benefits of Business Data Sharing   27 4   Key Points from the Presentations: Directions for the Future   39     References   43     Appendixes     A   Workshop Agenda and Attendees   45 B   Recent Legislation Governing Data Sharing and Access to Federal Tax Data   50

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Improving Business Statistics Through Interagency Data Sharing: Summary of a Workshop           PART II BACKGROUND PAPERS     5   Data-Sharing History and Legislation: Background Notes Robert P. Parker   55 6   IRS Data, Data Users, and Data Sharing Nick Greenia and Mark Mazur   79 7   The Importance of Data Sharing to Consistent Macroeconomic Statistics Dennis Fixler and J. Steven Landefeld   91 8   Using Tax Return Data to Improve Estimates of Corporate Profits George A. Plesko   133