Hi,
I have been working on a project using the class of worker variable and I have a couple of questions.
First, using CPS, it appears we are able to identify self-employed individuals who paid an employee using the PAIDEMP1 variable. However, in 2020 and 2021 incorporated self-employed people are not included in this, is there a systematic reason for that? Can we say something about if this self-employed individual employed other people or not based on incorporated/unincorporated status? In any case, what is the reason for incorporated self-employed not getting asked if they paid an employee in 2020 and 2021?
Second, the IPUMS USA discusses this subject a little bit under the definition of the class of worker variable and says “The 1970-2000 censuses, the ACS and the PRCS distinguish between employers and other self-employed persons whose businesses/farms were incorporated and those whose businesses/farms were not.” What should I make out of this? IPUMS USA, as far as I can see, doesn’t inform about the number of employees or if the respondent said they employ people, is this distinction somehow made by incorporated/unincorporated status in ACS and PRCS? If not, is there a way to distinguish self-employed people with and without employees using ACS and PRCS?
Thank you!
For your first question about the IPUMS CPS variable PAIDEMP1, it’s not exactly clear why the universe differs from January 2020 through January 2021. Since incorporated self-employed respondents are not in the universe for PAIDEMP1 during this period, it’s impossible to tell whether these respondents employed other people or not; they were simply not asked this question. This universe change is not documented in CPS codebooks, so it does not seem like there is a systematic reason for it. However, I recommend reaching out to census if you would like to learn more.
Regarding the IPUMS USA variable CLASSWKR, this note you quote explains that these samples distinguish between two groups of self-employed persons (which includes employers) - those whose businesses/farms were incorporated and those whose businesses/farms were not. This variable does not reveal whether the self-employed person employed others or not. To my knowledge, there is no variable in the ACS/PRCS that distinguishes those with and without employees.
I have a follow-up question about this. ACS asks:
SELF-EMPLOYED OR OTHER
Owner of non-incorporated business, professional practice, or farm
Owner of incorporated business, professional practice, or farm
Worked without pay in a for-profit family business or farm for 15 hours or more per week
Does this mean when we speak of self-employed in ACS, we are primarily focusing on business owners? By “professional practice” are we including all independent contractors, including gig workers who do not own businesses?
Similarly, the CPS PAIDEMP1 variable covers self-employed people only, and in the questionnaire “>Q47E1c< Are you the owner of the business?” is followed by “>Q47E1c< Are you the owner of the business?” which I believe is the closest question to get PAIDEMP1 information. Can we say the PAIDEMP1 variable separates self-employed into business owners and non-business owners?
According to the IRS, independent contractors and gig workers are considered to be self-employed workers and report business income and deductions on Schedule C of their 1040 form, making them small business owners. While the majority operate non-incorporated businesses, some may incorporate their business as a limited liability company (LLC). Owners of incorporated businesses can be distinguished from owners of non-incorporated businesses using the detailed codes for CLASSWRK (ACS)/CLASSWKR (CPS), however this variable groups independent contractors and gig workers together with other small business owners (i.e., sole proprietorships) into CLASSWKRD = 13. You might be able to make some assumptions about whether a person is an independent contractor or a sole proprietor by examining their reported occupation (OCC) and reported industry (IND).
Using PAIDEMP1 (have paid employees) makes it easier to separate independent contractors and gig workers from other non-incorporated business owners since the former are less likely to have any employees. However, you should keep in mind that some sole proprietorships do not have any employees and that some independent contractors may choose to hire their own employees.
With that said, there is a significant difference between the ACS and CPS that can affect the accuracy of responses. The ACS is a self-administered survey, which allows respondents to interpret questions in a way that’s different from the official tax/legal framework. The CPS however includes an in-person component where interviewers may provide respondents additional context if they are unsure about a response.