The Economic Effects of Firm Incentives and Improvements in Census Bureau Sampling Weights

Aggregate census estimates that measure the annual economic performance of U.S. industries, such as the Annual Survey of Manufactures (ASM) and the Service Annual Survey (SAS), depend critically on the accuracy of quinquennial Census sampling weights (drawn every 5 years). While establishments with larger revenue have historically been sampled with higher probability (weight) to generate national estimates, many “modern service industries†are characterized by shorter lived establishments (whose birth and death may occur between censuses), and opaque parent-subsidiary connections in which revenue can be passed through from subsidiary to parent despite significant employment at the subsidiary location. Both problems potentially bias sampling weights; to the extent that industries are increasingly moving toward these modern structures, biases may be amplified in the most recent years. In this memorandum, we show that the motion picture industry is one segment of the economy in which these features are ubiquitous, and that this structure is generalizable to other sizable industries. To illustrate this problem, we consider the California film industry as a representative “treatment†group, and compare it to the manufacturing industry in California as a more typical “control†group industry with more traditional industry micro-structure. We can consider manufacturing as a control group because the locations of the investment and economic activity are easily measured due to the substantial physical footprint required in the industry. Manufacturing companies are often structured as single-unit plants, and their life cycle often lasts for decades. We perform the comparison between the film and manufacturing industries by matching two detailed user-provided sources of data on the universe of applicants to receive state tax credits in California, to the BR/SSEL, LBD, ASM, and SAS. These are the California Film Commission (CFC) tax credit lottery for the film industry, and the California Competes Tax Credit (CCTC) allocation formula, which is mostly comprised of manufacturing plants.