Page 26 - DECO402_Macro Economics

Unit-2: National Income : Concept of National Income

Components of Factor Income Notes

Components of factor income are as follows-
1. Wages and salaries or compensation of Employees. The income get from work is called
compensation of employees also. According to Central Statistical Organisation, “Compensation
of Employees means all payments by producer, of wages and salaries to their employees in
cash and in kind and of contribution paid of imputed in respect of their employees to social
security schemes and private pension, family allowance, causal insurance, life insurance and
similar schemes", Thus, in employees compensation (i) wages and salaries, bonus, commission
and deal allowance (ii) Inform of impute of payment, as a free residence, dress and medical
facilities, (iii) contribution of proprietor in social security scheme and (iv) Retired employees
pension etc. are included.
2. Rental Income: Rental income is that income which is mainly gets from honourship of land or
buildings. Therefore the honour of land and buildings, for a fixed period of time, to give right
to other persons for using them, gets income in the form of rent. Buses, tractors, machines etc.
durable goods facility of using for a fixed period can be given to other persons on rent. Thus
accruing income will be understood as income from rent means those buildings in which
their honour resides themselves their imputed rent is also part of income from rent and that is
included in national income. Royalty is also included income get from rent. People gets royalty
from the right of copy right, patent right and natural resources as mines.
3. Interest: Interest is that income that gets from bank deposit and loan given to firm. Remarkable
thing is that the interest given by government and consumers are not included in national
income because it is not considered payment for current economic production.
4. Profit: The income get from entrepreneurship is called profit. Here entrepreneur means
corporation. An entrepreneur or corporation does not divide his total profit among his
shareholders. He divided some parts of his profit. Profit’s this divided part is called dividend.
Companies keeps undistributed profit in his hand as corporate savings. Some part of profit
goes to government as corporate profit tax. Hence corporate profit is divided into three parts
means it has three following component:
(i) Dividend – This is that part of profit which is distributed among shareholders. Shareholders
getting income as dividend depends upon total profit of firms or corporates. Distributed
profit is only called dividend.
(ii) Corporate Savings – This is that undistributed profit of firm, that he keeps in his hands as
corporate savings.
(iii) Corporate profit tax – This tax by corporate or firm is paid to government on their profit.
5. Mixed Income or Income of Non-Corporate Sector: Mixed Income of the self employed like
that of doctors, engineers, retailers is the total income of own account workers as well as profit
generated in the unincorporated enterprise. Income from employment and property as well as
entrepreneurship are included in mixed income. Those persons get mixed income that gives
his service in the form of households and as a producer uses his factor and services in the
production of goods and service. These all are self-employed persons and earn self-employed
income, in which wages, rent, interest, and profit are included. Those enterprises in which
self-employed person’s mixed income concept is used, thereby net value added at factor cost
is equal to mixed income of self-employed persons.

 We get domestic income from total summation of rent, interest, profit, compensation of employees
and self-employed person’s mixed income. Hence, domestic income = compensation of employee
+rent + interest + profit + mixed income of self-employed persons. To convert domestic income
into national income net factor income from abroad is added this.

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