National income

The national income is the sum of all the income of the productive factors of a country, during a certain period of time.

National income is calculated as the sum of the incomes of the productive factors : this includes wages of workers, business profits, interest to lenders of equity and income. The sum refers to a particular country in a given period of time (usually one year).

What does the national income include

It includes:

  • Workers’ salaries
  • Income, interest, profits and dividends of capital
  • Land income

Excludes: all transfers such as:

  • Subsidies
  • Family’s asignations
  • Retirement

National income characteristics:

  • The essential in the calculation is the nationality of the productive factors. Even if the productive factor is outside the country, your income goes into the accounting. In the same sense, if foreign productive factors are found in the country, they are excluded from accounting.
  • It is generally used as a welfare measure of the country in question
  • It seeks to avoid double counting, so intermediate consumption is excluded.

Difference between national income and gross domestic product

In the case of national income, what defines whether or not the income of a factor is included is its nationality. On the other hand, in the gross domestic product, what matters is the country’s limits, all income generated within the territory, whether national or foreign, is counted.

Criticisms of national income

The main criticisms when measuring the economy using national income are the following:

  • Does not consider income distribution
  • The externalitynegative as pollution, noise, loss of species, etc. they are not counted in the measurement
  • It does not include a measure of the work of those people who are not salaried but whose activities generate value: for example, housewives, people who have to take care of their elders, volunteers, etc.
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