Gross Domestic Product etc - 29

Methods of estimating income (contd.)

3.9 The net value added available for each unit of production is equal to
the amount of total income generated by the unit in the process of production.
This income is distributed between the two primary factor inputs, viz., capital
and labour. In other words the income is distributed in the form of either
capital income (return on capital) to the owner of capital or labour income
(wages etc.) to the labour employed or as mixed income to individuals who
are partly owners of capital and partly work as self employed labour for
production in their own enterprises. Some income is also retained by the
producers for further investment and some are set aside for payment either
later or in a different form. Examples of the later are employer’s contribution
to social security, pension and other welfare funds and pension payments
while the former is the income retained by the producers as undistributed
profit to be used for increasing the capital assets. The labour income takes
the form of either wages or salaries (including commission, bonus, etc.) or
supplementary contribution of the employers or payments in kind. The
distributed capital income on the other hand, is mainly in the form of
dividends, interest on bonds, mortgages etc., and rent on land. The capital
incomes other than profit retained by enterprises are distributed to the owners
of capital who are either individuals or enterprises in the form of dividends.
The mixed income generally accrues to the self-employed people who
employ their own capital and labour for production. This income consists
partly of profits of the un-incorporated enterprises and partly of labour income
of self-employed (in cash or in kind) and is retained by owners in exchange of
services rendered. Thus, the total income generated in the form of factor
shares consists of (i) wages and salaries etc., (ii) interest, (iii) rent, (iv)
dividends, (v) undistributed profits and (vi) mixed income of self employed.
This method of measurement of income is known as Income Method or
Income generation method.[Reproduced from CSO Publication]