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GDP: The Income Side (9:45)

Here is a table of the income side of our GDP accounting, with data for 2017Q3, the most recent available. You can find much, much greater detail on the NIPA portion of the Bureau of Economic Analysis web site. What you can see is that compensation is the largest single component. Of course we might think that should be combined with small business income of $1,382 billion. Other changes? Observations?

Gross domestic income 19,515 100%
compensation 10350 53%
wages & salaries 8388 81%
supplements (social security contributions) 1962 19%
excise & import taxes less subsidies 1270 7%
net operating surplus ("profits") 4842 25%
net interest 805 17%
transfer payments (social security taxes) 153 3%
small business income* 1382 29%
rental income 747 15%
corporate profits less government business 1755 36%
taxes 476 27%
dividends 764 44%
retained earnings 527 30%
depreciation (“consumption of fixed capital”) 3052 16%

Of course we would like to know how things changed over time. I could for example look up the change in compensation of workers as a percent of GDP. For some questions, that is the proper metric. But we really want to know how we're doing, how compensation has changed over time. The graph I add uses "real" data, that is, corrected for price changes. We'll get to the nominal / real distinction on Friday.

Note that in the following graph I use a log scale. That's preferable when there's a growth trends and the magnitude changes a lot. If X is the level, then a 10% increase is X*(1+.10). If we take a log then that becomes log X + log 1.1. So the same vertical increment represents the same percentage increase, whether the level of pay is low or high. If we use a regular scale, then a modest vertical increment to pay in 1960s represents a large percentage increase, while the same vertical increment in 2017 represents a small one. In other words, we can't "eyeball" what is going on. Another takeaway: with a log scale, the slope of the line is the (percentage) rate of increase. Again, your eyes fail you with a regular scale, as the slope doesn't translate directly into the rate of change.

Short-cuts: each item, as with any accounting system, incorporates lots of detail about what is and isn’t measured. Here is one example. Small businesses that aren’t set up as formal corporations don’t pay their owners a salary. Instead, earnings are simply part of personal income, and included as one part of overall income on Federal Income Tax Form 1040 (Schedule F for farmers, Schedule C for other businesses). A hint as to the technical accounting aspects: the formal line item is “Proprietors’ income with inventory valuation and capital consumption adjustments.”

3 thoughts on “GDP: The Income Side (9:45)

  1. clintong20

    I find amazing how the worlds between politics and economics collide within the world of macroeconomics. When analyzing this data, I could not help but to think about how laws or mores have a direct impact on the business cycle. I believe the price of living is increasing, not the compensation of Income.

  2. Lauren Fredericks

    I find it very useful that we can use logs to more accurately create a representation of percentage increase in real compensation. Without it, we could not observe an "accurate" graphing of the data.


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