Question

Discuss the categories of Factor income considered in calculating the National income by Income method.

Answer 1

Broad categories of factor income are:

• Compensation of employees
• Operating surplus
• Mixed income of self employed

Compensation of employees comprises all types of payment made by employers for their employees. It includes the following:

1. Wages and salaries in cash inclusive of bonus, DA, LTC, house rent allowance, etc.
2. Payment in kind, like free medical facilities, rent-free accommodation, subsidised food, etc.
3. Supplementary labour income in form of employers’ contribution towards social security benefit such as group insurance, provident fund, gratuity, etc.
4. Operating surplus is the income earned from the ownership of capital and entrepreneurship. It comprises rent, interest, profit and royalty.
5. The mixed income of the self-employed covers the total income of the own-account workers and the profits generated by unincorporated enterprises.