National Income

National income, strictly, is a money measure of the incomes received or accruing to residents of a country as owners of the agents of production, during a specified period of time. National income includes wages, rents, interest and profits, not only in the form of cash payments, but as income from contributions made by employers to pension funds, income of the self-employed, and undistributed business profits.

In market economies such as Canada's, the measures of national income include (with some exceptions) only those economic activities in which goods or services are sold in markets; the few exceptions ("imputed values") are illustrated by the inclusion in the estimates of a rental income for owner-occupied homes, and by the inclusion in the income of farmers of an estimate of the value of the produce from their own farms consumed by the farm families themselves. At the same time, official and nearly all private estimates do not include anything for the value of all of the services performed in the household by the unpaid homemaker (seeHOUSEWORK). This large omission is serious if national income is being used to measure the well-being of a country's people.

As it stands, this measure of national income is exactly equivalent to what the net production of goods and services would sell for on the market if there were nothing else added to the prices of goods and services; it is therefore a measure of the net value of products measured at factor cost. However, the prices at which goods are exchanged in markets do include indirect taxes such as sales taxes and customs duties. In the national accounts, these taxes and the allowances for depreciation and obsolescence may be added to the net national income at factor cost to obtain the measure "gross national product at market prices."

In Canada, official national income estimates are prepared by Statistics Canada. By collecting a wide range of economic and other statistical data, Statistics Canada incidentally obtains information useful in estimating national income and related items in the system of national accounts; when necessary, it conducts surveys specifically designed to elicit data for national income estimates. In addition, it can obtain information provided to other public bodies, eg, tabulations prepared from both personal and corporate income-tax returns.

The components of national income given in the official accounts partly depend on the available data. Wages and salaries paid to hired workers (the largest component) are shown because they can be obtained from data sources such as the census of manufactures, reports filed by financial institutions, and income-tax returns. Similarly, estimates of property income, the recompense for the productive services of capital goods, natural resources and entrepreneurship, are obtained from much the same sources and are shown in interest and rental income and corporation profits. Net interest and dividends paid to residents of other countries are not included. Incomes of unincorporated self-employed persons must be otherwise estimated. Incomes of farmers are estimated by subtracting from the receipts from sales of farm products the expenses incurred in production; the resulting farm income is a mixture of labour income (for the work of the farmer and his unpaid family) and of property income. Incomes of other unincorporated businesses, eg, those engaged in the professions, and in merchandising or service industries, are calculated in the same way, or, in some instances, from income-tax tabulations.

The indirect taxes and capital consumption allowances (depreciation) added to national income to yield GROSS DOMESTIC PRODUCT (GDP) are derived respectively from government records and from business and other records; some imputation of depreciation is necessary in certain cases, eg, those involving government-owned buildings and owner-occupied housing.

The national accounts include 4 main categories of expenditure: consumer purchases; purchases of new capital goods by businesses, governments and persons; government purchases; and net exports of goods and services. The measure of these expenditures reflects the prices actually paid for goods and services. The expenditure on capital goods also includes both the component of capital expenditure that just makes up for capital consumption and the net addition to the capital stock. The sum of these expenditures is gross national expenditure.

Gross domestic product (as opposed to GNP) is a money measure of the value of all goods and services produced in Canada regardless of the fact that some of the income generated in their production may belong to residents of other countries. GNP is a measure of the goods and services that are available to residents of Canada. The former exceeds the latter to the extent that interest and dividends paid abroad exceed those received from abroad.

The UN has encouraged its members to prepare uniform national income calculations, but comparisons of the resulting per capita national incomes must be interpreted with care for 3 reasons. First, the exchange rates used to put such measures into a common currency, so that the comparisons can be made, reflect the comparative prices in each currency only of goods that are traded internationally (comparative prices of untraded goods may not be at all well reflected in exchange rates); second, the size of nonmarket production and hence the portion of production that is not measured in national income estimates vary greatly among countries (typically, less-developed countries have relatively large nonmarket sectors of production); third, patterns of consumption vary greatly among countries and comparisons of money incomes may not reflect the effect of these variations on a population's well-being.

Comparisons are also made intertemporally for a single country. National income and related estimates are usually calculated first in the prices of the period (most commonly a year) to which they apply. For year-to-year comparisons, the aggregates, usually the national expenditure estimates, are deflated by price indices to remove the effects of price change from the changes in the aggregate production; they are then said to be measured in constant prices, ie, the prices of a particular year.