Factor income (also called primary income and earned income) is the flow of

income Income is the consumption and saving opportunity gained by an entity within a specified timeframe, which is generally expressed in monetary terms. Income is difficult to define conceptually and the definition may be different across fields. F ...

that is derived from the

factors of production In economics, factors of production, resources, or inputs are what is used in the production process to produce output—that is, goods and services. The utilised amounts of the various inputs determine the quantity of output according to the rela ...

, i.e., the general inputs required to produce goods and services. Factor income on the use of

land Land, also known as dry land, ground, or earth, is the solid terrestrial surface of Earth not submerged by the ocean or another body of water. It makes up 29.2% of Earth's surface and includes all continents and islands. Earth's land sur ...

is called rent, income generated from labor is called

wage A wage is payment made by an employer to an employee for work (human activity), work done in a specific period of time. Some examples of wage payments include wiktionary:compensatory, compensatory payments such as ''minimum wage'', ''prevailin ...

s, and income generated from capital is divided between profit for equity owner and

interest In finance and economics, interest is payment from a debtor or deposit-taking financial institution to a lender or depositor of an amount above repayment of the principal sum (that is, the amount borrowed), at a particular rate. It is distinct f ...

for creditor. The total amount of factor income received by the residents of a country is referred to as the national income, while factor income and current transfers together are referred to as disposable income. In contemporary national accounting,

Indirect taxes An indirect tax (such as a sales tax, per unit tax, value-added tax (VAT), excise tax, consumption tax, or tariff) is a tax that is levied upon goods and services before they reach the customer who ultimately pays the indirect tax as a part of ma ...

minus subsidies are treated like factor income despite not meeting the definition. In earlier system like the 1953 SNAdefined to concept of GDP : the sum of all factor income called GDP at factor cost, and the sum of all expenditure called GDP at market price. (GDP at market price = GDP at factor cost + Indirect taxes minus subsidies). Factor cost measured have being abandoned by the SNA. Factor income is used to analyze

macroeconomic Macroeconomics is a branch of economics that deals with the performance, structure, behavior, and decision-making of an economy as a whole. This includes regional, national, and global economies. Macroeconomists study topics such as output/ GDP ...

situations and to find out the difference between

gross domestic product Gross domestic product (GDP) is a monetary measure of the total market value of all the final goods and services produced and rendered in a specific time period by a country or countries. GDP is often used to measure the economic performanc ...

and

gross national income The gross national income (GNI), previously known as gross national product (GNP), is the total amount of factor incomes earned by the residents of a country. It is equal to gross domestic product (GDP), plus factor incomes received from ...

: difference between the total value of the goods and services produced in a country and the income of the citizens of the country. The applicability of the concept of factor income can be seen in

developing countries A developing country is a sovereign state with a less-developed Secondary sector of the economy, industrial base and a lower Human Development Index (HDI) relative to developed countries. However, this definition is not universally agreed upon. ...

where large portion of their income is from foreign direct investment which creates a massive gap between gross domestic product (GDP) and gross national income (GNI), with GDP being higher than GNI.

References

{{Authority control Factor income distribution National accounts