TYPES OF INCOME
The term income is now used with such a variety of meanings as to necessitate definition of a number of types of income. Generally, income is a continuing accrual of money to a person or group. Thus salaries and wages, interest earnings, gross or net business earnings, and social security benefits can all be characterised as income, whereas it is not usual to regard non-recurring receipts such as sales of land investments, or other capital assets as income.
Ultimately all income originates in current production and represents a claim against the total value of goods and services produced. The link between production and income generation is not always obvious, and incomes are frequently differentiated according to their different relationships to production. Factor incomes are those incomes accruing to the factors of production, land, labour, and capital; they include salaries and wages, income from self-employment, company and Government trading profits, interest and rents. Factor incomes are sometimes split into two groups: “earned” and “unearned” income. Unearned income includes dividends, interest, and rent, whereas earned income covers only those incomes derived from direct participation in production.
Income such as old age pensions and social security benefits are “transfer” incomes. This term covers the whole range of incomes where the income is not a reward for some service rendered but is an unrequited payment assessed in terms of individual needs, social welfare, or some similar consideration.
Attempts are sometimes made to compare income levels between different time periods. Such comparisons are made difficult by changes in the purchasing power of incomes through time. Thus, though a person's wage may increase during a five-year period by 26 per cent, the prices he pays for the goods and services he consumes may increase by 20 per cent. In this case the gain in real or effective wage rates is only 126-120/120 × 100 or 5 per cent. As an illustration of the power of this inflationary illusion, the table below sets out figures for various years for the index of nominal weekly wage rates, and for this index corrected by the consumers' price index to give an effective wage rates index.
|Changes in Nominal and Effective Wage Rates
Base 1955 (=1000)
|Award Wage Rate||Award Rate Adjusted for Changes in Purchasing Power|
(Monthly Abstract of Statistics, Department of Statistics.)
Note that the total increase during the period in the nominal wage rate is 195 per cent, while that in the effective wage rate is 19 per cent. This example demonstrates the difficulties inherent in comparing income levels through time.
In considering income levels at any one point in time, several aspects of the problem present themselves. We may wish to consider the distribution of income within the community, the sectors of the economy in which incomes are generated, or the status in the productive process of those in receipt of income. In considering the distribution of incomes, it is convenient to classify incomes according to income groups and then to show these as percentages of totals. The following table is taken from a 1961 population census report where income is defined as all income other than social security benefits and war pensions. This factor is relevant in considering equality of income distribution as the influence of social security benefits, if included, would certainly have reduced the apparent inequality of incomes. There are 1,028,077 persons covered by the table.
|Income Distribution of Specified Cases With Income|
|Income Group||Per Cent|
|£1,500 and over||8.32|
(New Zealand Population Census, Incomes, Department of Statistics.)
A table of distribution of incomes received by income groups, while giving a picture of the New Zealand situation, does not give any information on how New Zealand compares with other countries. In his book, Portrait of a Modern Mixed Economy, Professor Westrate makes a comparison of New Zealand data with those for the United Kingdom, the United States of America, the Netherlands, and Sweden, and tentatively concludes that the New Zealand income distribution, before taxation and receipt of social security benefits, is less egalitarian than that of the United Kingdom but more so than that of the other three countries.
The data in the following table represent the results of an industrial classification of the salary and wage payments to employees during the year ended 31 March 1960.
|Amount of Salaries and Wages Paid – Years Ended 31 March 1963 and 1964 – by Industry Groups|
|Agriculture and livestock production||37,615||40,079|
|Forestry, hunting, and fishing||2,822||2,588|
|Mining and quarrying||5,732||5,872|
|Manufacturing, food, beverages, and tobacco||52,549||54,844|
|Manufacturing, textiles, wearing apparel, and made-up textiles||28,044||29,844|
|Manufacturing, wood, paper, chemical, etc., products (including miscellaneous manufacturing)||74,053||80,079|
|Manufacturing, metals, and metal products||44,400||50,156|
|Electricity, gas, water, and sanitary services (not construction)||11,545||12,208|
|Commerce – Wholesale and retail trade||120,350||129,131|
|Commerce – Other||34,580||37,630|
|Transport, storage, and communication||91,464||94,853|
|Services, community, business, recreation, and personal||160,120||173,760|
|Activities not adequately described||1,379||1,058|
(Supplement to April 1965 Monthly Abstract of Statistics.)
This information is extracted from returns required in connection with the “pay as you earn” income tax legislation. Therefore all employees are covered, and the payments are those which are made during a year which is uniform for all employers.
by John Victor Tuwhakahewa Baker, M.A., M.COM., D.P.A., Government Statistician, Wellington.