5 Income Earned by Factors of Production Labour and Capital

Income earned by factors of production – Money doesn’t grow on trees. So where does it come from? You might be surprised to learn how many different types of income sources there are, especially in today’s gig economy.

Income is anything you gain that you can put in the plus or revenue column of your budget. It’s commonly measured in cash.

Individuals typically earn income through wages or salary, while businesses earn income from selling goods or services above their cost of production. Most forms of income are subject to taxation, which can substantially decrease the actual amount of money that an individual can keep and use at their own discretion.

Understanding the income earned by factors of production labour, capital, land and  entrepreneur can help you make informed decisions, explore investment opportunities and plan for a financially stable future. If you’re interested in exploring alternative ways to make money over an extended period, understanding the different types of income can help you reach your goals.

5 Income Earned by Factors of Production Labour and Capital

There are various  income earned by factors of production labour, capital, land and  entrepreneur, for the contribution to production of the year’s output of an organization. This income is of various types, they are:

1. Compensation of Employees

This is the largest of the income  It includes the wages and salaries that are paid by firms and government agencies to supplier of labour.

In addition, it comprises a variety of supplementary payments by employers for the benefit of their employees, such as payments into public and private pension schemes and welfare funds.

Employee compensation and benefits are the entirety of compensation that an employee receives in exchange for work. This includes everything from pay to bonuses, health care to perks.

Compensation comes in many different forms besides monetary compensation. There are bonuses, stock options, profit sharing, perks, and allowances that are part of a compensation package.

When people are paid by their employer, they are done so in different ways and include different things. But when the dust settles, most employee compensation contains one or more of three key components. Some employees only receive one component, while others may receive all three. The three components are fixed income, variable income, and benefits.

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2. Rents

Rental income is any payment you receive for the use or occupation of property. Expenses of renting property can be deducted from your gross rental income.

In the present context, rent is defined as payment to households for the supply of property resources. For example, it includes house rents received by landlords.

3. Interest

Interest income is money earned by an individual or company for lending their funds, either by putting them into a deposit account in a bank or by purchasing certificates of deposits. Interest expense, on the other hand, is the opposite of interest income.

This includes payment of money by enterprises to suppliers of money capital .Interest paid by the government on treasury bill, savings, bonds and other securities are excluded on the grounds that they are not payments for current goods and services. They are regarded as transfer payments.

4. Proprietors’ Income

Specifically, proprietors’ income is the excess of revenue over explicit production cost of owner-operated businesses and includes payments for labor, capital, land, and entrepreneurship.

This consists of net income of unincorporated businesses. In other words, it consists of proprietorships and partnerships.

5. Corporate Profits

Corporate profit is the money left over after a corporation pays all of its expenses. All of the money collected by a corporation during the reporting period from services rendered or sales of a product is considered top-line revenue. From revenue, a company will pay its expenses.

This is the net income of corporations. This is made of three parts: dividends received by stockholders; retained earnings; and the amount paid by corporation as income taxes.

All the items discussed above are forms of income. In addition, there are two non-income items, depreciation and indirect business taxes, that must be added to the sum of the income items to obtain GNP.