Dr. Econ

Discuss the definitions and means of calculating national income, personal income, and disposable personal income

March 2000

Yours is an interesting question that illustrates the complexity of calculating these important economic statistics published by the Bureau of Economic Analysis (BEA) of the Department of Commerce. Let’s start with a written description of these frequently used statistical series and then follow with a table that shows how these three measures of income differ.

National income is a broader national level economic measure than is personal income. National income includes payments to individuals (income from wages and salaries, and other income), plus payments to government (taxes), plus retained income from the corporate sector (depreciation, undistributed profits), less adjustments (subsidies, government and consumer interest, and statistical discrepancy).

Personal income measures national level income to persons and nonprofit corporations. Personal income includes payments to individuals (income from wages and salaries, and other income), plus transfer payments from government, less employee social insurance contributions.

Disposable personal income measures the after-tax income of persons and nonprofit corporations. It is calculated by subtracting personal tax and nontax payments from personal income. In 1999, disposable personal income represented approximately 72 percent of gross domestic product (i.e., total U.S. output).

TABLE: Relation of National Income, Personal Income, and Disposable Personal Income
Billions of dollars; seasonally adjusted annual rates

Statistical Measure       1998 Value for the U.S.
National Income         $ 7,036.4
           
Personal Income         $ 7,358.9
  Calculated as    
    National Income 7,036.4  
      Less corporate and governmental income    
      Corporate profits with inventory valuation and capital consumption adjustments (846.1)  
      Net interest (435.7)  
      Contributions for social insurance (621.9)  
      Wage accruals less disbursements (3.5)  
    Plus other income and transfers to persons    
      Personal interest income 897.8  
      Personal dividend income 348.3  
      Government transfer payments to persons 954.8  
      Business transfer payments to persons 28.8  
           
           
Disposable Personal Income     $ 6,286.2
  Calculated as    
    Personal Income 7,358.9  
      Less personal tax and nontax payments (1,846.1)  

Data source: Department of Commerce, Bureau of Economic Analysis, Economic Report of the President, February 2000.

References

Bureau of Economic Analysis Home Page. http://www.bea.doc.gov

U.S. Government Printing Office. 2000. Economic Report of the President (February), Tables B-25 (page 335) and B-28 (page 340). http://w3.access.gpo.gov/eop/

Samuelson, Paul A. and William D. Nordhaus. 1998. Economics. Boston: Irwin/McGraw-Hill, pp. 743, 754, and Chapter 19.