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CLARIFICATION OF THE INCOME APPROACH Incomes from GDP The alternative way to break down GDP is to consider the incomes that production of output generates . The largest of these is in the form of employee compensation . The major part of this category is pre-tax wages and salaries, but it also includes employers' payments into the Social Security program and some other items. As the table indicates, compensation of employees has always been the largest type of income that is generated in production. A second, obvious item in computing GDP by looking at incomes is corporate profit . Corporate profit includes the amounts that corporations pay in the form of the corporate income tax , the amounts they pay stockholders in the form of dividends , and the amounts they "save" or retain within the business . The category proprietors' income captures a class of income that falls between wages or salaries and profits. It is the amount that those who are in business for themselves, but who have not incorporated their businesses, earn. The amount that the owner of a cafe or a farm earns in a year is often considered by the owner of the business as a "profit," yet most of that "profit" is a payment to the owner for his labor. Because it is difficult or impossible to separate the part of this income that is truly a wage to the owner from that which is actually a profit, the folks at the Commerce Department who collect the numbers keep it in the separate account of proprietors' income. . Sources: Survey of Current Business, August 2001;
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This note was uploaded on 03/18/2008 for the course ECON 304L taught by Professor Staff during the Spring '07 term at University of Texas at Austin.

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