What Is the Gross Domestic Income?
Gross domestic income (GDI) is the sum of all income earned while producing goods and services within a nation's borders. GDI is a lesser-known calculation statistic used by the Federal Reserve Bank to gauge economic activity based on income. It differs from gross domestic product (GDP), which gauges the economic activity of production.
GDI is calculated as the total income payable in GDP income accounts. It can be calculated in two ways:
Compensation of employees encompasses the total compensation to employees for services rendered. Gross operating surplus, also known as profits, refers to the surpluses of incorporated businesses. Gross mixed income is the same as gross operating surplus, but for unincorporated businesses.
2. GDI = rental income + interest income + profits + wages + statistical adjustments
Understanding Gross Domestic Income (GDI)
According to the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce, Gross domestic income (GDI) and GDP are conceptually equivalent in terms of national economic accounting. However, GDP is calculated based on expenditure accounts, while GDI is based on incomes generated from producing GDP. The market value of goods and services consumed often differs from the amount of income earned to produce them due to sampling errors, coverage differences and timing differences. Over time, according to the BEA, "GDI and GDP provide a similar overall picture of economic activity." For annual data, the correlation between GDI and GDP is 0.97, according to BEA calculations.
Extensions of Gross Domestic Income
The GDI figures have various analytical uses. One important metric is the ratio of wages and salaries to GDI. The BEA compares this ratio with corporate profits as a share of GDI to see where the constituents — workers or company owners — stand relative to each other with respect to claims on GDI. Workers' share should be higher when unemployment is low, but recent evidence shows that is not necessarily the case — a puzzle to economists. Employee compensation to GDI is also compared with inflation trendlines. Economists look for signs of a positive correlation between a higher ratio of the former with an upward bias on the latter.