What Is Gross Domestic Income?
Gross domestic income (GDI) is a measure of U.S. economic activity based on all the income earned while engaged in producing all the goods, services, and anything else that constitutes that economic activity.
- Gross domestic income (GDI) is a measure of U.S. economic activity based on all the income earned while engaged in producing all the goods, services, and anything else that constitutes that economic activity.
- GDI calculates the income that was paid to generate gross domestic product (GDP).
- One of the core concepts in the field of macroeconomics is that income equals spending, which means that an economy at equilibrium will show that GDI is equal to GDP.
Understanding Gross Domestic Income (GDI)
Gross Domestic Income (GDI) is the lesser-known statistic, gross domestic product (GDP) being the more popular metric, used by the Federal Reserve Bank to measure the total economic activity in the United States.
One of the core concepts in the field of macroeconomics is that income equals spending. What this means is that the money spent buying what was produced must equal the source of that money. GDI differs from GDP, which values production by the amount of output that is purchased, in that it measures total economic activity based on the income paid to generate that output. In other words, GDI calculates the income that was paid to generate GDP. So, an economy at equilibrium will see GDI equal to GDP.
GDIGDP= Wages + Profits + Interest Income+ Rental Income + Taxes− Subsidies on Production and Imports+ Statistical Adjustments=Consumption + Investment+ Government Purchases + Exports
Wages encompasses the total compensation to employees for services rendered. Profits, also called "gross operating surplus," refers to the surpluses of incorporated and unincorporated businesses. Statistical adjustments may include corporate income tax, dividends, and undistributed profits.
According to the Bureau of Economic Analysis (BEA) of the U.S. Department of Commerce, GDI and GDP are conceptually equivalent in terms of national economic accounting with minor differences attributed to statistical discrepancies. 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.
Gross Domestic Income (GDI) Analytics
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, mainly workers and 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, which is puzzling 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 in the latter.