How Gross Domestic Income Reveals the United States’ Growing Economic Inequality
If you’ve ever reviewed corporate earnings, such as Apple’s monstrous $78.48 billion in 2014 or Google’s $37.91 billion in 2013, it’s likely you’ve wondered where all that money goes. It’s well known that Google employees are more than justly compensated, but what about the rest of the company’s profits? Where are they applied? For that matter, are you being fairly compensated?
Gross domestic income (GDI) is the measurement to tell you how corporate profits are spent. You may not like the overall trends this measurement reveals, however.
What Is Gross Domestic Income?
You’re probably familiar with gross domestic product as an economic indicator because of how closely politicians and the media track and report its every move. But GDI, albeit lesser known, holds more meaning for employees. While gross domestic product details what is purchased within the U.S.—personal consumption, government spending, private inventories, exports, etc.—gross domestic income measures who or what gets paid.
Where Does the National Income Go?
Our nation generates a lot of income. Here’s a general breakdown of where the GDI ends up:
- Wages and Salaries: This is the percentage of national income applied to individual paychecks.
- Supplements to Wages and Salaries: If you’ve ever been offered a job after an interview, you’ve likely received a benefits package. That’s because supplements to wages and salaries, such as health insurance premiums paid by your employer and 401(k) contributions, are included as part of your overall income. Supplemental compensation is its own GDI category.
- Depreciation: Production equipment breaks down over time and needs replacement. You don’t still own your first computer or cellphone, do you? Companies set aside part of their income to replace worn-out equipment.
- Government Share (Business Taxes): This category accounts for taxes businesses pay, such as those on production, imports, and corporate income. Personal income taxes are not included.
Americans’ Shrinking Paychecks
GDI numbers reveal a growing trend toward economic inequality. Three major culprits are particularly responsible for shrinking Americans’ paychecks in proportion to national income. First, the amount of GDI paid toward wages and salaries is decreasing. Until the 1970s, about 50 percent of the national income went toward paying workers, according to the Tax Foundation. That number had decreased to 42 percent by 2013.
Second, policies that give businesses tax breaks on perks such as health insurance premiums have led to an increase in supplements to wages and salaries. They now represent about 10 percent of the gross domestic income. An increase in Social Security and Medicare taxes paid on the employee’s behalf also helps account for growth in this category. Benefits are nice, but an increase in pay might give you more flexibility.
Depreciation is the third major recipient. Spending on equipment to keep production growing has risen from 10 to 15 percent since the first half of the 20th century.
Gross domestic income allows us to see that even though today’s working Americans typically make more money than the workers of 40 years ago, we are proportionally bringing home less of the national income than our parents or grandparents did.