18.7 Income Shares

What does the functional distribution of income show?

How total U.S. income is divided among wages, rent, interest, profit, and proprietors’ income.

What is “proprietors’ income”?

Income earned by self‑employed individuals (doctors, lawyers, farmers, small‑business owners).

Why doesn’t proprietors’ income fit neatly into the four economic categories?

Because it is a mix of wages (labor) and profit (entrepreneurship).

According to economists, what portion of proprietors’ income is actually labor income?

The large majority — most proprietors’ income is really wages, not profit.

What percentage of U.S. income is wages and salaries (narrow labor income)?

69%

What percentage of U.S. income goes to property owners (rent + interest + corporate profit)?

21%

What happens to labor’s share if we include proprietors’ income as labor?

Labor’s share rises to 79%.

What percentage of income goes to “capitalists” (rent, interest, profit)?

21%

Why is it ironic that the U.S. is called a “capitalist” system?

Because capital income is only 21% of total income — a relatively small share.

What is the dominant source of income in the U.S. economy?

Labor income.

Why is proprietors’ income mostly considered labor income?

Because most of it compensates the owner for working, not for taking entrepreneurial risk.

What does wages pay for?

Labor — the work people do.

What does rent pay for?

Land and natural resources.

What does interest pay for?

The use of capital (money).

What does profit pay for?

Entrepreneurship — taking uninsurable risks and being the residual claimant.

Which category is the largest source of U.S. income?

Wages (labor income).

Which category compensates for risk‑taking?

Profit

Which category includes payments like loan interest or bond interest?

Interest

Which category includes payments for using land or natural resources?

Rent