Consumer income

Consumer income
See also
Disposable personal income Direct tax Tax Gross revenue Net cost Gross salary Net pay Engels law Real income

Consumer income (also known as personal income) is the total amount of money which a consumer earns from :

• wages (such as a monthly salary from an employer),
• investments (for example an interest from a savings account),
• benefits from a government (like a child care benefit),
• or other profitable actions (it may be even selling a bike).

However, a consumer income is not the money you see on your account. It is just a beginning to extract a disposable income (the money you really have) and a discretionary income (the money you can spend).

Disposable income

Consumer income is a base for taxation. A government looks into a consumer income and calculates the amount of money that a consumer owes it. The rest of the money, after paying all the taxes, is called disposable income or after-tax income. It is the money on an account.

Discretionary income

Disposable income is the money that may be spent but only discretionary income may be spent freely. It is a disposable income except the money for all the mandatory payments and bills, such as food, water, rent, transport etc. It is a minimal amount of money to survive. After these expenses the rest of the money can be spend on consumption, savings, or investments .

Marginal propensity to consume

Marginal propensity to consume (MPC) is a metric that measures relationship between increasing disposable income and consumption. MPC shows proportion of how many of the additional income is spent on consumption and how many is spent on savings. For example, if individual earns 1 euro more, 70 eurocents spends on consumption and 30 eurocents saves, MPC is equal to 0,7. There is also marginal propensity to save (MPS). It is an inverse of MPC (in this example MPS is equal to 0,3) and MPC plus MPS always have to be equal to 1.

Income statistics

Personal income varies depending on location (region, country, city), type of work (industry, experience) and demografic factors (such as age, ethnicity or sex). The last two factors are often criticized by politicians, social organizations and citizens.

In United States personal income was $53 697 per capita in 2018 what gives $4 475 monthly. For comparison, disposable income was only $47 436 ($3 953 monthly). In European Union net income was €16 909 per capita in 2017 which is €1 409 per month .

References

• Baumeister C., Kilian L., & Zhou X. (2017), Is the discretionary income effect of oil price shocks a hoax?, "CESifo Working Paper", vol. 6369
• Bureau of Economic Analysis - U.S. Department of Commerce (2019), Personal Income, February 2019. Personal Outlays, January 2019
• Bureau of Economic Analysis - U.S. Department of Commerce (2017), State Personal Income and Employment - Concepts, Data Sources, and Statistical Methods
• Dolnicar S., Crouch G. I., Devinney T., Huybers T., Louviere J. (2007), Tourism and discretionary income allocation. Heterogeneity among households, "Tourism Management", vol. 29
• Eurostat (2019), Mean and median income by age and sex - EU-SILC survey
• Jenkins S. P., Brandolini A., Micklewright J., & Nolan B. (Eds.) (2012), The great recession and the distribution of household income, OUP Oxford
• Keynes J. M. (2016), General Theory Of Employment, Interest And Money, Atlantic Publishers & Dist., New Delhi
• McCully, C. P. (2014), Integration of Micro-and Macrodata on Consumer Income and Expenditures in: Measuring Economic Sustainability and Progress, University of Chicago Press

Author: Adrian Poprawa