What Is The Census Of Income Method?

In the census of income method, we make a census of all the earning units of an economy. An earning unit may be an individual or a company. A joint stock company owned by shareholders has a separate legal entity and it may earn income like an individual. In the national income accounting only those incomes of earning units are included which accrue to the earning units due to their participation in the production process.

Let us assume that production takes place only in firms. Individuals supply different factors of production to the firms and as a result they get factor incomes. These factor incomes take the forms of rent, wages, interest, and profit. Hence the national income is equal to the sum total of all wages, rents, interests, and profits earned in the production process. This is also known as the factor payments total.

The census of income method is easy and simple to follow. However, its chief disadvantage is that in this method we have at first to identify all the earning units of the economy. Those earning units will be considered who earn income due to participation in the production of goods and services. An earning unit may be an individual or an institution. There are large numbers of earning units in the economy and we have to collect the necessary data from all these earning units. This requires much time and money.