Introduction:

National income is an uncertain term which is used interchangeably with national dividend,
national output and national expenditure. On this basis, national income has been defined in a
number of ways. In common parlance, national income means the total value of goods and
services produced annually in a country.
In other words, the total amount of income accruing to a country from economic activities in a
year’s time is known as national income. It includes payments made to all resources in the
form of wages, interest, rent and profits.
From the modern point of view, Simon Kuznets has defined national income as “the net output
of commodities and services flowing during the year from the country’s productive system in
the hands of the ultimate consumers.”
On the other hand, in one of the reports of United Nations, national income has been defined
on the basis of the systems of estimating national income, as net national product, as addition
to the shares of different factors, and as net national expenditure in a country in a year’s time.

Major Difficulties in the Measurement of National Income

1. Prevalence of Non-Monetized Transactions:
There are certain transactions in Nigeria in which a considerable part of output does not come
into the market at all.
For example:
Agriculture in which a major part of output is consumed at the farm level itself. The national
income statistician, therefore, has to face the problem of finding a suitable measure for this
part of output.
2. Illiteracy:
The majority of people in Nigeria are illiterate and they do not keep any accounts about the
production and sales of their products. Under the circumstances the estimates of production
and earned incomes are simply guess work.
3. Occupational Specialization is Still Incomplete and Lacking:
There is the lack of occupational specialization in our country which makes the calculation of
national income by product method difficult. Besides the crop, farmers are also engaged is
supplementary occupations like—dairying, poultry, cloth-making etc. But income from such
productive activities is not included in the national income estimates.
4. Lack of Availability of Adequate Statistical Data:
Adequate and correct production and cost data are not available in our country. For estimating
national income data on unearned incomes and on persons employed in the service are not
available. More over data on consumption and investment expenditures of the rural and urban
population are not available for the estimation of national income. Moreover, there is no
machinery for the collection of data in the country.

5. Value of Inventory Changes:

The value of all inventory changes (i.e., changes in stock etc.) which may be either positive or
negative are added or subtracted from the current production of the firm. Remember, if in the
change in inventories and not total inventories for the year that are taken into account in
national income estimates.

6. The Calculation of Depreciation:

The calculation of depreciation on capital consumption presents another formidable difficulty.
There are no accepted standard rates of depreciation applicable to the various categories of
machine. Unless from the gross national income correct deductions are made for depreciation
the estimate of net national income is bound to go wrong.

7. Difficulty of Avoiding the Double Counting System:

The very important difficulty which a calculator has to face in measurement is the difficulty of
avoiding double counting.
For example:
If the value of the output of sugar and sugar cane are counted separately, the value of the
sugarcane utilized in the manufacture of sugar will have been counted twice, which is not
proper. This must be avoided for a correct measurement.
8. Difficulty of Expenditure Method:
The application of expenditure method in the calculation of national income has become a
difficult task and it is full of difficulties. Because in this method it is difficult to estimate all
personal as well as investment expenditures.
National Income and its Implications On Standard of Living
1. Official data on GDP understates the growth of real national income per capita over
time due to the shadow economy and the value of unpaid work by volunteers and
people caring for their family.
2. The "shadow economy" includes illegal activities such as drug production and
distribution, prostitution, theft, fraud and concealed legal activities such as tax evasion
on otherwise-legitimate business activities such as un-reported self-employment
income.
3. Often official GDP data is inaccurate, e.g. many countries in sub-Saharan Africa do not
update their reporting often enough, and so their GDP numbers may miss large and fast-
growing sectors, like cell phones.
4. In 2014 Nigeria became the largest economy in Africa (over-taking South Africa) after a
fundamental reassessment of their GDP calculation. GDP data may become a target for
political manipulation.
5. Regional variations in income and spending: National data can hide regional variations in
output, employment and income per head of the population
6. Inequalities in income and wealth: Average (mean) incomes might rise but inequality
could grow.
7. Leisure and working hours and working conditions: An increase in real GDP might have
been achieved at the expense of leisure time if workers are working longer hours or if
working conditions have deteriorated.
8. Imbalances between consumption and investment: High levels of investment as a share
of GDP might be superb for creating extra capacity to produce but at the expense of
consumer goods and services for the current generation.
9. Changes in life expectancy: Improvements in life expectancy don't always show through
in GDP accounts. Putting a monetary value on the benefits of increased longevity is
difficult.
10.The value of non-marketed output: Much useful and valuable work is not sold in
markets at market prices. The value of the output of people working for charities, self-
help groups and of housework might reasonably be added to national income statistics
11.Innovation and the development of new products: New goods and services become
available because of invention and innovation that simply would not have been
available to the richest person on earth less than fifty years ago. About half of what we
spend our money on now was not invented in 1870. Examples include air travel, cars,
computers, antibiotics, hip replacements, insulin and many other life-enhancing and life-
saving drugs
12.Environmental considerations: Rising output might have been accompanied by an
increase in air and noise pollution and other externality effects that have a negative
effect on our social welfare.
13.Defensive expenditures: Much spending is to protect against an economic or social bad
e.g. crime, or spending to clean up the effects of pollution and waste.