functional income distribution meaning

The distribution of income between the owners of the various factors of production. Wages accrue to labour, rent to landlords, and interest, dividends, and retained profits of companies to capital. The incomes of the self-employed pose a problem for functional income distribution, as they often contain elements of the rewards of labour, land, capital, and entrepreneurship; disentangling these is a matter of convention. Functional is contrasted with personal income distribution, the division of total income between individuals. The relation between functional and personal income distribution depends on the distribution of the ownership of property. Most individuals in a modern economy have both earned and property incomes for part of their lives. There is a positive correlation between these, as high earned incomes enable people to save, and property incomes help families to invest in professional training for their children, which leads to high earned incomes.

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