Labour income is the amount that employed people earn by working. Labour income comes in the form of wages and salaries.
Capital income is the amount that owners of assets earn via their assets. Assets include land, machines, buildings, patents, stocks, bonds and other types of investible assets.
Self-employed workers earn from both their work and capital ownership.
What are some of the differences between labour income and capital income?
|Labour Income||Capital Income|
|Taxable||In all countries||Only in some countries e.g. Singapore has no tax on capital gains|
|Good for Retirement||❌||✅|
|Examples||Wages, Salaries||Rental income, gains from equity investments, etc|
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Which one would you like to earn from?
Hint: I would definitely like to earn some capital income even if I do work for labour income. You might understand by now, from the table above, that capital income can sustain us even when we are no longer able to work, for example, due to job loss, health concerns or just old age.