Transfer earnings and economic rent
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Last updated 10:01 PM on 2/17/23
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4 Terms
1
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What are transfer earnings?
The amount a FOP could earn in its best alternative occupation
→ It is the minimum payment to keep a FOP in its present use
→ Opportunity cost of performing the current job
→ It is the minimum payment to keep a FOP in its present use
→ Opportunity cost of performing the current job
2
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What is economic rent?
A surplus paid to a FOP above what is required to keep it in its current occupation
3
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How do you calculate economic rent?
Total earnings - transfer earnings
4
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1st worker employed will earn significantly more economic rent than the last worker
IF WAGE INELASTIC:
→ More economic rent enjoyed
→ Earn significantly more than next best job
→ If W(↓) → workers still prepared to keep working as they earn significant ER
\
IF WAGE ELASTIC:
→ Only earning slightly more than next best job
→ If W(↓) → workers would supply labour in another industry
→ To maximise wage anad utility
\
Depends on person: may work for non-pecuniary reasons
→ More economic rent enjoyed
→ Earn significantly more than next best job
→ If W(↓) → workers still prepared to keep working as they earn significant ER
\
IF WAGE ELASTIC:
→ Only earning slightly more than next best job
→ If W(↓) → workers would supply labour in another industry
→ To maximise wage anad utility
\
Depends on person: may work for non-pecuniary reasons
Note 
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