Transfer earnings and economic rent

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

What is economic rent?

A surplus paid to a FOP above what is required to keep it in its current occupation

How do you calculate economic rent?

Total earnings - transfer earnings

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

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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

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Depends on person: may work for non-pecuniary reasons