8.3.10—Transfer earnings and economic rent

Transfer earnings are the minimum payment needed to keep a factor in its present use. Economic rent is any payment above transfer earnings. Total earnings equal transfer earnings plus economic rent.

The split depends on the elasticity of supply to that use. A factor with few alternatives has high economic rent; a factor that can move easily has a larger transfer-earnings component.

If a singer would accept $30,000 to stay in a show but is paid$80,000, transfer earnings are $30,000 and economic rent is$50,000.

Economic rent is not the same as profit, and a high payment can contain little rent if the factor has an attractive alternative.