transfer earnings and economic rent

Transfer earnings are defined as the minimum reward required to keep labour in its present occupation. This is shown by the area under the labour supply curve.

In the diagram above there is a perfectly elastic supply curve to a particular labour market. The ruling equilibrium wage is at £200 per week. The wage that workers receive is equal to the minimum they are prepared to supply their labour at. Thus the entire factor earnings (shaded in yellow) are transfer earnings.

For an upward sloping labour supply curve, total factor earnings comprise transfer earnings and economic rent. This is shown in the diagram below.

The market equilibrium wage is £250 per week where labour demand equals labour supply. Some of this is economic rent - the area above the labour supply curve for the occupation and below the market equilibrium wage. The more inelastic the labour supply, the greater the proportion of total earnings that is accredited as economic rent to the factor of production labour.

Basic pay for workers can be supplemented by working overtime and additional "performance related payments" in some occupations. The chart above shows the percentage of manual and non-manual workers who have added to their basic pay in this way. The figures were taken in the autumn of 1999.