Economic Rent

The amount of wages is affected by the qualification of the employee, his professionalism, the quality of his work. For professions that do not require special training, its size is not very high, but the elasticity of supply is higher , since workers do not need training. Accordingly, a higher salary for those employees who previously undergo long training, accompanied by high costs.

Employees receive income consisting of two components. The first is the wage restraining (for non-transition). And their second component is economic rent. It is interpreted in the most general sense as an income derived from a factor that is characterized by an inelastic supply of labor. Partially economic rent is contained even in cases with an elastic supply, exceptions are only those cases when it is elastic to infinity. There are several cases of relations between it and wages. Employees receiving economic rent and its volume depends on how elastic the labor supply is. There is a minimum level of payment that a person agrees to receive for their services. If the salary falls even lower, the employee will either move to another industry, or refuse to offer labor at all. When the market conditions are in balance, each employee receives a payment slightly above the minimum level. There are also employees whose wages are at the lowest level with the minimum they can accept. The volatility value of the labor used determines the amount of the salary.

All previous explanations lead to a more precise definition of economic rent. It better corresponds to the economic relations that have developed at the present stage. So, economic rent is a fee that exceeds the costs of the possible use of a particular resource. In practice, it looks like a payment that exceeds the wage restraining the employee.

In other words, financial rent is the surplus of the owner of the resource that the owners of the labor factor receive.

The mobile labor market is represented by workers who do not have the qualifications and easily change their place of work (they wash the floors, the machines are unloaded, the newspapers are carried). All their income is the retaining salary. In this case, there is no permanent rent.

Another unique case is the offer of labor is absolutely inelastic. Here we are talking about a non-standard resource. In this case, the costs of its possible use are zero. Of course, economic rent will be paid, but its size depends entirely on the demand for specific employee services. The demand curve has a significant effect on its magnitude and can drop even to zero during periods of falling interest in a specific activity.

Differences in wages are formed objectively, since people who have different professions can not migrate from one resource to another unhindered. To get a better idea of the income that employees earn, one has to turn to the question of human capital. This is to what extent a person can bring in income. It is a collection of acquired and innate human qualities, and the border between them is very blurred. For example, abilities, talents, health, physical strength can be both congenital and acquired personality as a result of studies, training. Expenses for the acquisition of the right qualities by the person are assumed by the state, employers, and the employee himself. And human capital can be formed throughout the life of a particular individual.