What is Transfer Earning in Economics?

Every factor of production has its minimum supply price which has to be paid to it if it is to be engaged in any productive work or undertaking.

If the reward which a particular factor of production gets in an occupation is less than its minimum supply price, it will not be available for productive use. In that case, it will tend to move towards other occupations where the reward is equal to its minimum supply price. It clearly indicates that the concept of minimum supply price is closely related to the concept of transfer earnings. We know that factors of production can be put to alternative uses. The transfer earnings of a factor of production is the minimum price which has to be paid to induce that factor to remain in its present occupation, and this price must be equal to what it can command in other alternative occupations.

Suppose if a worker can earn Rs. 5000 per month in another factory and if he is to be retained in his present occupation, the owner must pay him atleast Rs. 5000 per month or else he will move to another factory. Here, the transfer earnings of labour in this case is Rs. 5000 per month. According to modern writers, the excess of income which a unit of a factor of production gets over and above its transfer earning is rent. As shown in above case, for example, as a result of the increase in demand for labour and its relative scarcity, the owner of the factory has to pay Rs. 5500 per month to the workers, then Rs. 5000 per month will be transfer earnings and Rs. 500 per month will be known as rent earned by labour.

Rent, is an excess of income earned by a factor over its transfer earnings. It clearly indicates that such an excess of income over the transfer earnings can be earned not only by land but by all factors of production. According to modern writers, rent is not a peculiarity of land alone, it accrues to other factors of production also.