Various Perspectives on Economic Rent
The proportion of a given factor payment that is economic rent varies
from situation to situation. We cannot point to a factor of production and
assert that some fixed fraction of its income is always its economic rent.
The proportion of its earnings that is rent depends on its alternatives.
Consider first a narrowly defined use of a given factor—say, its use by a
particular firm. From that firm’s point of view, the factor will be highly
mobile, as it could readily move to another firm in the same industry. The
firm must pay the going wage or risk losing that factor. Thus, only a small
portion of the factor’s payment is rent.
Now consider a more broadly defined use—for example, the factor’s use
in an entire industry. From the industry’s point of view, the factor is less
mobile because it would be more difficult for it to gain employment
quickly outside the industry. From the perspective of the particular
industry (rather than the specific firm within the industry), a larger
proportion of the payment to a factor is economic rent.
From the even more general perspective of a particular occupation,
mobility is likely to be even less, and the proportion of the factor payment
that is economic rent is likely to be more. It may be easier, for example,
for a carpenter to move from the construction industry to the furniture
industry than to retrain to be a software engineer.