Marginal revenue product as the demand for labour and where hiring stops; transfer earnings under the supply curve and economic rent above it; why the split depends on the elasticity of supply, from footballers to baristas; and why rent can be taxed without changing supply.
Deloitte’s 2026 review of football finance found that Premier League clubs earned a record £6.8bn in 2024/25, up 8%, with broadcast income of £3.4bn and matchday income above £1bn for the first time. Wages rose faster, by £381m to £4.4bn, and the clubs lost £948m before tax between them, up from £135m the year before. The summer 2025 transfer window set a record of £3bn in fees. One finance academic called it an arms race: clubs are so incentivised to outspend each other for the small pool of players who can win matches.
What decides how much a worker is worth to a firm, and why do some workers get paid far more than it would take to keep them?
Source: Deloitte, Annual Review of Football Finance 2026; Kieran Maguire quoted by AFP, May 2026.
The marginal physical product (MPP) of labour is the extra output from one more worker. The marginal revenue product (MRP) is the extra revenue that output earns: MRP = MPP × marginal revenue, or MPP × price for a firm that cannot affect the price. A profit-maximising firm hires up to the point where MRP = the wage: the last worker just pays for themselves. Because MPP falls as more workers share the same capital (diminishing returns), MRP falls too, so the MRP curve is the firm’s demand curve for labour. Anything raising MPP (training, capital) or the price of the product shifts it right.
Transfer earnings are the minimum a worker must be paid to stay in their current job: what they could earn in their next-best use. Economic rent is any payment above that. On the diagram, the area under the supply curve up to the equilibrium is transfer earnings, because each point on supply is the wage that just tempted that worker in; the area between the wage and the supply curve is rent, earned by everyone who would have worked for less.
The split depends on the elasticity of supply. Where supply is perfectly inelastic, a star footballer, a unique site in Mayfair, the whole payment is rent. Where supply is perfectly elastic, unskilled work in a city with many employers, the whole payment is transfer earnings. Rent can be taxed without changing behaviour; transfer earnings cannot.
Premier League clubs paid £4.4bn in wages in 2024/25, a record, and lost £948m before tax between them.
A top striker earns several hundred thousand pounds a week. He would almost certainly still play football for a tenth of that.
What is the economist’s name for the part of his pay above what would keep him in the job?
Economic rent. The supply of players good enough for the Premier League is tiny and almost fixed, so the wage is set by what clubs will pay, not by what players need. Most of £4.4bn is rent, which is one reason it can be taxed without anyone switching careers.
Marginal revenue product. Each extra worker adds output (MPP); multiply by the price it sells for and you have the revenue they bring in (MRP). Diminishing returns make MPP fall as workers crowd the same kitchen, so MRP falls: the curve slopes down. A firm paying £60k hires workers whose MRP is at least £60k and stops at the one whose MRP equals the wage. D = MRP is the demand for labour.
Check: A café sells coffee at £3. The fifth barista adds 40 coffees a day. Their MRP is:
MRP = MPP × price = 40 × £3 = £120. The wage decides whether to hire them, not what they are worth.
Two areas. The supply curve shows, for each worker, the least they would accept: £20k for the first, £60k for the 50,000th. The area under it, transfer earnings, is what it takes to keep them all: £2,000m. Everyone is paid £60k, so those who would have come for less earn economic rent, the triangle above supply: £1,000m. Total pay is £3,000m.
Check: At the equilibrium wage of £60k, 50,000 people work. The 20,000th worker would have accepted £36k. Their economic rent is:
Rent = wage − transfer earnings = 60 − 36 = £24k. The same wage is paid to all, but each worker’s transfer earnings differ, so their rent differs.
The inelastic extreme. The number of people who can play in the Premier League is fixed in the short run and barely responds to pay, so supply is vertical. The wage is set entirely by demand: broadcast money shifts MRP right and the whole gain goes to wages. All of it is rent, because the players would turn out for far less. The same is true of a plot of land in Mayfair, which is where the word came from.
Teacher tip: Ask who captures a new TV deal: the players, through rent, not the clubs, whose losses rose even as revenue hit a record. The arms-race quotation in the opener is the MRP curve shifting right against a vertical supply.
Check: If the supply of top-flight footballers were perfectly inelastic at 50,000 and clubs’ demand set the wage at £60k, the economic rent would be:
With vertical supply there is no area under the curve: the players would play for anything, so everything they get above zero is rent.
The elastic extreme. Where many workers can do the job and many employers want it, a café that offered less than £20k would lose its staff to the shop next door. Supply to the firm is flat, every pound paid is transfer earnings, and rent is zero. Between the extremes, the steeper the supply curve, the larger the share of pay that is rent: surgeons more than nurses, nurses more than porters.
Check: In a city with many employers offering unskilled work at £20k, the supply of labour to any one café is close to perfectly elastic. A barista there earns:
Horizontal supply at £20k means every worker’s reservation wage is £20k: no triangle above it, no rent.
Limits and uses. MRP is hard to measure outside piecework; it assumes firms sell in competitive markets and hire in them, so monopsony, unions and the public sector break the link. But rent has a policy use: a tax on pure rent does not change supply, because the factor would be supplied anyway. That is the case for taxing land values, footballers’ pay and windfall profits, and against taxing transfer earnings.
Check: Which is the strongest criticism of MRP theory as an explanation of wages?
MRP also assumes competitive product and labour markets; monopsony, unions, discrimination and the public sector all break the link.
The labels are swapped. The area under the supply curve is transfer earnings, the minimum each worker needs; the triangle above it and below the wage is economic rent. Rent is £1,000m here, not £2,000m.
Using the concepts of economic rent and transfer earnings, evaluate the view that very high pay for footballers and executives could be heavily taxed without harming the economy.
Transfer earnings are the minimum payment needed to keep a factor of production in its current use, what it could earn in its next-best alternative. Economic rent is any payment above that. On a labour market diagram the area under the supply curve up to equilibrium employment is transfer earnings, because each point on supply is the wage that just attracted that worker; the area between the wage and the supply curve is rent.
How much of a wage is rent depends on the elasticity of supply. The supply of players good enough for the Premier League is tiny and barely responds to pay, so it is close to vertical, and the wage is set by demand: broadcast income of £3.4bn shifts clubs’ marginal revenue product curves right and the gain flows to wages, which reached £4.4bn in 2024/25. A striker on £300,000 a week would play for a fraction of it; nearly all of his pay is rent. Much the same applies to chief executives whose scarce reputations are bid for by competing boards.
The case for heavy taxation follows. A tax on pure rent does not change the quantity supplied, because the factor would be supplied anyway: the player still plays, the land is still there. There is no efficiency loss, only a transfer from the rent-earner to the Treasury, which is why economists from Ricardo onward have favoured taxing rent over taxing transfer earnings.
**However,** identifying rent is harder than defining it. A top rate of income tax cannot distinguish a footballer’s rent from a surgeon’s transfer earnings, so it falls on both and deters the second. Supply is not fixed across borders: a player or executive can move to Madrid or New York, where the tax is lower, so supply to the UK is more elastic than supply in total. Much high pay is quasi-rent, rent in the short run that becomes transfer earnings once supply adjusts: tax it heavily and fewer teenagers train, fewer managers take the risks that produce the scarce skills. And where effort matters, as it does for executives, a very high marginal rate may reduce the output the pay was buying.
On balance the view is right in principle and only partly right in practice. Pure rent, above all on land, can be taxed heavily with little harm; high pay contains a large element of rent but is mixed with transfer earnings and mobile across borders, so the harmless rate is lower than the theory suggests and the case is strongest where the factor cannot move.
Premier League figures: Deloitte, Annual Review of Football Finance 2026 (season 2024/25). The labour market on the diagram is invented, with wages in £000s a year and employment in thousands, so the areas are in £ millions. Diagrams drawn with Rough.js and perfect-freehand, both MIT licensed.