Baseball Players are Underpaid
November 18, 2002
Baseball players argue that owners do not pay them what they are worth. In 1994, compensation issues resulted in a 232-day general strike and the first-ever cancellation of the World Series. A strike was only narrowly averted in 2002. Researchers say that players are not paid enough.
Baseball players are locked in a peculiar kind of market -- they can only sell their talents to baseball teams. Consequently, owners as buyers of their labor have some monopoly power over players -- known as monopsony power. They exercise less power over free agents -- players who can offer their services to other teams.
Using various data, researchers measured a baseball player's athletic and entertainment worth to a team in dollar terms. They then compared this value to their official salary. They found that:
- The average player added $2.5 million to a team's revenue, but received only $1 million in salary.
- This represents a monopsonistic exploitation of about 60 percent.
- The salary lost by nonfree agents was 28 to 29 percent more than free-agents.
- The loss from exploitation can range reach as high as 75 percent.
Some of the monopsony exploitation is necessary, say researchers. Running a baseball team entails costs and baseball owners must make a profit in order to invest in such a chaotic market. These auxiliary costs range from 10 percent to 17 percent of the total value of the players.
Still, a large discrepancy remains.
- Over 25 percent of the earnings gap between players eligible for free agency and those who aren't is due to exploitation.
- Nearly 40 percent of the earnings gap for pitchers can be explained by exploitation.
Researcher conclude that highly valuable players should become free agents to increase their salaries and reduce their exploitation as owners.
Source: Charles J. Mullin and Lucia F. Dunn, "Using Baseball Card Prices to Measure Star Quality and Monopsony," Economic Inquiry, Vol 40, No. 4, October 2002.
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