Haupert, Michael and Murray, James (2011): Regime Switching and Wages in Major League Baseball under the Reserve Clause.
Download (398kB) | Preview
Over the course of the 20th century American wages increased by a factor of about 100, while the wages of professional baseball players increased by a factor of 450, but that increase was neither smooth nor consistent. We use a unique and expansive dataset of salaries and performance variables of Major League Baseball pitchers that spans over 400 players and 60 years during the reserve clause era to identify factors that determine salaries and examine how the importance of various factors have changed over time. We employ a Markov regime-switching regression model borrowed from the macroeconomics literature which allows regression coefficients to switch exogenously between two or more values as time progresses. This method lets us identify changes in wage determination that may have occurred because of a change in the league's competitiveness, a change in the relative bargaining power between players and teams, or other factors that may be unknown or unobservable. We find that even though Major League Baseball was a tightly controlled monopsony with the reserve clause, there was a significant shift in salary determination that lasted from the Great Depression until after World War II where players' salaries were more highly linked to their recent performance.
|Item Type:||MPRA Paper|
|Original Title:||Regime Switching and Wages in Major League Baseball under the Reserve Clause|
|Keywords:||Major League Baseball; Salary determination; Markov-Regime switching|
|Subjects:||J - Labor and Demographic Economics > J3 - Wages, Compensation, and Labor Costs > J31 - Wage Level and Structure ; Wage Differentials
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C23 - Panel Data Models ; Spatio-temporal Models
C - Mathematical and Quantitative Methods > C2 - Single Equation Models ; Single Variables > C22 - Time-Series Models ; Dynamic Quantile Regressions ; Dynamic Treatment Effect Models ; Diffusion Processes
|Depositing User:||James Murray|
|Date Deposited:||27. Feb 2011 23:16|
|Last Modified:||19. Feb 2013 18:54|
BAI, J., AND P. PERRON (1998): ``Estimating and Testing Linear Models with Multiple Structural Changes,'' Econometrica, 66, 47-78.
BASEBALL-REFERENCE.COM (Accessed January 2010): http://www.baseball-reference.com.
BURGER, J. D., AND S. J. K. WALTERS (2003): ``Market Size, Pay, and Performance: A General Model and Application to Major League Baseball,'' Journal of Sports Economics, 4, 108-225.
FORT, R. (1992): ``Pay and Performance: Is the Field of Dreams Barren?,'' in Diamonds Are Forever: The Business of Baseball, ed. by P. M. Sommers, pp. 134-162. Washington D.C.: Brookings.
FRANK, R. H. (1984): ``Are Workers Paid Their Marginal Products?,'' American Economic Review, 74, 549-571.
HAMILTON, J. (1989): ``A New Approach to the Economic Analysis of Nonstationary Time Series and the Business Cycle,'' Econometrica, 57, 357-384.
HAMILTON, J. (1994): Time Series Analysis. Princeton University Press.
HAUPERT, M. J. (2009): ``Player Pay and Productivity in the Reserve Clause and Collusion Eras,'' Nine: A Journal of Baseball History and Culture, 18, 63-85.
HOAGLIN, D. C., AND P. F. VELLEMAN (1995): ``A Critical Look at Some Analyses of Major League Baseball Salaries,'' The American Statistician, 49, 277-285.
KAHN, L. M. (1993): ``Free Agency, Long-Term Contracts and Compensation in Major League Baseball: Estimates from Panel Data,'' The Review of Economics and Statistics, 75, 157-164.
KAHN, L. M. (2000): ``The Sports Business as a Labor Market Laboratory,'' Journal of Economic Perspectives, 14, 75-94.
KIM, C.-J. (1994): ``Dynamic Linear Models with Markov-Switching,'' Journal of Econometrics, 60, 1-22.
KIM, C.-J., AND C. R. NELSON (1999a): ``Has the U.S. Economy Become More Stable? A Bayesian Appoach Based on a Markov-Switching Model of the Business Cycle,'' Review of Economics and Statistics, 81, 608-616.
KIM, C.-J., AND C. R. NELSON (1999b): State-Space Models with Regime Switching: Classical and Gibbs-Sampling Approaches with Applications. MIT Press.
KRAUTMANN, A. C. (1999): ``What's Wrong with Scully-Estimates of a Player's Marginal Revenue Product?,'' Economic Inquiry, 37, 369-381.
KRAUTMANN, A. C., E. GUSTAFSON, AND L. HADLEY (2003): ``A Note on the Structural Stability of Salary Equations: Major League Baseball Pitchers,'' Journal of Sports Economics, 4, 56-63.
KRAUTMANN, A. C., AND M. OPPENHEIMER (2002): ``Contract Length and the Return to Performance in Major League Baseball,'' Journal of Sports Economics, 3, 6-17.
LOWENFISH, L. (1980): The Imperfect Diamond: Baseball's Labor Wars. New York: Da Capo Press.
MACDONALD, D. N., AND M. O. REYNOLDS (1994): ``Are Baseball Players Paid Their Marginal Products?,'' Managerial and Decision Economics, 15, 443-457.
MEDOFF, M. H. (1976): ``On Monopsonistic Exploitation in Professional Baseball,'' Quarterly Review of Economics and Business, 16, 113-121.
MILLER, M. (1991): A Whole Different Game: The Sport and Business of Baseball. Seacaucus, NJ: Carol Publishing Group.
NATIONAL BASEBALL HALL OF FAME (2010): Transaction Card Database.
SCHECHTER, G. (2006): ``8th Inning Relievers: What are They Good For?,'' Presentation at SABR National Conference, Seattle, WA.
SCULLY, G. W. (1974): ``Pay and Performance in Major League Baseball,'' The American Economic Review, 64, 915-930.
SCULLY, G. W. (1989): The Business of Major League Baseball. Chicago: University of Chicago Press.
SEYMOUR, H. (1960): Baseball: The Early Years. New York: Oxford University Press.
ZIMBALIST, A. (1992a): Baseball and Billions. New York: Basic Books.
ZIMBALIST, A. (1992b): ``Salaries and Performance: Beyond the Scully Model,'' in Diamonds Are Forever: The Business of Baseball, ed. by P. M. Sommers, pp. 109-133. Washington D.C.: Brookings.
Available Versions of this Item
- Regime Switching and Wages in Major League Baseball under the Reserve Clause. (deposited 27. Feb 2011 23:16) [Currently Displayed]