Estimating Baseball Salary Equations from 1961-2005: A Look at Changes in Major League Compensation

This study estimates Major League Baseball (MLB) player salaries for three distinct periods of time. The data from the first time period, 1961 through 1973, were collected in 1974, but analysis of that set has never been published. During that period the reserve clause was fully in effect. The second period, 1974 through 1983, captures the early years of arbitration and free agency. The third period, 1999 through 2005, represents the modern era. The estimates specify that the salary productivity elasticities have increased over time for slugging average, player durability, and player consistency; this result indicates that over time owners have placed more value on these measures of player productivity. The model also implies that teams located in more densely populated areas are better able to compensate their players, particularly their pitchers. We conclude that our model explains salaries well in the 1961-1973 and 1999-2005 periods, but the regression estimates reveal a less pronounced relationship between the marginal revenue product and MLB wages in the early years of arbitration and free agency (1974-1983).