Wage dispersion and team performance: a theoretical model and evidence from baseball
AbstractWe develop a general theoretical model of the effect of wage dispersion on team performance which nests two possibilities: wage inequality may have either negative or positive effects on team performance. A parameter which captures the marginal cost of effort, which we estimate using game-level data from Major League Baseball, determines whether wage dispersion and team performance are negatively or positively related. We find low marginal cost of effort; consequently wage disparity is negatively related to team performance. Results from game and season-level regressions also indicate a negative relationship between inequality and performance. We discuss a variety of interpretations of our results.
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Bibliographic InfoPaper provided by Centre for Economic Policy Research, Research School of Economics, Australian National University in its series CEPR Discussion Papers with number 663.
Date of creation: Mar 2012
Date of revision:
wage dispersion; labor economics; sports economics; baseball; ability; effort;
Find related papers by JEL classification:
- D3 - Microeconomics - - Distribution
- J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs
This paper has been announced in the following NEP Reports:
- NEP-ALL-2012-04-03 (All new papers)
- NEP-HRM-2012-04-03 (Human Capital & Human Resource Management)
- NEP-LAB-2012-04-03 (Labour Economics)
- NEP-LMA-2012-04-03 (Labor Markets - Supply, Demand, & Wages)
- NEP-SPO-2012-04-03 (Sports & Economics)
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