Wage Determination In A Regulated Labor Market: Empirical Evidence From Major League Soccer

The North American top tier Major League Soccer presents a unique research setting to study a regulated labor market. Contrary to the situation in Europe, where player salaries remain private and confidential (the only exception here is “Serie A” in Italy), the player unions regu-larly publish this kind of information for each of the US Major Leagues. In this paper we use an unbalanced panel with detailed player-season-information from the seasons 2006 to 2016 to estimate a multi-stage salary model for MLS players. We differentiate in the analysis be-tween regular and designated players (aka DP, a status unknown in Europe) due to their heter-ogenic profiles. For regular players we find that the impact of age on salaries follows an in-verted u-shape with a very late turning point at 33.6 years. In addition, we find a statistically significant positive of last season’s performance and career performance. Experience abroad yields a significantly higher salary as does tenure with the current team (controlling for team-specific fixed effects). Perhaps surprisingly, career length in MLS is negatively associated with salary. Also, the results suggest that local player suffer a pay discrimination compared to similar players from Western Europe, Central and South America. Thus, we confirm most of the findings that have been reported in previous research using data from European football leagues (e.g. Lucifora & Simmons, 2003; Frick, 2007; Bryson et al., 2014). This finding alone is not straightforward considering the various regulations that help the leagues to keep espe-cially salary budgets in check. The effectiveness of salary regulations, e.g. put in place via Collective Bargaining Agreements, is shown for two instances, as is the impact of a regulatory change. In contrast, the key driver of the unregulated DP salaries are club-specific fixed effects, ex-plaining already 58 percent of the observable variation in player salaries. Next important driv-ers are career games played and the region of origin. Local superstar players earn a surprising premium over players from Western Europe, South America and the Carribean’s. Neither for regular nor for designated players’ positions are rewarded significantly different. This is a big difference compared to European leagues where Forwards are usually paid better.