Wage dispersion and team performance: Lessons learned from major league soccer

Given the potential positive and negative relationship between wage dispersion and team performance signaled by economic theory, empirical analyses are crucial for furthering understanding of this relationship. I use Major League Soccer (MLS) as a case to study the relationship of wage dispersion with team performance, relying on 2007-2023 data. Across all estimations, I find a consistently significant negative relationship between wage dispersion and team performance, evidence lending support to the cohesiveness theory relating less wage dispersion, team harmony, and cohesion to increased productivity. Furthermore, I find the novel result that first-year expansion teams suffer a smaller negative effect from increased wage dispersion than teams that have existed for multiple years in MLS. My findings provide potential benefit in the specific context of team management in MLS (or sports more broadly), but perhaps more importantly, they also provide insight into the wider context of team management in labor markets outside the sports world. Understanding the factors that contribute to team performance is central to improving team productivity and any associated outcomes, so this research benefits the body of literature and researchers within labor economics but also has clear benefits and applicability for team management in general.