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Wage dispersion and team performance: a theoretical model and evidence from baseball

Author

Listed:
  • Robert Breunig
  • Bronwyn Garrett-Rumba
  • Mathieu Jardin
  • Yvon Rocaboy

Abstract

We 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.

Suggested Citation

  • Robert Breunig & Bronwyn Garrett-Rumba & Mathieu Jardin & Yvon Rocaboy, 2012. "Wage dispersion and team performance: a theoretical model and evidence from baseball," CEPR Discussion Papers 663, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  • Handle: RePEc:auu:dpaper:663
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    File URL: https://www.cbe.anu.edu.au/researchpapers/cepr/DP663.pdf
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    References listed on IDEAS

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    1. Lazear, Edward P & Rosen, Sherwin, 1981. "Rank-Order Tournaments as Optimum Labor Contracts," Journal of Political Economy, University of Chicago Press, vol. 89(5), pages 841-864, October.
    2. Levine, David I., 1991. "Cohesiveness, productivity, and wage dispersion," Journal of Economic Behavior & Organization, Elsevier, vol. 15(2), pages 237-255, March.
    3. Lazear, Edward P, 1989. "Pay Equality and Industrial Politics," Journal of Political Economy, University of Chicago Press, vol. 97(3), pages 561-580, June.
    4. Scully, Gerald W, 1974. "Pay and Performance in Major League Baseball," American Economic Review, American Economic Association, vol. 64(6), pages 915-930, December.
    5. Donald Richards & Robert Guell, 1998. "Baseball success and the structure of salaries," Applied Economics Letters, Taylor & Francis Journals, vol. 5(5), pages 291-296.
    6. DepkenII, Craig A., 2000. "Wage disparity and team productivity: evidence from major league baseball," Economics Letters, Elsevier, vol. 67(1), pages 87-92, April.
    7. Stergios Skaperdas, 1996. "Contest success functions (*)," Economic Theory, Springer;Society for the Advancement of Economic Theory (SAET), vol. 7(2), pages 283-290.
    8. Jane, Wen-Jhan, 2010. "Raising salary or redistributing it: A panel analysis of Major League Baseball," Economics Letters, Elsevier, vol. 107(2), pages 297-299, May.
    9. Simmons, Rob & Berri, David J., 2011. "Mixing the princes and the paupers: Pay and performance in the National Basketball Association," Labour Economics, Elsevier, vol. 18(3), pages 381-388, June.
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    Cited by:

    1. Papahristodoulou, Christos, 2012. "A NLIP Model on Wage Dispersion and Team Performance," MPRA Paper 39149, University Library of Munich, Germany.
    2. Fullerton, Steven L. & Fullerton, Thomas M., Jr. & Walke, Adam G., 2014. "An Econometric Analysis of the 2013 Major League Baseball Season," MPRA Paper 59593, University Library of Munich, Germany, revised 11 Mar 2014.
    3. Tao, Yu-Li & Chuang, Hwei-Lin & Lin, Eric S., 2016. "Compensation and performance in Major League Baseball: Evidence from salary dispersion and team performance," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 151-159.
    4. Frank TENKORANG & Bree L. DORITY & Eddery LAM, 2014. "Nba Endgame: Do Salaries Matter?," Review of Economic and Business Studies, Alexandru Ioan Cuza University, Faculty of Economics and Business Administration, issue 14, pages 51-62, December.
    5. Caruso, Raul & Carlo, Bellavite Pellegrini & Marco, Di Domizio, 2016. "Does diversity in the payroll affect soccer teams’ performance? Evidence from the Italian Serie A," MPRA Paper 75644, University Library of Munich, Germany.
    6. repec:bla:coecpo:v:36:y:2018:i:1:p:192-199 is not listed on IDEAS

    More about this item

    Keywords

    wage dispersion; labor economics; sports economics; baseball; ability; effort;

    JEL classification:

    • D3 - Microeconomics - - Distribution
    • J3 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs

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