Using panels of player pay and performance from Major League Baseball (MLB), we examine trends in player productivity and salaries as players age. Pooling players of all ability levels leads to a systematic bias in regression coefficients. After addressing this problem by dividing players into talent quintiles, we find that the best players peak about 2 years later than marginal players, and development and depreciation of performance appear to be more pronounced for players with the highest ability levels. Within-career variation, however, is less pronounced than between-player variation, and the performance level of players within a given quintile will typically remain lower than the talent level for rookies in the next higher quintile. We also find preliminary evidence that free agents are paid proportionately to their production at all ability levels, whereas young players’ salaries are suppressed by similar amounts.
Major League Baseball (MLB) Career dynamics Player salaries and performance Quintile analysis
J3 J24 J42 L83
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The authors wish to thank Glenn Knowles and session attendees at the March 2007 Midwestern Economics Association meetings for their helpful comments on an earlier draft of this paper, as well as several anonymous referees.