Risk Aversion and Wages: Evidence from the Baseball Labor Market
- 189 Downloads
We develop a bargaining model to assess how workers and employers might allocate wages inter-temporally in order to cope with risk. We then apply this model to 106 long-term contracts for major league baseball players’ services. Most of these agreements not only smooth employee compensation over time but suggest greater relative risk aversion for teams than players. Compared to the wages they might pay to retain these players on a succession of one-year contracts, teams often pay a premium on longer-term agreements to protect against market volatility and potential inability to replace a key player on the open market.
KeywordsWages Risk Contracts Sports
JELD80 J30 J50 Z20
- Baseball Prospectus (2016a). Sortable statistics. Retrieved, 2016, from http://www.baseballprospectus.com/sortable/.
- Baseball Prospectus (2016b). Cot’s baseball contracts. Retrieved, 2016, from http://www.baseballprospectus.com/compensation/cots/.
- Burger, J. D., & Walters, S. J. K. (2008). The existence and persistence of a winner’s curse: new evidence from the (baseball) field. Southern Economic Journal, 75(1), 232–245.Google Scholar
- Girola, J.A. (2005). The long-term real interest rate for social security. U.S. Dept. of the Treasury, research paper no. 2005-02 (march 30).Google Scholar
- Krautmann, A. C., von Allmen, P., & Berri, D. (2009). The underpayment of restricted players in North American sports leagues. International Journal of Sport Finance, 4, 75–93.Google Scholar
- MLB Trade Rumors (2016). Extension tracker. Retrieved, 2016, from http://www.mlbtraderumors.com/extensiontracker.
- Rosen, S. (1985). Implicit contracts: a survey. Journal of Economic Literature, 23(3), 1144–1175.Google Scholar
- Sandomir, R. (2015). The safety net that Ruth built. The New York Times (June 2): B15.Google Scholar
- Scully, G. (1974). Pay and performance in major league baseball. American Economic Review, 64(6), 915–930.Google Scholar
- Spotrac (2016). FA database. Retrieved, 2016, from http://www.spotrac.com/mlb/free-agents/.
- U.S. Census Bureau (2016). Annual estimates of the resident population. Retrieved, 2016, from https://factfinder.census.gov/faces/tableservices/jsf/pages/productview.xhtml?src=bkmk.
- Wachter, M. L., & Wright, R. D. (1990). The economics of internal labor markets. Industrial Relations, 29(2), 240–262.Google Scholar