Salary distribution and team performance in Major League Baseball

Abstract

This paper presents evidence that payroll inequality within a team is negatively related to on field performance, in terms of team winning percentages in Major League Baseball. This relationship is increasing over time during the sample period and robust to changes in the relationship between payroll and winning. We find strong evidence that, in levels, total team payroll and team specific Gini coefficients are nonstationary. The results also indicate that there exists a structural break in the relationship between payroll, inequality, and winning percent following the strike of 1994–1995.

Keywords:

• Major League Baseball
• Gini coefficients
• Payroll inequality

Notes

1 Tel.: [phone].

2 In 1996 Cecil Fielder played in 107 games and had 391 at-bats for Detroit prior to being traded to the New York Yankees.

3 In Bose et al. (2010) the term “team” refers to a “workgroup” not an athletic team.

4 The Baseball Archive is available at https://www.baseball1.com/.

5 Quirk and Fort (1999) p. 85.

6 To address potential non-linearity a model with payroll-squared was also estimated, however the coefficient on the squared term was not significant at conventional levels.

7 Degrees of freedom are 24 in the numerator and 392 in the denominator, the one-percent critical value for F(20,∞) is 1.88 and F(30,∞) is 1.70.