Bonuses and Biases in Japanese Baseball

Abstract

Do workers earn their market wage under multi-year incompletely specificied contracts? Or do employers use their monopsony power in later years to hold wages down? We use pay and performance data from Japanese baseball to compare the salaries players receive before and after turning free agents. Although teams do pay lower salaries (performance levels held constant) during the early years of a player's contract term, they do so largely to recoup the training and sign-on bonus they provide. Once they recover that training and bonus, they pay salaries close to free agent levels - even before a player becomes a free agent. Additionally, we find that the younger stars earn high endorsement incomes; that Japanese owners compete for players who offer the same performance characteristics as the players for whom U.S. owners compete; that Japanese teams pay a premium for American players; and that Japanese teams do not pay black players less than white players.

JEL Classification: J44, J71, K17