What Explains Labor's Declining Share of Revenue in Major League Baseball?

Abstract

This study examines reasons for the declining share of revenue going to Major League Baseball players. Though the players’ union and team owners have proposed competing explanations, the phenomenon has not received any rigorous academic study. Economic theories for the similar decline of labor’s share in the macroeconomy provide possible explanations. The ability to estimate baseball players’ marginal revenue products through their performance offers a unique opportunity to examine the role of worker productivity in determining labor’s share of income in general. The analysis indicates that the returns to player performance have declined and that collective bargaining agreement terms that promote revenue sharing among teams appear to play a significant role. In addition, increased returns from new non-player revenue sources have lowered the share of league revenue going to players. Competition from substitute labor inputs and changes in returns to physical capital do not appear to be important factors.

Keywords: Labor's share, collective bargaining, baseball

JEL Classification: J30, J50, Z22