A Forecasting Test for the Reliability of Wage Data

Abstract

It has been established in the economics literature that competitive outcomes can be well predicted by the aggregate salaries of the contesting participants. In this paper we use this idea to construct a forecast test to evaluate a novel, and hitherto unevaluated source of wage data. If the source of wage data is without measurement error we can expect that it will provide accurate and efficient forecasts of outcomes — in our case, football matches. Establishing the reliability of such a source of salary information is highly valuable for economists studying a range of labour market out- comes, as the website freely provides over 30,000 player-season observations of salaries, a much wider sample than has previously been available for analysis. By applying standard testing techniques for the efficiency of forecasts, we find that indeed wage-based forecasts are efficient, including those based on player-specific information on a match-by-match level. We thus argue that the information on SalarySport is reliable, and has merit for further academic investigation.

Keywords: sport, wages, forecasting, skills

JEL Classification: C53, L83, Z22