The extraordinarily large salaries of late aren’t because of the advent of free agency or unionization, both of which occurred nearly 50 years ago. They are the effects of technological changes on certain kinds of markets.
Mary Barker’s Sept. 4 column is wrong on the facts and wrong on the economics. As such, it provides absolutely no support for her conclusion (which is also a non-sequitur) that workers today suffer because they don’t have “social power” (a term Baker leaves undefined) and, hence, aren’t paid consistent with their productivity, a claim that is also wrong on the facts and the economics.
The facts: Babe Ruth was paid $80,000 in 1930, not $8,000. Average family income in 1930 was $1,970 a year; an average salary was $1,368 a year. While not in Ruth’s income class, Shoeless Joe’s salary was more than four times the average worker’s salary. Ruth’s salary put him in the far upper reaches of the income distribution, a relative-income position not far from that of professional athletes today. Then, as now, baseball players earned far more than average workers and were, by the standards of the time, well-off. Even without adjusting for inflation, Ruth’s 1930 salary would put him above the average 2010 household income (about $73,000). Barker’s odd suggestion that corruption in baseball occurred because players were poorly paid is silly — there may have been corruption, but it wasn’t because elite baseball players in the 1920s and 1930s were among the poor or even the middle class.
Free agency did change things. Talented people help create a stream of potential future revenues. Prior to free agency, the revenue stream was, loosely, owned by the owners and players had to negotiate their share; after free agency, the revenue stream was owned by players and owners have to negotiate their share. The share going to players increased as a consequence. Even so, and contrary to Barker’s confused discussion, Ruth clearly had plenty of economic clout long before free agency.
However, contrary to Barker, the extraordinarily large salaries of late aren’t because of the advent of free agency or unionization, both of which occurred nearly 50 years ago. They are the effects of technological changes on certain kinds of markets: high-quality television and high-quality audio products have dramatically increased the revenue streams created by the most talented athletes and musicians in our society.
A century ago, for example, there were small opera houses in towns and cities throughout the United States — people enjoyed music and were willing to pay small amounts to listen to second- and third-tier singers. Individual opera singers’ incomes were modest, but collectively, Americans were spending a fair amount of money listening to live opera. But why listen to a second- or third-tier singer if you can listen to the best? With the advent of high-quality audio (e.g., CDs), instead of spreading payments over a large number of singers, people could pay to listen to Pavarotti, and suddenly the total amount spent flowed to a handful of individuals with top-tier talent who found themselves incredibly rich, while the incomes of second- and third-tier talents faded.
This “superstar” effect is amplified in sports by television. Modern athletes command extraordinary salaries because their talents, when made almost universally accessible via television, have created even more extraordinary revenues for leagues and teams. In short, the “productivity” of talented players has increased dramatically and their incomes have followed suit.
Barker also misunderstands the economics of salary caps. Owners and players may fight over the division of revenues, but they agree that revenues will be higher if they can televise lots of competitive games rather than a handful of competitive games scattered among lots of unexciting, non-competitive games. Salary caps spread the most talented players across the league, more games are competitive, television and gate revenues are higher, and, hence, incomes of both owners and players are higher. Contrary to Barker, caps didn’t come about because anyone was concerned about the common (social) good, but because of narrow economic interests. Even so, we benefit because we get to see more exciting and interesting games.
Barker jumps from her error-filled analysis of baseball to a conclusion that salaries for ordinary workers haven’t kept pace with productivity because of a lack of power. She’s wrong. The evidence is overwhelming that over longer periods of time, wages follow productivity. Wages and incomes have stagnated for many workers in the past two decades because labor productivity has stagnated. Hence, if there are to be sustained increases in incomes, the productivity of poor and middle-class workers has to increase. The proper economic analysis is straightforward. The remedy, unfortunately, isn’t, since labor productivity is tied to education, skills, work ethic, innovation, etc. and each of these is tied to complex issues involving contemporary challenges with the quality of schools and family stability, among other things.
James R. Kearl is the A.O. Smoot Professor of Economics at Brigham Young University, assistant to the president for the BYU Jerusalem Center and senior consultant for Charles River Associates. His opinions do not necessarily reflect those of BYU.