Academic journal article Contemporary Economic Policy

A Test of Employer Discrimination in the NBA

Academic journal article Contemporary Economic Policy

A Test of Employer Discrimination in the NBA

Article excerpt

I. INTRODUCTION

It is now well established in the literature on salary determination in the National Basketball Association (NBA) that during the 1980s, black players were paid less than comparably skilled white players. Kahn and Sherer (1988) found a ceteris paribus black salary shortfall of approximately 20% for the 198586 season. Other studies of the 1980s have also found evidence confirming salary shortfalls. Brown et al. (1991) found a salary gap of nearly 16% for the 1984-85 season, and Koch and Vander Hill (1988) found a gap of approximately 9% for the same season. In addition, Kahn and Sherer and Brown et al. examined the effects of team racial composition on home fan attendance and found that attendance was positively related to white representation on the team. Furthermore, Brown et al. and Burdekin and Idson (1991) found that whiter teams tended to be located in whiter metropolitan areas. Given their results, these authors concluded that their observed salary shortfalls were due primarily to customer discrimination by white basketball fans.

However, several recent studies have cast doubt on these results. Bodvarsson and Brastow (1998) performed a salary regression similar to the Kahn and Sherer specification and found no evidence of racial discrimination in the 1990-91 NBA season for a sample of 151 players. Hamilton (1997) found no evidence of overall salary discrimination for the 1994-95 NBA season for a sample of 151 players. McCormick and Tollison (1997) found that black players in the NBA played more minutes per game, ceteris paribus, than whites in the 1980s. They argue that monopsonistic wage discrimination based on differential labor supply elasticities for white and black players is the likely cause of both the wage gap and the minutes played results.(1)

Given the results of the studies cited above, this paper addresses the following questions: Did the NBA racial salary differential vanish? If so, why, and which possible causes of the wage gap are consistent with its disappearance? We present evidence that NBA racial salary differentials vanished between the 1985-86 and 1990-91 seasons because institutional changes in the league markedly reduced teams' monopsony power, and that this result is consistent with employer, rather than customer, discrimination.

Monopsony power diminished between the two seasons because of two important institutional changes in the NBA. First, between the two seasons there was a new collective bargaining agreement between the NBA and its players. The agreement had a similar effect on the NBA as did the creation of free agency in major league baseball, which was to enhance player mobility and reduce the monopsony power teams had over younger players. Second, four new teams entered the league between the two seasons (Charlotte Hornets, Miami Heat, Orlando Magic, and Minnesota Timberwolves), raising the total number of competing teams to 27 and further enhancing competition for players in the league. As Becker's (1971) model of employer discrimination would imply, a potential entrant to the league would only find it profitable to enter if his/her taste for discrimination (Becker defined one employer's taste for discrimination as his/her Discrimination Coefficient [DC]) were less than the Market Discrimination Coefficient (MDC) in the league. The result of expansion is thus to lower the MDC.

Reduced monopsony power has several important implications for racial wage gaps. First, as McCormick and Tollison (1997) suggest, lower monopsony power will reduce wage gaps attributable to monopsonistic wage discrimination. A second implication is the focus of this paper: Becker's (1971) employer discrimination model implies that increased competition in the labor market will lower employer discrimination at the market level. Following Becker, the MDC attributable to employer prejudice will fall because enhanced competition will reduce rents and therefore the ability of discriminating teams to indulge their tastes for discrimination. …

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