An Interperiod Analysis of the Salary Impact of Structural Changes in Major League Baseball: Evidence from Panel Data
Mark Paul Gius and Timothy R. Hylan
Since 1965 the market for baseball players has undergone a number of structural changes that have had significant effects on players' salaries. Two of these changes, final-offer salary arbitration in 1973 and free agency in 1976, were agreed to by players and owners as part of new collective bargaining agreements. A third, alleged collusion during the 1980s, was a unilateral action taken by the owners against the players.
While there have been many empirical studies that have looked at the impact of these structural changes on player compensation, this chapter differs in one important way. To date, we have found no study that has exploited a panel data set of player salaries and conducted an inter-period analysis (looking across rather than within regime changes) of structural change. While there have been some inter-period analyses of structural changes, none has employed panel data estimation techniques. In addition, those studies that have used panel data techniques were intra-period studies. Having a panel data set of repeated observations over time and across players allows the researcher to control for potentially important but unobservable individual player effects that may be correlated with other salary determinants. Furthermore, because structural changes can potentially impact the entire market for all players (not just those who may be eligible for the change), using as a base for comparison anything other than a period in which the change did not exist may not be appropriate to determine the marginal effect of the structural change.
Using a panel data set of baseball players' salaries and individual player and team performance statistics from the periods 1965-1973 and 1990-1992, we attempt to estimate the combined effect of arbitration and free agency on baseball player salaries. 1 Our findings suggest that these structural changes had significant effects on the structure of player salaries. Unobserved individual