Training in Major League Baseball: Are Players Exploited? Anthony C. Krautmann and Margaret Oppenheimer
Collective bargaining in major league baseball has spawned numerous studies dealing with monopsonistic exploitation of players [e.g., see Scully ( 1989); Zimbalist ( 1992a)]. The unanimous conclusion of these analyses is that those players still bound by the reserve clause contribute more to their team's revenues than what they are paid. What has not been properly addressed, however, is whether this pay gap reflects exploitation or the team's efforts to recoup its investments in player development. Although the importance of training in the minor leagues has been discussed elsewhere [ Demmert ( 1973); Ehrenberg and Smith ( 1994)], there has not been a thorough comparison between pay and performance that explicitly incorporates these costs into the player's long-run wage portrait.
In this chapter we analyze the exploitation issue using a multiperiod labor demand model that explicitly recognizes the costs associated with a team's minor league system. We test the exploitation hypothesis against an alternative that the underpayment of young players is the surplus necessary to recoup the team's investment in training. Comparing estimates of the cost of developing a player to the surplus extracted from him while he is bounded by the reserve clause, we find no evidence supporting the exploitation hypothesis. In fact, depending on the efficacy of a team's minor league system, training costs associated with tenure in the minors may actually exceed the present value of the surplus generated by the player. Finally, implications of this analysis to the future viability of the minor leagues are examined. Particular emphasis is given to how changes in bargaining agreements in the major leagues may have spillover effects on the minor leagues, by changing the rate of return on training.