Labor Markets in Professional Sports

33 Pages Posted: 6 May 2000 Last revised: 13 Mar 2022

See all articles by Sherwin Rosen

Sherwin Rosen

University of Chicago (Deceased)

Allen R. Sanderson

University of Chicago - Department of Economics

Date Written: February 2000

Abstract

Many interesting elements of supply and demand are starkly observable in professional athletics. Understanding institutional arrangements, competitive balance and labor-management relations requires a basic understanding of sports labor markets and the struggle for control of those markets between interest groups. In this paper we treat historical and contemporary labor issues in North America and Europe, from reserve rules and free agency, high levels of player pay and work stoppages, to the distribution of playing talents across teams. We discuss the relationship between personal productivity and pay; relative versus absolute demand; competitive and cooperative interactions across firms (teams); factor substitutions; player mobility and the Coase theorem. We briefly consider how property rights affect supply, athletic talent, arms races and restrictions on competition. The problem of (excess) incentives to compete leading to externalities and inefficiencies are noted throughout the paper. Restrictive agreements such as reverse-order drafts, payroll caps and revenue sharing may constrain these forces, but they also redistribute rents from players to owners. All of these schemes, in one way or another, punish success. The European approach -- promotion of better-performing teams and relegation of those with the poorest records -- punishes failure. It remains an interesting economic question as to which system is better.

Suggested Citation

Rosen, Sherwin and Sanderson, Allen R., Labor Markets in Professional Sports (February 2000). NBER Working Paper No. w7573, Available at SSRN: https://ssrn.com/abstract=216708

Sherwin Rosen

University of Chicago (Deceased)

Allen R. Sanderson (Contact Author)

University of Chicago - Department of Economics ( email )

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