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Compensation and performance in Major League Baseball: Evidence from salary dispersion and team performance

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  • Tao, Yu-Li
  • Chuang, Hwei-Lin
  • Lin, Eric S.

Abstract

This study examines the relation between compensation and performance in Major League Baseball (MLB), focusing on salary dispersion and team performance based on 1985–2013 MLB data. We examine whether the tournament theory or the team-cohesiveness hypothesis dominates the relationship. We also use the relative position of team payroll as one of the control variables and compare our findings with the results based on the absolute level of team payroll. This study applies a dynamic panel estimation approach. Our evidence overall supports the team-cohesiveness hypothesis over the tournament theory. We find that greater wage disparity is negatively related to team performance. Our findings also suggest that salary structure is not a robust incentive design for team performance in MLB. A different treatment of payroll variables alters the role of salary dispersion. When we take the payroll level as a control variable, salary dispersion shows a negatively significant effect on team performance, while it has an insignificant effect on team performance when the payroll's relative position is used as a control variable.

Suggested Citation

  • Tao, Yu-Li & Chuang, Hwei-Lin & Lin, Eric S., 2016. "Compensation and performance in Major League Baseball: Evidence from salary dispersion and team performance," International Review of Economics & Finance, Elsevier, vol. 43(C), pages 151-159.
    • Handle: RePEc:eee:reveco:v:43:y:2016:i:c:p:151-159
    DOI: 10.1016/j.iref.2015.10.037
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    2. Carlo Bellavite Pellegrini & Raul Caruso & Marco Di Domizio, 2021. "Relative wages, payroll structure and performance in soccer. Evidence from Italian Serie A (2007-2019)," DISCE - Quaderni del Dipartimento di Politica Economica dipe0015, Università Cattolica del Sacro Cuore, Dipartimenti e Istituti di Scienze Economiche (DISCE).
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    4. Marco Di Domizio & Carlo Bellavite Pellegrini & Raul Caruso, 2022. "Payroll dispersion and performance in soccer: A seasonal perspective analysis for Italian Serie A (2007–2021)," Contemporary Economic Policy, Western Economic Association International, vol. 40(3), pages 513-525, July.
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    7. Caruso, Raul & Carlo, Bellavite Pellegrini & Marco, Di Domizio, 2016. "Does diversity in the payroll affect soccer teams’ performance? Evidence from the Italian Serie A," MPRA Paper 75644, University Library of Munich, Germany.

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    More about this item

    Keywords

    Salary dispersion; Team performance; MLB; Dynamic panel estimation;
    All these keywords.

    JEL classification:

    • J31 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Wage Level and Structure; Wage Differentials
    • J33 - Labor and Demographic Economics - - Wages, Compensation, and Labor Costs - - - Compensation Packages; Payment Methods
    • J44 - Labor and Demographic Economics - - Particular Labor Markets - - - Professional Labor Markets and Occupations

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