Estimating Baseball Salary Equations from 1961- 2005: A look at Changes in Major League Compensation. Jared Grobels Sports Finance 2/6/2014. Summary. Paper was written by Gary Stone and Louis J. Pantuosco and published in International Journal of Sport Finance, 2008,
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“The current system (of escalating player salaries and lack of revenue sharing) is a prescription for disaster. But whether the disaster is just around the corner or will take place 10 years from now, I don’t know” Steve Greenberg (former deputy commissioner of the MLB)
The slugging average salary elasticityis significant in all three periods, and has increased nine-fold from 1961 to 2005 from +0.21 to +1.88.
The experience variable, years in the major leagues, also was positively and significantly correlated with a hitter’s salary in each of the three sample periods.
Consistent with the 1999-2005 pooled regression estimates, the fixed panel results for hitters indicate a positive and significant relationship between years in the majors, slugging average, and at-bat percentage.
To put the results into perspective, Mickey Mantle, the New York Yankees’ All-Star, earned $90,000 in 1961. If salaries were estimated in the 1960s using the productivity elasticity's of the modern era, Mantle would have been paid $1.4 million in 1961, and $10.5 million in 2007. Although these salaries tower over the one received by Mantle in 1961, they are dwarfed by Derek Jeter’s current Yankee salary of over $20 million a year.
All three of the productivity variables for pitchers had statistically significant positive impacts on salaries in each period. In the modern era, the salary elasticity of the strikeout-to-walk ratio (+0.693) is much higher than in the two previous periods.
In the modern era, the increase in information and analysis of productivity data available to owners, agents, and players has provided a more efficient market for negotiations.