Discrimination in the sports labor market

1. Discrimination in the sports labor market Őrn Bodvarsson Econ Dept., SCSU

2. Overview of presentation • How do economists model discrimination? • How do economists measure discrimination? • What do we know about discrimination in sports?

3. “Discrimination” in the labor market occurs when • equals are treated unequally; • buyers and sellers are influenced by attributes of workers which are independent of productivity.

4. There are documented racial and gender differences in labor market outcomes, but * that doesn’t “prove” discrimination. • Differences in outcomes could be due to differences in human capital endowments and/or many other factors totally unrelated to discrimination • Discrimination can only be confirmed if there are “ceteris paribus” gender or racial differences in outcomes

5. Two kinds of discrimination: • “Taste discrimination” (prejudice); members of the “majority” have a distaste for associating with members of the “minority” • “Statistical discrimination” (stereotyping)

6. Three sources of taste discrimination: • Employer discrimination • Employee discrimination • Customer discrimination

7. Becker (1957): Prejudice ultimately translates into dollars and cents: • From a prejudiced majority employer’s perspective: hiring a minority imposes an “extra cost” • From a prejudiced majority co-worker’s perspective: I am effectively “paid less” when I have to work alongside a minority • From prejudiced customer’s point of view: If I have to buy a good from a minority-owned business or a good made by minority workers, then the cost of the good is effectively higher

8. Simple model of labor market discrimination: • Two types of workers – white and black; • White and black workers are perfect substitutes in production; • Employer faces constant market wages for white and black workers; wB is black wage and wW is the white wage; • Perfectly competitive labor market.

9. If the firm is color-blind: • It hires all-black labor force if wB < wW sets employment where wB = VMP; • It hires all-white labor force if wW < wB sets employment where wW = VMP

10. $ wB VMPE EB Employment The color-blind firm when black labor is cheaper:

11. $ $ wW wB(1+d1) wB(1+d0) wB VMPE VMPE 1 * Employment EW EB Employment “White Firm” “Black Firm” The Employment Decision of a Prejudiced Firm

12. What is labor market equilibrium like? • Assume: (a) there is a distribution of tastes for hiring blacks (b) supply of black labor is perfectly inelastic Consider two scenarios: • All employers are, to varying degrees, prejudiced against blacks; • At least some employers prefer to hire blacks

13. Black-White Wage Ratio S (wB/wW) 1 D R (wB/wW)* D Black Employment N 0 Determination of Black/White Wage Ratio in the Labor Market

14. Implications of model: • Employer discrimination can result in an equilibrium majority/minority pay gap • Firms don’t have integrated workforces • Competition is a minority group’s best friend!

15. The case of employee discrimination • Assume: Employers are color-blind Blacks are indifferent about the race of their co-workers

16. Implications of employee discrimination model: • Firms won’t have integrated workforces • There is no black/white wage differential • Employee discrimination doesn’t affect the profitability of firms • Competition doesn’t eradicate employee discrimination

17. Customer discrimination * Reduces the demand for goods sold by minorities * May not matter much if the employer can place black workers in jobs that require little customer contact (not the case in pro sports, obviously) • When a firm cannot hide black workers, customer discrimination can have an adverse impact on black wages

18. Implications of customer discrimination: • Affects labor market outcomes only if customers must come into contact with minority employees or owners • Can lead to various type of racial segregation with respect to position • Can induce firms with black labor forces to locate in areas where proportion of black residents is larger • Does not reduce the firm’s profits

19. Measuring discrimination Basic econometric question: is there a “ceteris paribus” majority/minority difference in labor market outcomes? Crucial issue: controlling for differences in productivity between majority and minority workers

20. Traditional empirical strategies(assume we are studying racial disc.): The common approach: Estimate a Mincer-type human capital earnings function: Log(Wi) = a + b1PRODi + b2RACEi + εi where: Wi = wage or salary of ith person PROD = some measure(s) or productivity RACE = 1 if person is black 0 if white ε = random error Hypothesis of interest: b2 < 0

21. Variation of this approach: Estimate the regression equation for blacks and whites separately; Use the two estimated regression equations to “decompose” the black/white difference in mean earnings into differences resulting from: (i) differences in mean productivity; and (ii) differences in valuation of productivity If at least part of the difference in mean earnings is found to depend on differences in valuation, this confirms discrimination

22. How do you determine whether there are differences in valuation? White earnings regression: Log(WiW) = aW + b1WPRODiW + εiW Black earnings regression: Log(WiB) = aB + b1BPRODiB + εiB Decompose the difference in mean wages as follows (Oaxaca (1973):

23. The racial difference in mean earnings = Difference in intercepts + Difference in mean productivity levels (at white level of valuation) + Difference in valuations of productivity (at black level of mean productivity) Discrimination = sum of first and third terms; tells us that white regression has a higher intercept and a bigger slope (whites get higher return to productivity than blacks)

24. Why study discrimination in sports? • Most sports leagues nowadays have racially integrated labor forces • Racial issues in sports have been discussed inside and outside of the industry for many years • Industry is an outstanding lab for testing hypotheses about discrimination: much easier to measure productivity compared to other industries; easy to get data on salaries

25. Good measures of productivity • In Baseball: lifetime slugging average, lifetime power pitching, years of experience in league, and superstar status • In basketball: seasons played, minutes played, points scored, games played, offensive or defensive rebounds • In football: games played, games started, draft status, injury frequency, total duration of injuries, number of times selected to play in the Pro Bowl and position dummies • In ice hockey: career goals plus assists, average number of goals per game scored against the goaltender in his career, career penalty minutes per game, height, weight, reach and strength

26. What’s the evidence on discrimination in sports? • Almost all work has been on race • Studies can be divided into four categories: - salary discrimination (Are non-whites paid less than whites?) - hiring discrimination (Do non-whites face higher barriers to entry?) - positional segregation (Are non-whites “crowded” into certain positions?) - fan discrimination (Does attendance depend on racial profile of team? Do prices of memorabilia depend on player race?)

27. Hiring discrimination Famous studies by Pascal and Rapping (1972) and Scully (1974) for baseball: • Strong evidence that black players must be better than white players to have an equal chance of moving from minor to major leagues; • Blacks tend to be excluded from managerial and coaching positions, despite being better performers

28. Salary discrimination • Baseball: Some evidence of “reverse discrimination”, but overall little evidence • Football: Kahn (1992) studied NFL and evidence of 4% salary differential favoring whites; also found that racial pay differences varied across cities, such that whites (non-whites) earned more in whiter (more non-white) markets. Giuss and Johnson (2000): whites in NFL earned 10% less than blacks. • Basketball: Kahn and Sherer (1988): significant black salary shortfalls during 1980s. Hamilton (1997), Bodvarsson and Partridge (2001) and other studies: shortfalls disappeared in 1990s. • English soccer: Syzmanski (2000) found evidence of discrimination against black players.

29. Positional segregation Baseball: Scully (1973) – more than 50% of outfielders are black, but less than 10% of pitchers are black; Football: Kahn (1992) – whites disproportionately represented at quarterback, offensive line, punter and kicker, while blacks were disproportionately represented at defensive back, running back and wide receiver Ice hockey: Kahn (1992) – French Canadians under-represented in defense and over-represented in goal during 1970s and 1980s

30. Customer discrimination Strongest evidence of discrimination found here. Scully (1974): fewer fans attend MLB games pitched by blacks than by equally productive whites; contradicted by Gwartney and Haworth (1974). Kahn and Sherer (1988), Burdekin and Idson (1991): strong relationship between racial composition of team and racial composition of fan pool. Nardinelli and Simon (1990), Anderson and La Croix (1991), Gabriel, Johnson and Stanton (1995): market prices of white player baseball cards higher than for black player cards

31. One limitation of previous studies: • Typically they assume just one discrimination source; • Multiple sources of discrimination could be affecting labor market outcomes, though; • Bodvarsson and Partridge (2001) develop and test a salary model where all three sources are at work and test it on NBA salaries; found that equally qualified black players earned 19% less than whites in mid 1980s and 9 percent less in 1990/91. Sources of discrimination? Coworker and customer.