Wage Dispersion and Individual Performance: MLB Pitchers

Major League Baseball is one of the most valuable sports leagues valued at $10 billion US dollars. While over 40% of payroll is allocated to pitchers, the wage disparity between starting pitchers alone is $7 million US dollars. The disparity between the max starting pitchers and the minimum relief pitchers is $20.5 million US dollars. Previous studies find that there is much evidence to support that as wage dispersion among a team increases, the overall team performance is negatively affected. In addition, there are some studies which find no correlation, or positive correlation between salary inequality and efficiency. Jewell and Molina (2004) find that salary inequality does not appear to be correlated with efficiency in the MLB. This paper analyzes how wage dispersion and salary inequality affect individual performance among pitchers in Major League Baseball (MLB). To answer this question, we examine the relationship between wage dispersion and individual performance of the rostered pitcher on all 30 MLB teams across 10 seasons using seasonal statistics which include team and player specific metrics. The economic goals of the study is to further the research surrounding two competing salary theories: tournament theory and cohesion theory. The results of this study show that with larger wage dispersions or pay inequality across teams and the pitching specific positional payroll, there is statistically significant negative impact on individual performance.

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