Player salary share and the distribution of player earnings

Abstract Veteran free agency in professional team sports has led to higher average player compensation, an increase in the share of league revenues going to players, and increased dispersion in player earnings. Tests on the distributions of player salaries in the last decade reject that they are the same in the early and later years. The variance in baseball player compensation is decomposed into share and marginal revenue product effects for 1990 and 1998, and it is found that both effects contributed to the increased variance in player salaries. A simulation of the effect of universal free agency in baseball suggests a modest increase in player salary share and a drop in compensation inequality among players. Copyright © 2004 John Wiley & Sons, Ltd.