HOW A PLAYER’S SKILL CAN LEAD TO HIGHER SALARY

The interesting phenomenon of the athletes’ salaries, explained by Rosen in his article, “The Economics of Superstars”, makes the reward structure in sports differ from those in other professions. The business of sports, unlike other professions, lends itself to a more significant inequality with regards to distribution of incomes (p.449). Moreover, Rosen finds that this reward structure is highly non-linear--- the salaries of athletes rise in great disproportion to natural ability (p.451). For example, if we compare the skill set of Alex Rodriguez, against, say, his teammate Derek Jeter, we find that although their traits might be somewhat different in terms of specificity, they as players more or less have the same impact on the team. The disparity in statistics such as home runs, runs batted in, stolen bases, errors, etc. while noticeable to the ardent baseball fan, aren’t that great between the two. Yet Jeter, on average, earns 5 million dollars less than Rodriguez on an annual basis. Furthermore, when we compare the salaries of Jeter and Rodriguez to a player making the league minimum ($327,000 as of 2007), we may find a great disparity in statistics, but not so much in terms of overall skill level. Why, then, does Rodriguez earn ¼ more salary than Jeter, and over 75 times the salary of a player making the league minimum? And why don’t we find this salary structure in other professions?
The seemingly disproportionate salary structure in sports, according to Stefan Szymanski, is not the result of conscious mechanism design, but of intense competition. Professional sports is the prime example of what Szymanski calls the “tournament theory”; even though the difference in ability may seem small, winning is the vehicle that drives salaries (p. 469). Fans are much more inclined to pay to see the absolute best players in their respective sports; not the second-tier players. Though the difference in ability may be small, winning creates a vast separation between the best and the second best. Thus, we find that relative ability, rather than absolute ability, is of supreme importance.
This is not the case so much in terms of a teacher or a research analyst, or an electrician. Rosen indicates that some tasks have become so routine, so circumscribed, that any competent person will achieve the same outcome (p.455). As such, it is much easier for one to attain the skill set necessary for such a task. For example, there is not much difference in terms of outcome when the best electrician wires a house as opposed to the second-best electrician, or even the worst electrician. (There is a widely quoted joke in the medical business: What do you call the guy who finished last in his class at medical school? Doctor.) This is not the case is sports. The outcomes are more disparate. Because winning is at a premium, owners will go out of their way to find the superior talent, however small the difference in ability may be. According to Rosen, sports are such that poor talent is an inadequate substitution for superior talent (p.454). In other words, athletes are far more specialized than their counterparts in other areas of professional labor--- increased specialization leads to increasing disparities in relative income. Rodriguez, however small the difference in ability between he and Jeter, is worth 150% Jeter’s salary because his slightly superior talent is more likely to win games and create revenue.