A Note on the Structural Stability of Salary Equations

Abstract

The salaries of major league baseball players is a common subject for analysis in the sports economics literature. Although hitters and pitchers represent two separate groups, each of these two groups of players is assumed to be homogeneous so that aggregation within each group is appropriate. However, there are always potential problems associated with aggregation. If there are important differences between starters, long relievers, and stoppers that relate to their pitching skills and/or to their function in the production of team wins, then aggregation may lead to inaccurate conclusions regarding the determinants of their earnings. In this article, the authors examine the issue of aggregating the pitching input. By comparing a collective earnings equation for all pitchers with separate earnings equations for each type of pitcher, the authors find that the structure of salary rewards differs significantly between the groups. As such, the authors conclude that it is not appropriate to aggregate pitchers when analyzing the determinants of salaries.