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Wednesday, May 02, 2007

On baseball salaries c. 1907

The May 2, 1907 NYT reports from Albany, NY:
A decision of interest to baseball magnates and players was handed down yesterday by the Court of Appeals against the New York Baseball Club of the National League and in favor of Fred Pfeffer. Pfeffer was under contract by which he claimed he was to receive $2,400 a year and $600 additional for playing to the best of his ability. He claimed to have been suspended unjustly, it being charged he was not in playing condition. He sued for $800 and interest. His claim was afterward assigned to Frank Russell, who has finally won after a long litigation.
Fred Pfeffer played professional baseball from 1882 through 1897. In 1896 he played four games with the New York Giants (the NL team) and had 14 at bats with 2 hits. Later that year he was traded or resigned with the Chicago Cubs and played 94 games with 88 hits in 360 at bats (a batting average of .244 - not great but not terrible).

Thus, the salary in question was from the 1896 season. The story doesn't report on the total amount of interest involved, but assuming an interest rate of 5% (high or low?), the entire award would amount to approximately $1300. If Russell took a thirty percent contingency fee (high or low? I admit I don't know what the norm was back then), this would leave Pfeffer with $871.

If we assume the $800 represents the economic damages incurred for being fired, and the base salary was $2,400, this would imply that Pfeffer's reservation wage (essentially the value of his best alternative to baseball for the NY Giants) was around $1,600. His reservation wage might have been considerably lower than this, which would have implied a larger claim in the law suit, but he might have chosen the amount for which to sue in a strategic fashion. *


Nevertheless, I find this little tidbit of data of interest because we have very little information on particular player salaries from the early days of baseball. I have a working paper with former UTA Masters student Jennifer Ashcraft analyzing unique salary data I discovered from the 1880s (available here) and there are some aggregate numbers (mainly average salaries) that have been revealed during various law suits over the years, but during the early days of professional baseball salaries were not revealed as openly as today.

One more player observation on baseball salaries doesn't help a whole lot, but let's take a crack at "robust inference on one observation" (my forthcoming Nobel-winning magnum opus).

Fred Pfeffer was an average hitter, especially as he primarily played second base and shortstop (positions that historically weren't expected to generate above-average batting numbers). Pfeffer's career statistics were a .255 batting average, a .312 on base percentage, and a .369 slugging percentage; all fair-to-middling' numbers. If the salary for an average player like Pfeffer was $2,400 but Pfeffer's reservation wage was somewhere in the area of $1,600, perhaps Pfeffer (and other players?) had more negotiating power than is generally believed existed during the reserve clause.**

The negotiated wage between Pfeffer and the Giants fell between Pfeffer's reservation wage and Pfeffer's marginal revenue product. What was his MRP? My work with Ashcraft suggested that the average ratio of MRP to wages amongst the best players in the game during the 1880s averaged 2.5. Thus, the so-called contract zone might have had a lower bound of $1,600 and an upper bound of $6,000. This would suggest that Pfeffer was able to negotiate about 18% of the $4,400 difference between his MRP and reservation wage, with the team keeping the rest of the difference.

This would seem to be back-of-the-envelope-consistent with the numbers in the Ashcraft-Depken piece.

How cool is that.

* HT to colleague Mike Ward for ealier discussion that led to this post.

** [tongue-in-cheek] My magnum opus titled "Robust Inference on One Observation - How to Win Every Argument Every Time" is replete with sentences filled with parentheticals, and hypotheticals. Unfortunately, publishers (okay, one) have taken a dim view of my work from which I can only conclude that all publishers are idiots.

Cross posted at Division of Labour

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