Sunday, August 10, 2008

Significant Home Run Inequality, and Economic Lessons About Inequality from Professional Sports

The chart above shows that the share of income earned by the top 5% in 2006 (IRS data here) was 35.9% (the IRS data also shows that group paid 60% of all income taxes). How does that distribution of income in the U.S. compare to the distribution of home runs in Major League Baseball for the top 5% of the players, ranked by number of home runs? Amazingly, it's almost exactly the same.

Using the sortable MLB historical database for years 2007, 1997 and 1987, and analyzing the total number of home runs in those years (4,959, 4,638 and 4,470 respectively), the number of active players in those years (1210, 1159, and 996), and the number of those home runs hit by the top 5% of the players (ranked by home runs in the year), we can determine that the percentage of home runs hit by the top 5% was 35.82% (2007), 36.80% (1997) and 35.5% (1987). In other words, home runs are distributed just about as unequally as income - the top 5% earn a disproportionate share of income, about 36%; and the top 5% of baseball players hit a disproportionate amount of home runs, about 36%.

See previous CD post Olympic medal inequality.

MP: I have a confession to make: I'm not bothered at all by income inequality, Olympic medal inequality, or home run inequality, and in fact I think it's perfectly natural and an outcome that should be expected. Why such a negative reaction from the general public to inequalities of outcome for income, but never for unequal outcomes in professional sports? We don't expect home runs in MLB or points in the NBA or NHL to be distributed equally, so why do we expect income to be distributed equally? And if inequalities of outcome or income increase or decreases over time, so what?

For example, in a previous CD post, I presented the chart below:

Even within most MLB teams there is significant income inequality, which is directly related to the significant inequality in the distribution of athletic talent reflected in the "home run inequality" documented above. And the chart above shows that: a) the income share of the top 25% is fairly similar when comparing the general U.S. population and the 5 MLB teams above, and b) income inequality increased both for MLB and the general public between 1988 and 2007, measured by the income share of the top 25%. Why is that considered a problem, and not perhaps a natural, and expected outcome?

Finally, it should be noted that when it comes to the income of the general population, the income of MLB players, or the distribution of home runs, the top 5% or top 25% in any given year is a different group than the previous year - there is significant and constant turnover. A common misperception is that the top 5% (or top 1% or top 10%) by income is something like a closed, private club with very little turnover - once you get in, you stay there, making it difficult for others to join. But reality is very different - people move up and down the income quintiles or quartiles throughout their careers and lives. The top 1/5/10% is never the same people.

Maybe we can learn some economic lessons about income inequality from professional sports and the Olympics?


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