Tuesday, December 06, 2011

Income Inequality: Babe Ruth vs. Alex Rodriguez

$1 million salary vs. $30 million
In 1927 when Babe Ruth hit 60 home runs and set the single-season record that lasted until 1961, he made $70,000 playing for the New York Yankees.  That would be equivalent to a salary in today's dollars of only $911,000.  In 1930 and 1931, Babe Ruth was paid $80,000 by the Yankees, which was the most he earned in a single year, and equivalent to only slightly more than $1 million today.  

In contrast, the average major league baseball player's salary was nearly $3.1 million this year, or three times more than super-star Babe Ruth made at the peak of his career, adjusted for inflation. Is that unfair or not?  

And isn't that evidence of rising income inequality over time that average players now make more than the superstars of the past, and today's highly-paid superstars like Alex Rodriguez make salaries ($32 million) that are more than 30 times higher than a superstar of the 1920s and 1930s like Babe Ruth?  And it's highly likely the share of baseball payrolls going to the top 1, 5 or 10% of the players has also increased over time, as incomes have become more concentrated among the top players. For example, Alex Rodriguez's salary represented 16% of the Yankee's $202 million payroll this year as the highest paid player, and in 1988 the highest-paid Yankee, Jack Clark, earned a salary of $2 million that  represented only 11% of the team's $18.9 million payroll that year.  Baseball's "rich" (top 1%) just keep getting richer and richer?   

Just ask yourself this question: As a superstar with world-class athletic ability, would you rather be marketing your talent in 1930 America like Babe Ruth, or in 2011 America like Alex Rodriguez?  Clearly Alex Rodriguez has the advantage of selling his superstar abilities in a much larger (greater ticket sales), much more globalized sports marketplace with increased competition from talented players around the world, along with much higher salaries to reflect the realities of modern MLB.

As part of both society's 1% and "MLB's 1 percent," Alex Rodriguez deserves to make more income today than Babe Ruth made in the 1920s and 1930s when he was part of the "MLB 1 percent" of that era.  But it's also the case that MLB's lowest-paid, average-paid players, and in fact "the entire MLB 99%," are also better off  today in terms of income than their counterparts of the past. 

Maybe there's a lesson here about rising income inequality.  Whether it’s in professional sports or in society as a whole, perhaps rising income inequality over time is a natural and expected outcome of increasingly competitive labor markets and the expanded opportunities that come from larger and increasingly competitive global markets.  And those same competitive forces that lead to greater income inequality in both the MLB and the overall economy over time also help to make all MLB players and all Americans better off year after year, just not at exactly the same rate.


At 12/06/2011 11:00 PM, Blogger Michael E. Marotta said...

No one needs baseball, PGA Golf, NASCAR, or Roller Derby. Myself, I spend my money on Dungeons & Dragons and comics (ahem, "graphic novels"). Perhaps we have achieved Leon Trotsky's dream of a world where tremendous production surplus is devoted to entertainment and cultural refinement.

In "Star Trek: Deep Space Nine" Commander Sisko was a fan of the London Kings baseball team. It is something to look forward to.

The fallacy in complaints of "inequality" is the assumption that such differentials come from prunings of the bottom, rather than blossomings at the top.

By the end of the century (adjusted for inflation), we will see quadrillionaires. By the end of the century, the nonimal "poor" will enjoy luxuries unimagined by the "rich" of our time.

At 12/06/2011 11:20 PM, Blogger sethstorm said...

Another oranges and apples discussion.

At 12/06/2011 11:29 PM, Blogger Hydra said...

How much does a ball game cost a fan and his son today vs in babe Ruth's time?

At 12/06/2011 11:31 PM, Blogger sethstorm said...

By the end of the century (adjusted for inflation), we will see quadrillionaires. By the end of the century, the nonimal "poor" will enjoy luxuries unimagined by the "rich" of our time.

That's a handwashing of the situation. That's like saying something will have more features, but the reality will be that the quality of them will be all junk. You're giving them the economic equivalent of a corrupted wish.

At 12/07/2011 12:28 AM, Anonymous Anonymous said...

I agree with the broader point, but baseball is a dumb example. Baseball is an antiquated sport that is about to take a nosedive: nobody young gives a shit about baseball, just like boxing or horse racing. When all of them are gone in a decade or two, will that mean that the global marketplace and increased competition destroyed the baseball player? No, it just means that baseball won't be able to rely on a bunch of senior fans and ancient distribution deals, so it will go bust. This is what's happening to the newspapers right now and the same demise will befall a bunch of other media markets, whether movies or TV or radio or other sports.

I'll also note that it's not a good idea to compare superstar athletes to "superstar" CEOS, both because athletics is a sideshow with not much in common with regular business and because the superstar athletes regularly underperform. Team owners with stars in their eyes regularly overpay Rodriguez or Kevin Garnett or Albert Haynesworth, similar to how company boards of directors often overpay their CEOs. There is a simple reason for this: these are thinly traded markets and those setting compensation often take the easy route of overpaying a proven superstar and hoping that's enough, rather than doing the tough work of drafting talent, not overpaying them, and making sure you have a deep bench, whether in sports or business. What's going to happen is all these antiquated large companies, whether the major sports or large corporations, are about to be destroyed and highly fragmented by the internet, with more competition and better markets. :)

At 12/07/2011 12:38 AM, Blogger Che is dead said...

"LOS ANGELES — As Hollywood digs in for a second week of a strike, the screenwriters might want to send a few angry picketers over to Will Smith's place. Or Steven Spielberg's ... As it turns out, the pot of money that the producers and writers are fighting over may have already been pocketed by the entertainment industry's biggest talent ... The report, by the research company Global Media Intelligence in association with its partner Merrill Lynch, concludes that much of the income - past and future - that studios and writers have been fighting about has already gone to the biggest stars, directors and producers in the form of ballooning participation deals ... neither side should be cheered by figures that describe an industry that has increasingly doled out its wealth to star performers and filmmakers, at the expense of almost everyone else." -- The New York Times

Say it ain't so, not in liberal Hollywood. What would all those folks at Occupy Wall Street say?

At 12/07/2011 3:23 AM, Blogger PeakTrader said...

U.S. per capita income in 1935 was $474:


And U.S. GDP in 1935 was $73.3 billion:


At 12/07/2011 4:08 AM, Blogger PeakTrader said...

So, U.S. per capita income is 100 times higher today ($47,000) than 1935.

U.S. GDP is 200 times higher today ($15 trillion) than 1935.

$100,000 times 100 is $10 million.

$100,000 times 200 is $20 million.

At 12/07/2011 8:36 AM, Blogger IDK said...

The rise in inflation adjusted players' salaries is a function of higher revenues for the sport due to TV contracts, merchandising, and higher revs from ticket sales.

At 12/07/2011 10:45 AM, Blogger Marko said...

I earn 5 times as much as I did 20 years ago. Totally unfair income inequality.

At 12/07/2011 12:07 PM, Blogger Zachriel said...

No comparison. Rodriguez cheated by using performance enhancing drugs. Ruth did it hungover after staying up all night with hookers and other ne're-do-wells.

At 12/07/2011 12:13 PM, Blogger NormanB said...

A reporter admonished The Babe because he was making more than the President of the United States and asked The Babe how this could be. The Babe: "I had a better year."

At 12/07/2011 12:53 PM, Blogger Benjamin Cole said...

Actually, MLB is a string of regional monopolies, often operating at taxpayer expense (stadiums, see George Bush jr. and the Arlington Rangers).

It is a fine example of the pricing power of monopolies.

At 12/08/2011 10:27 AM, Blogger VangelV said...

Ruth got 3,391 ounces of gold per year while Alex gets around 17,000 ounces per year. Ruth still made more than the average player today. Of course, Ruth could not compete against the average modern day player but that is a different story. Both men attracted fans and added to the bottom line. The fact that baseball is a much bigger market today and that the YES network needs content can justify the high Yankee salaries. While Ruth was great when compared to his peers his value was not as high to his Yankee team as Alex's is to this one.


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