Do Employers Pay for Consistent Performance?: Evidence From the Nba

Abstract

In a world of uncertainty in which a worker i performance is variable over time and average performance is unknown when hiring, how will employers determine compensation? We develop a monitoring and signaling model where information is symmetric and parties are risk neutral. Monitoring costs increase with inconsistency, lowering pay for inconsistent workers. If discrimination exists, minority workers will be rewarded less than majority workers for improving consistency. Testing these and other predictions using National Basketball Association data, we find that consistent professional basketball players are paid more, but, in contrast to previous studies, there is no evidence of discrimination. (JEL 53, 57)

The Payoff to Consistency in Performance

“…This study also relates to literature on the determinants of professional basketball players' remuneration (e.g., Bodvarsson and Brastow 1998;Brown, Spiro, and Keenan 1991;Dey 1997;Eschker, Perez, and Siegler 2004;Gius and Johnson 1998;Hamilton 1997;Hill 2004;Jenkins 1996;Kahn and Sherer 1988;Koch and Vander Hill 1988;Prinz 2005;Wallace 1988). Prior studies unanimously agree that NBA player wages are a function of a player's ability/potential (measured by his draft position, years of experience, or previous performance) and "fan appeal" (measured by the number of All-Star appearances).…”

Compensation Discrimination for Defensive Players

“…This evidence is supported by Kahn (2009) in his discussion of discrimination in professional basketball. His survey of the literature displays a shift from robust compensation discrimination against Black players in the 1980s (Brown, Spiro & Keenan, 1991;Kahn & Sherer, 1988;Koch & Vander Hill, 1988;Wallace, 1988) to no evidence of salary discrimination in the 1990s through 2002 (Bodvarsson & Brastow, 1998;Dey, 1997;Eschker, Perez, & Siegler, 2004;Gius & Johnson, 1998;Hamilton, 1997;Kahn & Shah, 2005).…”

From college to the pros: predicting the NBA amateur player draft

“…And nine of the statistics examined had an explanatory power that exceeded 70%. 6 These eleven studies included Kahn and Sherer (1988), Koch and Vander Hill (1988), Brown et al (1991), Dey (1997), Hamilton (1997), Gius and Johnson (1998), Bodvarsson et al (1998), Bodvarsson and Brastow (1999), Hoang and Rascher (1999), Partridge (2001), andMcCormick andTollison (2001). With the exception of Hoang and Racher, who considered employment discrimination, and McCormick and Tollison, who considered the allocation of playing time, each study considered the subject of wage discrimination.…”