In 2011, the average salary in Major League Baseball (MLB) was $3.3 million. Are players really worth that much? A team will pay $3.3 million for a player only if the player’s marginal revenue product (MRP) is at least $3.3 million. The MRP of a player equals his contribution to the firm’s total revenue from ticket sales and television contracts. People are willing to pay for winners, and a player whose performance increases the team’s winning percentage increases its revenue from tickets and TV. For example, a player with a relatively high slugging percentage increases the team’s winning percentage, increasing the revenue from ticket sales and TV. A recent study shows that for some types of players, the salary is less than the player’s MRP. Some MLB players are free agents, meaning that they are free to negotiate a contract with any MLB team. Given the competition between teams for the services of free agents, their salaries are close to their MRPs. In contrast, two types of players are not allowed to change teams, and the limited competition for their services means that they earn relatively low salaries:

1 Journeymen (3−6 years in the league) are restricted to a single team, but can enter salary arbitration to change their salaries.

2 Apprentices (up to 3 years in the league) are restricted to a single team and cannot change their salaries.

Given the immobility of journeymen and apprentices, we expect them to be paid less than their MRPs. According to a recent study, the average MRP of journeymen is about $1.08 million, which is about 17 percent higher than the average journeyman salary. For apprentices, the average MRP is about $810,000, which is about 3.6 times the average apprentice salary.

Question.

Are workers paid their marginal revenue product?

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其實 CAMPER