Salary Determinants in a Monopsonistic Labor Market: The Case of Major League Baseball During the Deadball Era From 1901-1919

Prior to the introduction of free agency in 1976 the Major League Baseball owners dominated the labor market since they were the sole buyers of baseball labor. This paper focuses on the deadball era which existed from 1901-1919. Due to the lack of competition, the baseball labor market was a monopsony, which is a market where there is only one buyer for a given product or service. In the case of a labor market monopsony, the buyer is able to set a low salary at a level that maximizes their own profit. This paper finds evidence that, although there were no other comparable employers, historical baseball players had more negotiating power than what the standard monopsony model might suggest. According to biographies of star players from 1901-1919, players would often cite increased performance to support their request for salary increases and threatened to retire if their requests were not met. This often resulted in an increase in player salary which demonstrates that players did have some level of bargaining power albeit limited. To support these anecdotal observations we utilize a salary data set from Bradbury (2017) along with publicly available performance metrics from BaseballReference.com to empirically estimate the determinants of salaries in an era characterized by extreme monopsony power. Specifically we use ordinary least squares regression to test whether salaries are positively impacted by productivity, popularity, and experience. We expect our results will shed light on salary determination in this highly monopsonistic labor market.