Minimum Pay Scale and Career Length in the NBA

• DOI: http://doi.org/10.1111/irel.12071
• Author: Peter A. Groothuis,James Richard Hill,Johnny Ducking
• Date: 01 October 2014
• Published date: 01 October 2014

Minimum Pay Scale and Career Length in the

NBA

*

JOHNNY DUCKING, PETER A. GROOTHUIS, and

JAMES RICHARD HILL

We use data from the National Basketball Association (NBA) to analyze the

impact of minimum salaries on an employee’s career length. The NBA has a sal-

ary structure in which the minimum salary a player can receive increases with the

player’s years of experience. The NFL has a similar minimum wage policy;

research suggests that the introduction of this system shortened career length in

the NFL. Using duration analysis, we fail to find evidence that the new multi-

tiered minimum wage scale in the NBA increased the probability of exit.

Introduction

ONE OF THE TENETS OF THE PRIVATE SECTOR INDUSTRIAL RELATIONS SYSTEM IN THE

UNITED STATES is that union and management use collective bargaining to

reach a mutually agreeable contract. Compromise is inevitable and often nei-

ther side is completely satisfied with the outcome. Confounding the process,

however, is the law of unintended consequences. On occasion both sides agree

to a mutually beneficial position only to have profit-maximizing market behav-

ior thwart their efforts. Such may have been the case when the National

Basketball Players Association (NBPA) and the National Basketball Associa-

tion (NBA) owners reached an accord in 1998 to end a lockout that included a

provision to pay veteran players a minimum wage scale based on years of expe-

rience. This egalitarian wage policy was inserted to provide an incentive for the

players in the lower part of the wage distribution to ratify the agreement.

Unions have been documented to shift rents disproportionately to the lower

skilled workers (Black and Parker 1985; Freeman and Medoff 1984; Parsons

1992). Hill and Groothuis (2001) suggest that union rents can be redistributed

from superstars’salaries to the average players’salaries because of the median

*The authors’affiliations are, respectively, North Carolina A&T State University, Greensboro, North

Carolina. Email: jcduckin@ncat.edu; Appalachian State University, Boone,North Carolina. Email: groothuispa

@appstate.edu; and Central Michigan University, Mt. Pleasant, Michigan. Email: hill1jr@cmich.edu.

The authors would like to thank Dr. Dan Black for helpful comments on an earlier draft.

INDUSTRIAL RELATIONS, Vol. 53, No. 4 (October 2014). ©2014 Regents of the University of California

Published by Wiley Periodicals, Inc., 350 Main Street, Malden, MA 02148, USA, and 9600 Garsington

Road, Oxford, OX4 2DQ, UK.

617

voter rules in collective bargaining. Freeman and Medoff (1984) state: “In a

simple voting model of union behavior in which union polices are set by the

median voter a pattern of lower median than mean wages is likely to result in

a policy of greater gains for the lower paid.”Parsons (1992) finds that union

wage distributions are more egalitarian than the median voter model predicts.

One explanation he offers is that egalitarian wage polices may be favored by

the majority as a means of union solidarity during strikes. These union voice

median voter tendencies may have been the catalyst for the implementation of

a minimum wage scale based on experience.

The minimum wage scale, however, may provide market incentives to

shorten careers of low-skilled experienced players by replacing the higher-paid

experienced players with cheaper, less-experienced players. Kahn (2000) sug-

gests that sports business decisions provide labor market laboratories to test

implications of the overall labor market. We suggest that egalitarian minimum

wage increases in sports markets may provide insights where salary schedules

are similar to the NBA’s, such as in public education, federal government

agencies, the Episcopalian church, and other unionized industries.

Institutional Background on the NBA Minimum Wage Scale

The dataset for this analysis begins with the 1990–1991 NBA season and

ends with the 2008–2009 season. In the first season of the dataset the NBA

had a single minimum wage scale for players.

1

Actual figures are listed in

Table 1. Beginning with the 1995–1996 season, the collective bargaining

agreement (CBA) between the owners and the players’union called for a

rookie minimum scale and a somewhat higher minimum scale for veteran

players. For instance, as shown in Table 1, the rookie minimum was $200,000

in 1995–1996 and the veteran minimum was $225,000. In the compromise

CBA that concluded the lockout at the beginning of the 1998–1999 season a

minimum salary scale was set for each separate experience level from rookies

through 10-year-and-up veterans. Each additional year of experience garnered

a higher guaranteed minimum salary (see Table 2 for details). With the intro-

duction of higher salaries for veteran players the CBA also created an eco-

1

Beginning with the introduction of a salary cap in the NBA in 1983 teams that had limited or no room

under the salary cap for their first-round draft picks were required to pay them a minimum scale salary that

was higher than the overall minimum used in this study. These first-round picks were under guaranteed con-

tracts and received higher salaries when cap room became available. Therefore we did not use these as an

actual minimum wage scale constraint in this analysis. Beginning with the 1995–1996 season first-round

picks were given rookie scale, 3-year guaranteed contracts.

618 / DUCKING,GROOTHUIS,AND HILL