Ep 22: Labor Day with Rodney Dangerfield

As we commemorate Labor Day 2016, one wonders how working folks so easily become the butt of labor market disrespect.

This is one of the ways it happens, especially in the labor market for professional athletes.  Actually, there are two models used for wage-setting by economists.  One is winner-take-all, for salary-setting among the ranks of superstars, professional athletes included.  These are folks who get plenty of respect.

The other—that applies to the rest—might be called the Rodney Dangerfield model, after the now-deceased comedian who lamented repeatedly in his monologues “I don’t get no respect.”

These are folks with little or no labor market power; with little or no control over the wage they receive or the destiny they encounter.

Only elites are the exception to the Rodney Dangerfield rule.  If Dangerfield could be around for this election, perhaps he would lead some sort of group commiseration with others of his ilk…the downtrodden.

Take professional basketball.  It’s a great example of winner-take-all, but only for wage-setting at the very top.

Heading up the “gets respect” column is superstar Mike Conley Jr. who recently signed a five-year contract with the Memphis Grizzlies, funneling almost $153 million in his direction.  On a per-game basis, it pencils out to just under four-hundred thousand dollars each time he suits up.  That’s a lotta lettuce!

Court-greats like Conley depend upon support from casts of the near-brilliant, the almost-superstars.  These folks, who get at least some labor market respect, receive perhaps only five percent of a superstar’s wage, however.  Although lacking sufficient charisma to become truly rich, not only are they great ballplayers, but surely also they know how to fade.  That allows space for an elite performer to show-boat before adoring fans.  In turn, it assures continuance of the professional sports’ money-making machine, generating mountains of cash.

Suppose you become a professional economist for a day, hired to consult on player salaries, perhaps with a team like the Memphis Grizzlies.  No doubt, your recommendations will be based on the winner-take-all model.  No Rodney Dangerfield in this scenario.

With you as consultant, this is how it works.

To recruit a superstar, you advise your client team to pay up to—but never more than—the superstar’s marginal revenue product (MRP).  In plain-speak, huge salaries make economic sense so long as the star’s take does not exceed the gate revenue he generates.

Suppose ticket revenue is expected to soar over the contract’s life by $175 million, compared with what it would have been with no superstar onboard.  In Mike Conley’s case, that leaves $22 million on the table—for management priorities—over the contract’s five-year life.

Or, consider professional baseball that offers amazing comparisons; you know, winner-take-all vs. Rodney Dangerfield-type baseball scenarios.

According to the Washington Post, major league baseball franchises earned an average profit of $23 million in 2015, even after huge superstar payouts.  In baseball, one thinks immediately of Alex Rodriguez’s 10-year contract with the New York Yankees, paying out $275 million over 10 years.  That pencils out to about $170,000 per game.

Salary-wise, in comparison with Alex Rodriguez, it seems a bit like his glamorous lifestyle could exist only on some other planet in some other solar system.  Thousands of players in the Minor Leagues survive each season on earnings below the federal poverty level.  That’s about $10,000 or less; even less than burger-flipper wages.  Definitely, these folks “don’t get no respect.”  In Rodney Dangerfield terms, someone from the minors would need to play over 3000 games to even come close to picking up a single-game day payday, Alex Rodriguez-style.

So, your consultant work is now done.  It was a breeze, wasn’t it?  What’s your conclusion?  Well, for the Rodney Dangerfields, it might be that a rising tide is supposed to lift all boats.  Unfortunately, in winner-take-all sports, there is no such thing as a rising tide.  Some big, flashy boats float, but tiny little boats, mostly, don’t.

No doubt you learned, also, its best for superstars to leave at least a few bucks on the table, including some to trickle down to the Rodney Dangerfield rank and file.  That is, to trickle down to everyone else.  Perhaps you also concluded in industries like professional sports with winner-take-all compensation, there may exist even a sense of “unfreedom” regarding one’s destiny.  Short of dropping out, virtually…the only freedom one can exercise is freedom to accept the inevitable.  If hope exists, it is to run inside the pack, not from outside of it.

Benjamin Franklin’s words may have some applicability here, although he was commiserating about the enormous risks of launching a political insurrection.  Perhaps…just contemplating joining a labor union in 2016 has similar risks…at least metaphorically.  Said Franklin: We must hang together, or surely we will hang separately.

From Boulder, Colorado, this is Jim Sawyer for Capitalism in Crisis.