Uncompetitive Minor League Wages Might Be Deterring Talent

In February of 2014, a group of ex-minor league baseball players filed a class action lawsuit against Major League Baseball. They claimed the minor league pay structure violated the United States minimum wage law. Their argument was that players often worked 50+ hour weeks, yet earn just a few thousand per year, which works out to well below the federal minimum of $7.25 per hour.

According to the lawsuit, the majority of minor league players get signing bonuses of about $2,500 and earn between $3,000 and $7,500 over the five-month season. For comparison, that’s roughly 1 percent of the major league minimum of $500,000. Even if you factor in the minor league per diem of $25 per day, that’s still around $10,000 for five months. The suit also notes that players aren’t typically paid for their participation in spring training or fall instructional time, which take place before and after the season, respectively.

All of this while the average major leaguer earns $4.25 million per year, with many earning much, much more. You might think this pay disparity alone is enough to justify better pay for minor leaguers, but that’s something of a philosophical question. After all, nobody’s forcing low-earning minor leaguers to be professional ball players. They made the decision to do what they love, regardless of the pay, and I’m sure plenty of you reading this would change places with them in an instant. Furthermore, addressing income inequality isn’t exactly Major League Baseball’s raison d’être. Major League Baseball’s primary responsibility is to, well, produce entertaining Major League Baseball.

Still, there are less normative and social justice-y arguments for giving minor leaguers a bigger piece of the pie. For one, as Russell Carleton pointed out in August, forcing players to live paycheck-to-paycheck — or playing “hunger games,” as he puts it — can be detrimental to their development as ballplayers. If a player has to worry about affording his next meal, he’s probably not 100 percent focused on becoming a better baseball player. That’s bad for the individual players, but also for the teams who employ them.

There’s another potential consequence that might be even more alarming: These uncompetitive wages seem to be dissuading some from pursuing careers in baseball altogether. They’re poking holes in MLB’s talent pipeline, potentially leading to a lower level of talent on the field.

In many instances, an argument for a higher minimum wage is an argument against the free market. The primary economic argument in favor of a higher higher minimum wage is that income can be transferred from wealthier to poorer individuals. The primary economic argument against a higher minimum wage is that employers may hire fewer people. But unlike jobs waiting tables, the number of roster spots given to minor leaguers is fixed. There is no potential decline in employment, only the transfer of income.

Minor league wages are not dictated by a competitive market at all, but stem from a different system entirely. The current minor league wage isn’t the market equilibrium wage, but is set by a monopolistic employer. It’s not as though individual teams bid up minor leaguers’ wages, even if the current wage is sub-optimal. Rather, a minor leaguer has one employer that can employ them until his becomes a free agent. Until then, the league tells that employer how much players will be paid. And the league happens to set that figure uncompetitively low.

Minor league salaries are uncompetitive when held against even the country’s lowest-paying occupations. Over the course of a year, a typical minor league ball player could make more working full-time as a waiter or fast food cook, or in literally any other job out there.

These meager salaries may not be a huge disincentive for players from middle- or upper-class families. Players from this demographic often have parents and social networks that can provide them with financial support through their minor league years. But a large portion of prospective professional ball players come from low-income backgrounds, and may not have the means to subsidize years of meager pay with no guarantee of future return. For a young player like this, pursuing a career in baseball is more difficult, especially considering how much he’d earn in other fields. One could easily imagine a scenario where a non-elite player from a low-income background decides not to pursue a pro career for financial reasons, especially if the livelihood of his family is at stake.

There’s no easy way to quantify this phenomenon, but it’s possible to detect whether it exists. If non-elite, low-income players are opting against going pro, we’d expect to see a relatively high proportion of minor league players from the low-income demographic make it to the majors. Let me explain why.

For simplicity’s sake, let’s assume that there are two types of amateur prospects: You have the elite ones who ultimately get big signing bonuses. Then you have the non-elite ones who aren’t good enough to get big signing bonuses. If you are in the first group, you’re certainly going to go pro regardless of your socioeconomic status. You get a big signing bonus and get to play baseball for a living. That’s a win-win.

Now let’s say you’re a player in this second group. You’re good enough to go pro, but not good enough to command more than a few thousand in signing bonus. Let’s split this group into sub-groups.

• If you’re rich, you probably go pro since the money isn’t a huge factor for you. You probably have some money in savings and/or a family willing to support you. But, since you were a fringy prospect to begin with, you probably don’t make it to the majors. This drives down the overall success rate for the rich.

• If you’re poor, the decision is a tougher one. While the idea of playing baseball for a living sounds great, you also need to put food on the table. You may have very little savings, and your family may not have the means to support you. As a result, an outsized share of the poor group are the guys who got big bonuses (who are also likely to play in the majors). In other words, the low wages are basically weeding out the fringy low-income prospects, which drives up the major league success rate for the poor.

It’s kind of like the old adage: “If you’ve never missed your flight, you get to the airport too early.” Or, if you prefer baseball analogies: If you never get caught trying to steal a base, you’re not running enough (since the break-even point is around 70 percent).

In this case, it’s: If players from an income demographic always make it to the majors (or make it relatively often), not enough of them are going pro. It’s my hypothesis that uncompetitive minor league wages are discouraging fringy, low-income amateurs from “going for it.”

Testing this hypothesis isn’t exactly straightforward, as data on players’ parents’ incomes or wealth simply doesn’t exist. What does exist, though, is the birth city of every minor league player, which can be linked to median family income data from the Census to give us an idea of the wealth of an area he came from. This proxy isn’t perfect, as even the wealthiest cities have their share of low-income residents and vice-versa. But at the very least, these “income projections” should give us a general idea of each player’s socioeconomic background. I chose to use each birth city rather than high school city since the former is a better predictor of future income for kids who moved after age nine.

Not all of the cities mapped perfectly to the ones in the Census data in my first go-around. So I manually linked any residual cities that produced more than one player, and used county-level data for the multi-player cities that weren’t listed at all. In all, I linked up 97 percent of all players from my original sample.

That sample considers all American-born hitters from 1990-2009 who are currently at least 28, and logged at least 400 plate appearances at a level of full-season ball at least once in their career. It also includes hitters who logged at least 200 PA in short-season ball. I think it’s safe to say I caught nearly all players who spent more than a hot minute playing in the minor leagues.

Next, I plotted these players’ birth city median family income against whether they played in the majors: 1 for “yes” and 0 for “no.” Here are the data broken up into quintiles by income demographic. Each quintile contains roughly 1,100 players.

For a bit more precision, here is what things look like when fit with a nifty loess regression curve. Since median income is very positively skewed, this representation better illustrates the relationship at the high end of the income spectrum.

My hypothesis appears to hold for players from cities with median family incomes above $45,000. The clear exception, though, is that bottom quintile. While the correlation between income and major league percentage is perfectly clear from $45,000 or so on up, the relationship doesn’t hold at the low end of the income spectrum.

It isn’t immediately clear why the graph does what it does in that bottom quintile. I tried controlling for geography, but that didn’t help. That same trend holds within most states, so whatever’s causing it seems to be causing it everywhere.

I have a couple of guesses as to what might be driving down the major league percentage down on the very low end, but keep in mind these are just guesses:

• It might have something to do with opportunity cost. Studies show that American men born into low-income families tend to earn significantly less than their high-income counterparts. Perhaps the fringy 30th rounder (who almost never makes the majors) is more likely to go pro if he’s from a very low-income area, where he wouldn’t have many opportunities for well-paying jobs or higher education. On the other hand, the fringy 30th rounder from a moderately low-income area might have other job or education options to pursue.

• This could also be a symptom of the “hunger games” scenario that Russell Carleton theorized about in his piece. Perhaps the very low-income players are the ones who are struggling to pay for their (or their family’s) next meal. They therefore have less energy to focus on becoming better baseball players, leading to a higher attrition rate.

• It could also be that players from very low-income backgrounds are less likely to stick it out that extra year, and are working a 9-5 job the year they would have had their breakthrough season.

It seems there’s an omitted variable here, and frankly, I’m not really sure what it is. In any event, there’s a statistically significant negative linear relationship between city income and major league percentage that yields a p-value just under .07. Even if there are things I’m not accounting for here, I think this is fairly strong evidence that income is an explanatory variable of major league percentage.

To further illustrate the relationship between socioeconomic status and minor league player quality, I calculated the average single-season KATOH forecast for each player in my sample, and plotted it against median family income. KATOH, if you’re not familiar, is my system that forecasts major league performance using minor league statistics. This depicts the same phenomenon as the MLB%-Income graph above, but uses that player’s KATOH forecast as a proxy for talent rather than major league percentage. Consistent with the chart above, players from wealthy areas tend to have lower KATOH forecasts than the rest of the universe, on average. Put differently, fringy prospects tend to be wealthier than the good ones.

The correlation is stronger than it was with MLB%, which isn’t all that surprising. It makes sense that KATOH would be a better proxy for talent than major league percentage, which can be influenced by outside factors like injury or whether there happens to be an opening at the big league level.

There are a couple of reasons to think the raw numbers from this study might even be understating the magnitude of the effects of low minor league wages. For one, I used median family incomes for players’ home cities, rather than their actual families’ incomes. City-level data acts as a decent proxy, but is obviously less than 100 percent precise. If I were using these players’ actual family incomes, the trend might be noticeably more stark.

I quasi-tested this theory by breaking out the central cities — the largest city from each metropolitan region — and found that major league percentage tends to vary more across income in areas that aren’t central cities. I believe this is because cities tend to have large populations and high levels of income inequality. Both of these characteristics make a city-wide median income a less reliable proxy for any given individual’s wealth. In smaller and more equal areas, the income-MLB% relationship is more stark.

Secondly, this study assumes that once a player goes pro, his odds of making the Show are not influenced by his pay. It does not take into account Russell Carleton’s theory that living paycheck-to-paycheck might stunt a player’s development or discourage him from sticking it out an extra year. I have no empirical evidence on whether this phenomenon exists, but it certainly feels like something that could happen from time to time. I can’t imagine sleeping in a car is great for a young player’s development. And if it affects anyone, it would likely affect lower-income players disproportionately, which would serve to flatten out the above slopes.

Let’s adjust the lens a bit to look at race rather than class. Income and wealth correlate strongly with race in America, with the white demographic coming out on top by nearly every measure. So if low minor league wages are obstructing low-income players disproportionately, they might be doing the same for racial and ethnic minorities. Mark Armour and Daniel Levitt showed that the share of African Americans in baseball has been declining since the mid-1980s. As Matt Swartz hypothesized a couple of years ago, it may not be a coincidence that African Americans tend to come from lower-income backgrounds.

Using the Frequently Occurring Surnames database from the 2000 Decennial Census, I estimated the ethnic background of most hitters in my sample based on their last name. I excluded players whose names weren’t in the Census database. This is similar to the methodology the U.S. Consumer Financial Protection Bureau and Justice Department used to identify discrimination by Ally Financial.

This methodology obviously isn’t perfect. For instance, it assumes that all players with my last name — Mitchell — are 64 percent White and 32 percent Black, which are the national averages for that surname. This obviously isn’t true. This ignores the fact any given Mitchell either falls into the 64 percent of whites, or the 32 percent of blacks, or even the remaining 4 percent. Things are further complicated by the fact that some people throughout history — including many freed African-American slaves — have chosen their last names themselves. Still, even if each individual’s demography is slightly incorrect, these “race projections” should be pretty accurate on the aggregate. Over a large enough sample, this should provide directional evidence of whether low wages discourage players of color disproportionately.

Note that the X-axis does not plot the White% itself, but instead plots the White% percentile. The names in my sample skewed very white. Rather than plotting a heavily right-skewed variable, I figured converting it to percentile form would be more revealing.

The correlation between “whiteness” and major league percentage largely mirrors the correlation between income and major league percentage: Increasing on the very low end, and then a consistent decline. Just like income, white percentage is negatively correlated with major league percentage. This suggests that relatively few non-elite players of color chose to go pro. In other words, the more white your name is, the lower the expected MLB%, because a fringy amateur is more likely to have the means to go pro if he’s white.

Here is the same graph linearly.

The line slopes in the opposite direction when compared to the “Blackness.”

And also for “Hispanicness.”

By making it harder for the lower class to go pro, minor league wages seem to be inhibiting young, non-elite players of color disproportionately.

All of the above suggests that a player’s decision to go pro depends on his socioeconomic status. If so, then more competitive wages would likely flatten out those curves a bit. If these players were paid more, they wouldn’t need to rely as much on their wealth to get by, and those without much wealth would have greater incentive to play professional ball. The slopes in the curve above point to “missing” minor league players whose financial situations prevented them from going pro.

To be frank, most of the “missing” players probably wouldn’t have made it to the majors. Most promising amateurs get decent-sized signing bonuses, which make their salaries less of an issue. However, it’s relatively common for fringy, late-round draft selections to develop into productive big leaguers. Lorenzo Cain (17th round pick), Kevin Kiermaier (31st round pick), Matt Carpenter (13th round pick) and Matt Duffy (18th round pick) are just a few very recent examples. Based on the trends outlined above, it’s entirely feasible — and perhaps likely — that uncompetitive minor league salaries have robbed us of many players cut from that same mold.

Higher minor league wages would certainly help make baseball’s talent pool more inclusive. But they wouldn’t be the silver bullet that tears down all of the barriers for low-income amateurs. Another, possibly larger, hurdle for these players is the cost of travel leagues, which often run into the thousands of dollars for a single year of play. Travel leagues give kids the opportunity to challenge themselves against advanced competition and have become a near-necessity for aspiring professionals, but as Andrew McCutchen has observed at the Players’ Tribune, they’re unaffordable for many families. Similarly, amateur showcases are a great way for high-schoolers to gain exposure, but cost as much as $600 a pop.

Still, even if minor league wages are only one part of the problem, the data suggest their effects are significant. In addition to paying poverty-level wages to thousands of players, the current minor league pay structure acts as a barrier to entry for many more. Raising the wage would plug some of the leaks in Major League Baseball’s talent pipeline. This would incentivize more amateur baseball players to pursue careers as professionals, leading to a more inclusive and diverse sport with more talented players on the field.

References and Resources

• Special thanks to Matt Swartz and Russell Carleton for helpful comments and feedback.
• Special thanks to Nathaniel Grow for clarifying the details of the Minor League Wages lawsuit.
• Baseball-Reference and The Baseball Cube
• US Census Bureau, “Frequently Occurring Surnames from the Census 2000”
• US Census Bureau, “Central Cities In Alphabetical Order, By State, With Metropolitan Area Title”
• US Census Bureau, “Median Family Income in 1999”
• Torii Hunter, The Players’ Tribune, “Started From the Parking Lot”
• David Leonhardt, Amanda Cox & Claire Cain Miller, The Upshot, “An Atlas of Upward Mobility Shows Paths Out of Poverty”
• Nathaniel Grow, FanGraphs, “Minor League Salaries Challenged in New Antitrust Lawsuit”
• Russell Carleton, JABO, “Why Are We Playing Hunger Games with Minor Leaguers?”
• Melvin J. Collier, Roots Revealed, “Ain’t Gonna Take Massa’s Name/Playing the Name Game: African-American Genealogical Research In Motion”
• Annamaria Andriotis and Rachel Louise Ensign, The Wall Street Journal, “U.S. Government Uses Race Test for $80 Million in Payments”
• Matt Swartz, The Hardball Times, “The Declining Share of African-American Baseball Players, Part 2”
• Mark Armour and Daniel R. Levitt, SABR, “Baseball Demographics, 1947-2012”
• Rakesh Kochhar and Richard Fry, Pew Research Center Fact Tank, “Wealth inequality has widened along racial, ethnic lines since end of Great Recession”
• HS Baseball Web Forum, “Cost for Perfect Game Showcases?”
• Andrew McCutchen, The Players’ Tribune, “Left Out”
• Sarah Butler, CBS MoneyWatch, “$4,000 for Youth Baseball: Kids’ Sports Costs Are Out of Control”