Salary Inflations and Market Behavior

From Kevin Lai at The Hardball Times on March 23:

In order to understand the economics of baseball, it’s important to see how much teams are spending per year on player salaries. Inflation is a tool that can help us understand the proportionate increase or decrease from year to year of payrolls. While others have looked more closely at the inflation rates of Win Shares or WAR, I wanted to take a look simply at how much the average player salary went up or down each year.

Don’t get me wrong here, inflation rates of a marginal win are very important when analyzing contracts post-signing, and quite interesting. But I think if we are to analyze a front office’s off-season decisions, we should do so without any hindsight bias. We can always analyze a player’s worth to a team after or during the span of the contract, but only forecasts of a player’s value are available to the front office pre-signing. So all I am analyzing here today is how much average salary has increased over the years and whether the change in the payroll of a team is associated with the forthcoming year’s change in winning percentage.

I was able to get my hands on a salary data set that comes from Baseball Databank. The population consists of 21,457 players from 1985 to 2010 and their salaries for the season. Using simple inflation equations, I was able to find the average salary of players for each year, and calculate the change in salaries per year to find an inflation rate.

Read the full article here:

Originally published: March 23, 2011. Last Updated: March 23, 2011.