Michael J. Haupert, University of Wisconsin — La Crosse

“The reason baseball calls itself a game is because it’s too screwed up to be a business” — Jim Bouton, author and former MLB player

Origins

The origin of modern baseball is usually considered the formal organization of the New York Knickerbocker Base Ball Club in 1842. The rules they played by evolved into the rules of the organized leagues surviving today. In 1845 they organized into a dues paying club in order to rent the Elysian Fields in Hoboken, New Jersey to play their games on a regular basis. Typically these were amateur teams in name, but almost always featured a few players who were covertly paid. The National Association of Base Ball Players was organized in 1858 in recognition of the profit potential of baseball. The first admission fee (50 cents) was charged that year for an All Star game between the Brooklyn and New York clubs. The association formalized playing rules and created an administrative structure. The original association had 22 teams, and was decidedly amateur in theory, if not practice, banning direct financial compensation for players. In reality of course, the ban was freely and wantonly ignored by teams paying players under the table, and players regularly jumping from one club to another for better financial remuneration.

The Demand for Baseball

Before there were professional players, there was a recognition of the willingness of people to pay to see grown men play baseball. The demand for baseball extends beyond the attendance at live games to television, radio and print. As with most other forms of entertainment, the demand ranges from casual interest to a fanatical following. Many tertiary industries have grown around the demand for baseball, and sports in general, including the sports magazine trade, dedicated sports television and radio stations, tour companies specializing in sports trips, and an active memorabilia industry. While not all of this is devoted exclusively to baseball, it is indicative of the passion for sports, including baseball.

A live baseball game is consumed at the same time as the last stage of production of the game. It is like an airline seat or a hotel room, in that it is a highly perishable good that cannot be inventoried. The result is that price discrimination can be employed. Since the earliest days of paid attendance teams have discriminated based on seat location, sex and age of the patron. The first “ladies day,” which offered free admission to any woman accompanied by a man, was offered by the Gotham club in 1883. The tradition would last for nearly a century. Teams have only recently begun to exploit the full potential of price discrimination by varying ticket prices according to the expected quality, date and time of the game.

Baseball and the Media

Telegraph Rights

Baseball and the media have enjoyed a symbiotic relationship since newspapers began regularly covering games in the 1860s. Games in progress were broadcast by telegraph to saloons as early as the 1890s. In 1897 the first sale of broadcast rights took place. Each team received $300 in free telegrams as part of a league-wide contract to transmit game play-by-play over the telegraph wire. In 1913 Western Union paid each team $17,000 per year over five years for the rights to broadcast the games. The movie industry purchased the rights to film and show the highlights of the 1910 World Series for $500. In 1911 the owners managed to increase that rights fee to $3500.

Radio

It is hard to imagine that Major League Baseball (MLB) teams once saw the media as a threat to the value of their franchises. But originally, they resisted putting their games on the radio for fear that customers would stay home and listen to the game for free rather than come to the park. They soon discovered that radio (and eventually television) was a source of income and free advertising, helping to attract even more fans as well as serving as an additional source of revenue. By 2002, media revenue exceeded gate revenue for the average MLB team.

Originally, local radio broadcasts were the only source of media revenue. National radio broadcasts of regular season games were added in 1950 by the Liberty Broadcasting System. The contract lasted only one year however, before radio reverted to local broadcasting. The World Series, however has been nationally broadcast since 1922. For national broadcasts, the league negotiates a contract with a provider and splits the proceeds equally among all the teams. Thus, national radio and television contracts enrich the pot for all teams on an equal basis.

In the early days of radio, teams saw the broadcasting of their games as free publicity, and charged little or nothing for the rights. The Chicago Cubs were the first team to regularly broadcast their home games, giving them away to local radio in 1925. It would be another fourteen years, however, before every team began regular radio broadcasts of their games.

Television

1939 was also the year that the first game was televised on an experimental basis. In 1946 the New York Yankees became the first team with a local television contract when they sold the rights to their games for $75,000. By the end of the century they sold those same rights for $52 million per season. By 1951 the World Series was a television staple, and by 1955 all teams sold at least some of their games to local television. In 1966 MLB followed the lead of the NFL and sold its first national television package, netting $300,000 per team. The latest national television contract paid $24 million to each team in 2002.

Table 1:

MLB Television Revenue, Ticket Prices and Average Player Salary 1964-2002

(real (inflation-adjusted) values are in 2002 dollars)

Notes: 1989 and 1992 national TV data only, no local TV included. Real values are calculated using Consumer Price Index.

As the importance of local media contracts grew, so did the problems associated with them. As cable and pay per view television became more popular, teams found them attractive sources of revenue. A fledgling cable channel could make its reputation by carrying the local ball team. In a large enough market, this could result in substantial payments to the local team. These local contracts did not pay all teams, only the home team. The problem from MLB’s point of view was not the income, but the variance in that income. That variance has increased over time, and is the primary source of the gap in payrolls, which is linked to the gap in quality, which is cited as the “competitive balance problem.” In 1962 the MLB average for local media income was $640,000 ranging from a low of $300,000 (Washington) to a high of $1.2 million (New York Yankees). In 2001, the average team garnered $19 million from local radio and television contracts, but the gap between the bottom and top had widened to an incredible $51.5 million. The Montreal Expos received $536,000 for their local broadcast rights while the New York Yankees received more than $52 million for theirs. Revenue sharing has resulted in a redistribution of some of these funds from the wealthiest to the poorest teams, but the impact of this on the competitive balance problem remains to be seen.

Franchise values

Baseball has been about profits since the first admission fee was charged. The first professional league, the National Association, founded in 1871, charged a $10 franchise fee. The latest teams to join MLB, paid $130 million apiece for the privilege in 1998.

Early Ownership Patterns

The value of franchises has mushroomed over time. In the early part of the twentieth century, owning a baseball team was a career choice for a wealthy sportsman. In some instances, it was a natural choice for someone with a financial interest in a related business, such as a brewery, that provided complementary goods. More commonly, the operation of a baseball team was a full time occupation of the owner, who was usually one individual, occasionally a partnership, but never a corporation.

Corporate Ownership

This model of ownership has since changed. The typical owner of a baseball team is now either a conglomerate, such as Disney, AOL Time Warner, the Chicago Tribune Company, or a wealthy individual who owns a (sometimes) related business, and operates the baseball team on the side – perhaps as a hobby, or as a complementary business. This transition began to occur when the tax benefits of owning a baseball team became significant enough that they were worth more to a wealthy conglomerate than a family owner. A baseball team that can show a negative bottom line while delivering a positive cash flow can provide significant tax benefits by offsetting income from another business. Another advantage of corporate ownership is the ability to cross-market products. For example, the Tribune Company owns the Chicago Cubs, and is able to use the team as part of its television programming. If it is more profitable for the company to show income on the Tribune ledger than the Cubs ledger, then it decreases the payment made to the team for the broadcast rights to its games. If a team owner does not have another source of income, then the ability to show a loss on a baseball team does not provide a tax break on other income. One important source of the tax advantage of owning a franchise comes from the ability to depreciate player salaries. In 1935 the IRS ruled that baseball teams could depreciate the value of their player contracts. This is an anomaly since labor is not a depreciating asset.

Table 2: Comparative Prices for MLB Salaries, Tickets and Franchise Values for Selected Years

The most significant change in the value of franchises has occurred in the last decade as a function of new stadium construction. The construction of a new stadium creates additional sources of revenue for a team owner, which impacts the value of the franchise. It is the increase in the value of franchises which is the most profitable part of ownership. Eight new stadiums were constructed between 1991 and 1999 for existing MLB teams. The average franchise value for the teams in those stadiums increased twenty percent the year the new stadium opened.

The Market Structure of MLB and Players’ Organizations

Major League Baseball is a highly successful oligopoly of professional baseball teams. The teams have successfully protected themselves against competition from other leagues for more than 125 years. The closest call came when two rival leagues, the established National League, and a former minor league, the Western League, renamed the American League in 1900, merged in 1903 to form the structure that exists to this day. The league lost some of its power in 1976 when it lost its monopsonistic control over the player labor market, but it retains its monopolistic hold on the number and location of franchises. Now the franchise owners must share a greater percentage of their revenue with the hired help, whereas prior to 1976 they controlled how much of the revenue to divert to the players.

The owners of professional baseball teams have acted in unison since the very beginning. They conspired to hold down the salaries of players with a secret reserve agreement in 1878. This created a monopsony whereby a player could only bargain with the team that originally signed him. This stranglehold on the labor market would last a century.

The baseball labor market is one of extremes. Baseball players began their labor history as amateurs whose skills quickly became highly demanded. For some, this translated into a career. Ultimately, all players became victims of a well-organized and obstinate cartel. Players lost their ability to bargain and offer their services competitively for a century. Despite several attempts to organize and a few attempts to create additional demand for their services from outside sources, they failed to win the right to sell their labor to the employer of their choice.

Beginning of Professionalization

The first team of baseball players to be openly paid was the 1869 Redstockings of Cincinnati. Prior to that, teams were organized as amateur squads who played for the pride of their hometown, club or college. The stakes in these games were bragging rights, often a trophy or loving cup, and occasionally a cash prize put up by a benefactor, or as a wager between the teams. It was inevitable that professional players would soon follow.

The first known professional players were paid under the table. The desire to win had eclipsed the desire to observe good sportsmanship, and the first step down the slope toward full professionalization of the sport had been taken. Just a few years later, in 1869, the first professional team was established. The Redstockings are as famous for being the first professional team as they are for their record and barnstorming accomplishments. The team was openly professional, and thus served as a worthy goal for other teams, amateur, semi-professional, and professional alike. The Cincinnati squad spent the next year barnstorming across America, taking on, and defeating, all challengers. In the process they drew attention to the game of baseball, and played a key part in its growing popularity. Just two years later, the first entirely professional baseball league would be established.

National Association of Professional Baseball Players

The formation of the National Association of Professional Base Ball Players in 1871 created a different level of competition for baseball players. The professional organization, which originally included nine teams, broke away from the National Association of Base Ball Players, which used amateur players. The amateur league folded three years after the split. The league was reorganized and renamed the National League in 1876. Originally, professional teams competed to sign players, and the best were rewarded handsomely, earning as much as $4500 per season. This was good money, given that a skilled laborer might earn $1200-$1500 per year for a 60 hour work week.

This system, however, proved to be problematic. Teams competed so fiercely for players that they regularly raided each other’s rosters. It was not uncommon for players to jump from one team to another during the season for a pay increase. This not only cost team owners money, but also created havoc with the integrity of the game, as players moved among teams, causing dramatic mid-season swings in the quality of teams.

Beginning of the Reserve Clause, 1878-79

During the winter of 1878-79, team owners gathered to discuss the problem of player roster jumping. They made a secret agreement among themselves not to raid one another’s rosters during the season. Furthermore, they agreed to restrain themselves during the off-season as well. Each owner would circulate to the other owners a list of five players he intended to keep on his roster the following season. By agreement, none of the owners would offer a contract to any of these “reserved” players. Hence, the reserve clause was born. It would take nearly a century before this was struck down. In the meantime, it went from five players (about half the team) to the entire team (1883) and to a formal contract clause (1887) agreed to by the players. Owners would ultimately make such a convincing case for the necessity of the reserve clause, that players themselves testified to its necessity in the Celler Anti-monopoly Hearings in 1951.

In 1892 the minor league teams agreed to a system that allowed the National League teams to draft players from their teams. This agreement was in response to their failure to get the NL to honor their reserve clause. In other words, what was good for the goose, was not good for the gander. While NL owners agreed to honor their reserve lists among one another, they paid no such honor to the reserve lists of teams in other organized, professional leagues. They believed they were at the top of the pyramid, where all the best players should be, and therefore they would get those players when they wanted them. As part of the draft agreement, the minor league teams allowed the NL teams to select players from their roster for fixed payments. The NL sacrificed some money, but restored a bit of order to the process, not to mention eliminated expensive bidding wars among teams for the services of players from the minor league teams.

The Players League

The first revolt by the players came in 1890, when they formed their own league, called the Players League, to compete with the National League and its rival, the American Association (AA), founded in 1882. The Players League was the first and only example of a cooperative league. The league featured profit sharing with players, an abolition of unilateral contract transfers, and no reserve clause. The competing league caused a bidding war for talent, leading to salary increases for the best players. The “war” ended after just one season, when the National League and American Association agreed to allow owners of some Players League teams to buy existing franchises. The following year, the NL and AA merged by buying out four AA franchises for $130,000 and merging the other four into the National League, to form a single twelve-team circuit.

Syndicates

This proved to be an unwieldy league arrangement however, and some of the franchises proved financially unstable. In order to preserve the structure of the league and avoid bankruptcy of some teams, syndicate ownership evolved, in which owners purchased a controlling interest in two teams. This did not help the stability of the league. Instead, it became a situation in which the syndicates used one team to train young players and feed the best of them to the other team. This period in league history exhibits some of the greatest examples of disparity between the best and worst teams in the league. In 1899 the Cleveland Spiders, the poor stepsister in the Cleveland-St. Louis syndicate, would lose a record 134 out of 154 games, a level of futility that has never been equaled. In 1900 the NL reduced to eight teams, buying out four of the existing franchises (three of the original AA franchises) for $60,000.

Western League Competes with National League

Syndicate ownership was ended in 1900 as the final part of the reorganization of the NL. It also sparked the minor Western League to declare major league status, and move some teams into NL markets for direct competition (Chicago, Boston, St. Louis, Philadelphia and Manhattan). All out competition followed in 1901, complete with roster raiding, salary increases, and team jumping, much to the benefit of the players. Syndicate ownership appeared again in 1902 when the owners of the Pittsburgh franchise purchased an interest in the Philadelphia club. Owners briefly entertained the idea of turning the entire league into a syndicate, transferring players to the market where they might be most valuable. The idea was dropped, however, for fear that the game would lose credibility and result in a decrease in attendance. In 1910 syndicate ownership was formally banned, though it did occur again in 2002, when the Montreal franchise was purchased by the other 29 MLB franchises as part of a three way franchise swap involving Boston, Miami and Montreal. MLB is currently looking to sell the franchise and move it to a more profitable market.

National and American Leagues End Competition

Team owners quickly saw the light, and in 1903 they made an agreement to honor one another’s rosters. Once more the labor wars were ended, this time in an agreement that would establish the major leagues as an organization of two cooperating leagues: the National League and the American League, each with eight teams, located in the largest cities east of the Mississippi (with the exception of St. Louis), and each league honoring the reserved rosters of teams in the other. This structure would prove remarkably stable, with no changes until 1953 when the Boston Braves became the first team to relocate in half a century when they moved to Milwaukee.

Franchise Numbers and Movements

The location and number of franchises has been a tightly controlled issue for teams since leagues were first organized. Though franchise movements were not rare in the early days of the league, they have always been under the control of the league, not the individual franchise owners. An owner is accepted into the league, but may not change the location of his or her franchise without the approval of the other members of the league. In addition, moving the location of a franchise within the vicinity of another franchise requires the permission of the affected franchise. As a result, MLB franchises have been very stable over time in regard to location. The size of the league has also been stable. From the merger of the AL and NL in 1903 until 1961, the league retained the same sixteen teams. Since that time, expansion has occurred fairly regularly, increasing to its present size of 30 teams with the latest round of expansion in 1998. In 2001, the league proposed going in the other direction, suggesting that it would contract by two teams in response to an alleged fiscal crisis and breakdown in competitive balance. Those plans were postponed at least four years by the labor agreement signed in 2002.

Table 3: MLB Franchise Sales Data by Decade

Note: 2002 values calculated using the Consumer Price Index for decade midpoint

Negro Leagues

Separate professional leagues for African Americans existed, since they were excluded from participating in MLB until 1947 when Jackie Robinson broke the color barrier. The first was formed in 1920, and the last survived until 1960, though their future was doomed by the integration of the major and minor leagues.

Relocations

As revenues dried up or new markets beckoned due to shifts in population and the decreasing cost of trans-continental transportation, franchises began relocating in the second half of the twentieth century. The period from 1953-1972 saw a spate of franchise relocation: teams moved to Kansas City, Minneapolis, Baltimore, Los Angeles, Oakland, Dallas and San Francisco in pursuit of new markets. Most of these moves involved one team moving out of a market it shared with another team. The last team to relocate was the Washington D.C. franchise, which moved to suburban Dallas in 1972. It was the second time in just over a decade that a franchise had moved from the nation’s capitol. The original franchise, a charter member of the American League, had moved to Minneapolis in 1961. While there have been no relocations since then, there have been plenty of examples of threats to relocate. The threat to relocate has frequently been used by a team trying to get a new stadium built with public financing.

There were still a couple of challenges to the reserve clause. Until the 1960s, these came in the form of rival leagues creating competition for players, not a challenge to the legality of the reserve clause.

Federal League and the 1922 Supreme Court Antitrust Exemption

In 1914 the Federal League debuted. The new league did not recognize the reserve clause of the existing leagues, and raided their rosters, successfully luring some of the best players to the rival league with huge salary increases. Other players benefited from the new competition, and were able to win handsome raises from their NL and AL employers in return for not jumping leagues. The Federal League folded after two seasons when some of the franchise owners were granted access to the major leagues. No new teams were added, but a few owners were allowed to purchase existing NL and AL teams.

The first attack on the organizational structure of the major leagues to reach the US Supreme Court occurred when the shunned owner of the Baltimore club of the Federal League sued major league baseball for violation of antitrust law. Federal Baseball Club of Baltimore v the National League eventually reached the Supreme Court, where in 1922 the famous decision that baseball was not interstate commerce, and therefore was exempt from antitrust laws was rendered.

Early Strike and Labor Relations Problems

The first player strike actually occurred in 1912. The Detroit Tigers, in a show of unison for their embattled star Ty Cobb, refused to play in protest of what they regarded as an unfair suspension of Cobb, refusing to take the field unless the suspension was lifted. When warned that the team faced the prospect of a forfeit and a $5000 fine if they did not field a team, owner Frank Navin recruited local amateur players to suit up for the Tigers. The results were not surprising: a 24-2 victory for the visiting Philadelphia Athletics.

This was not an organized strike against the system per se, but it was indicative of the problems existent in the labor relations between players and owners. Cobb’s suspension was determined by the owner of the team, with no chance for a hearing for Cobb, and with no guidance from any existing labor agreement regarding suspensions. The owner was in total control, and could mete out whatever punishment for whatever length he deemed appropriate.

Mexican League

The next competing league appeared in 1946 from an unusual source: Mexico. Again, as in previous league wars, the competition benefited the players. In this case the players who benefited most were those players who were able to use Mexican League offers as leverage to gain better contracts from their major league teams. Those players who accepted offers from Mexican League teams would ultimately regret it. The league was under-financed, the playing and travel conditions far below major league standards, and the wrath of the major leagues deep. When the first paychecks were missed, the players began to head back to the U.S. However, they found no jobs waiting for them. Major League Baseball Commissioner Happy Chandler blacklisted them from the league. This led to a lawsuit, Gardella v MLB. The case was eventually settled out of court after a Federal Appeals court sided with Danny Gardella in 1949. Gardella was one of the blacklisted players who sued MLB for restraint of trade after being prevented from returning to the league after accepting a Mexican League offer for the 1946 season. While many of the players ultimately returned to the major leagues, they lost several years of their careers in the process.

Player Organizations

The first organization of baseball players came in 1885, in part a response to the reserve clause enacted by owners. The National Brotherhood of Professional Base Ball Players was not particularly successful however. In fact, just two years later, the players agreed to the reserve clause, and it became a part of the standard players contract for the next 90 years.

In 1900 another player organization was founded, the Players Protective Association. Competition broke out the next year, when the Western League declared itself a major league, and became the American League. It would merge with the National League for the 1903 season, and the brief period of roster raiding and increasing player salaries ended, as both leagues agreed to recognize one another’s rosters and reserve clauses. The Players Protective Association faded into obscurity amid the brief period of increased competition and player salaries.

Failure and Consequences of the American Baseball Guild

In 1946 the foundation was laid for the current Major League Baseball Player’s Association (MLBPA). Labor lawyer Robert Murphy created the American Baseball Guild, a player’s organization, after holding secret talks with players. Ultimately, the players voted not to form a union, and instead followed the encouragement of the owners, and formed their own committee of player representatives to bargain directly with the owners. The outcome of the negotiations was changes in the standard labor contract. Up to this point, the contract had been pretty much dictated by the owners. It contained such features as the right to waive a player with only ten days notice, the right to unilaterally decrease salary from one year to the next by any amount, and of course the reserve clause.

The players did not make major headway with the owners, but they did garner some concessions. Among them were a maximum pay cut of 25%, a minimum salary of $5000, a promise by the owners to create a pension plan, and $25 per week in living expenses for spring training camp. Until 1947, players received only expense money for spring training, no salary. The players today, despite their multimillion-dollar contracts, still receive “Murphy money” for spring training as well as a meal allowance for each day they are on the road traveling with the club.

Facing eight antitrust lawsuits in 1950, MLB requested Congress to pass a general immunity bill for all professional sports leagues. The request ultimately led to MLB’s inclusion in the Celler Anti-monopoly hearings in 1951. However, no legislative action was recommended. In fact, the owners by this time had so thoroughly convinced the players of the necessity of the reserve clause to the very survival of MLB that several players testified in favor of the monopsonistic structure of the league. They cited it as necessary to maintain the competitive balance among the teams that made the league viable. In 1957 the House Antitrust Subcommittee revisited the issue, once again recommending no change in the status quo.

Impacts of the Reserve Clause

Simon Rottenberg was the first economist to seriously look into professional baseball with the publication of his classic 1956 article “The Baseball Players’ Labor Market.” His conclusion, not surprisingly, was that the reserve clause transferred wealth from the players to owners, but had only a marginal impact on where the best players ended up. They would end up playing for the teams in the market in the best position to exploit their talents for the benefit of paying customers – in other words, the biggest markets: primarily New York. Given the quality of the New York teams (one in Manhattan, one in the Bronx and one in Brooklyn) during the era of Rottenberg’s study, his conclusion seems rather obvious. During the decade preceding his study, the three New York teams consistently performed better than their rivals. The New York Yankees won eight of ten American League pennants, and the two National League New York entries won eight of ten NL pennants (six for the Brooklyn Dodgers, two for the New York Giants).

Foundation of the Major League Baseball Players Association

The current players organization, the Major League Baseball Players Association, was formed in 1954. It remained in the background, however, until the players hired Marvin Miller in 1966 to head the organization. Hiring Miller, a former negotiator for the U.S. steel workers, would turn out to be a stroke of genius. Miller began with a series of small gains for players, including increases in the minimum salary, pension contributions by owners and limits to the maximum salary reduction owners could impose. The first test of the big item – the reserve clause – reached the Supreme Court in 1972.

Free Agency, Arbitration and the Reserve Clause

Curt Flood

Curt Flood, a star player for the St. Louis Cardinals, had been traded to the Philadelphia Phillies in 1970. Flood did not want to move from St. Louis, and informed both teams and the commissioner’s office that he did not intend to leave. He would play out his contract in St. Louis. Commissioner Bowie Kuhn ruled that Flood had no right to act in this way, and ordered him to play for Philadelphia, or not play at all. Flood chose the latter and sued MLB for violation of antitrust laws. The case reached the Supreme Court in 1972, and the court sided with MLB in Flood v. Kuhn. The court acknowledged that the 1922 ruling that MLB was exempt from antitrust law was an anomaly and should be overturned, but it refused to overturn the decision itself, arguing instead that if Congress wanted to rectify this anomaly, they should do so. Therefore the court stood pat, and the owners felt the case was settled permanently: the reserve clause had once again withstood legal challenge. They could not, however, have been more badly mistaken. While the reserve clause never has been overturned in a court of law, it would soon be drastically altered at the bargaining table, and ultimately lead to a revolution in the way baseball talent is dispersed and revenues are shared in the professional sports industry.

Curt Flood lost the legal battle, but the players ultimately won the war, and are no longer restrained by the reserve clause beyond the first two years of their major league contract. In a series of labor market victories beginning in the wake of the Flood decision in 1972 and continuing through the rest of the century, the players won the right to free agency (i.e. to bargain with any team for their services) after six years of service, escalating pension contributions, salary arbitration (after two to three seasons, depending on their service time), individual contract negotiations with agent representatives, hearing committees for disciplinary actions, reductions in maximum salary cuts, increases in travel money and improved travel conditions, the right to have disputes between players and owners settled by an independent arbitrator, and a limit to the number of times their contract could be assigned to a minor league team. Of course the biggest victory was free agency.

Impact of Free Agency – Salary Gains

The right to bargain with other teams for their services changed the landscape of the industry dramatically. No longer were players shackled to one team forever, subject to the whims of the owner for their salary and status. Now they were free to bargain with any and all teams. The impact on salaries was incredible. The average salary skyrocketed from $45,000 in 1975 to $289,000 in 1983.

Table 4: Maximum and Average MLB Player Salaries by Decade

(real values in 2002 dollars)

Real values based on 2002 Consumer Price Index.

Over the long haul, the changes have been even more dramatic. The average salary increased from $45,000 in 1975 to $2.4 million in 2002, while the minimum salary increased from $6000 to $200,000 and the highest paid player increased from $240,000 to $22 million. This is a 5200% increase in the average salary. Of course, not all of that increase is due to free agency. Revenues increased during this period by nearly 1800% from an average of $6.4 million to $119 million, primarily due to the 2800% increase in television revenue over the same period. Ticket prices increased by 439% while attendance doubled (the number of MLB teams increased from 24 to 30).

Strikes and Lockouts

Miller organized the players and unified them as no one had done before. The first test of their resolve came in 1972, when the owners refused to bargain on pension and salary issues. The players responded by going out on the first league-wide strike in American professional sports history. The strike began during spring training, and carried on into the season. The owners finally conceded in early April after nearly 100 games were lost to the strike. The labor stoppage became the favorite weapon of the players, who would employ it again in 1981, 1985, and 1994. The latter strike cancelled the World Series for the first time since 1904, and carried on into the 1995 season. The owners preempted strikes in two other labor disputes, locking out the players in 1976 and 1989. After each work stoppage, the players won the concessions they demanded and fended off attempts by owners to reverse previous player gains, particularly in the areas of free agency and arbitration. From the first strike in 1972 through 1994, every time the labor agreement between the two sides expired, a work stoppage ensued. In August of 2002 that pattern was broken when the two sides agreed to a new labor contract for the first time without a work stoppage.

Catfish Hunter

The first player to become a free agent did so due to a technicality. In 1974 Catfish Hunter, a pitcher for the Oakland Athletics, negotiated a contract with the owner, Charles Finley, which required Finley to make a payment into a trust fund for Hunter on a certain date. When Finley missed the date, and then tried to pay Hunter directly instead of honoring the clause, Hunter and Miller filed a complaint charging the contract should be null and void because Finley had broken it. The case went to an arbitrator who sided with Hunter and voided the contract, making Hunter a free agent. In a bidding frenzy, Hunter ultimately signed what was then a record contract with the New York Yankees. It set precedents for both its length – five years guaranteed, and its annual salary of $750,000. Prior to the dawning of free agency, it was a rare circumstance for a player to get anything more than a one-year contract, and a guaranteed contract was virtually unheard of. If a player was injured or fell off in performance, an owner would slash his salary or release him and vacate the remainder of his contract.

The End of the Reserve Clause – Messersmith and McNally

The first real test of the reserve clause came in 1975, when, on the advice of Miller, Andy Messersmith played the season without signing a contract. Dave McNally also refused to sign a contract, though he had unofficially retired at the time. Up to this time, the reserve clause meant that a team could renew a player’s contract at their discretion. The only changes in this clause that occurred since 1879 were the maximum amount by which the owner could reduce the player’s salary. In order to test the clause, which allowed teams to maintain contractual rights to players in perpetuity, Messersmith and McNally refused to sign contracts. Their teams automatically renewed their contracts from the previous season, per the reserve clause. The argument the players put forth was that if no contract was signed, then there was no reserve clause. They argued that Messersmith and McNally would be free to negotiate with any team at the end of the season. The reserve clause was struck down by arbitrator Peter Seitz on Dec. 23, 1975, clearing the way for players to become free agents and sell their services to the highest bidder. Messersmith and McNally became the first players to challenge and successfully escape the reserve clause. The baseball labor market changed permanently and dramatically in favor of the players, and has never turned back.

Current Labor Arrangements

The baseball labor market as it exists today is a result of bargaining between owners and players. Owners ultimately conceded the reserve clause and negotiated a short period of exclusivity for a team with a player. The argument they put forward was that the cost of developing players was so high, they needed a window of time when they could recoup those investments. The existing situation allows them six years. A player is bound to his original team for the first six years of his MLB contract, after which he can become a free agent – though some players bargain away that right by signing long-term contracts before the end of their sixth year.

During that six-year period however, players are not bound to the salary whims of the owners. The minimum salary will rise to $300,000 in 2003, there is a 10% maximum salary cut from one year to the next, and after two seasons players are eligible to have their contract decided by an independent arbitrator if they cannot come to an agreement with the team.

Arbitration

After their successful strike in 1972, the players had increased their bargaining position substantially. The next year they claimed a major victory when the owners agreed to a system of salary arbitration for players who did not yet qualify for free agency. Arbitration was won by the players at in 1973, and has since proved to be one of the costliest concessions the owners ever made. Arbitration requires each side to submit a final offer to an arbitrator, who must then choose one or the other offer. The arbitrator may not compromise on the offers, but must choose one. Once chosen, both sides are then obligated to accept that contract.

Once eligible for arbitration, a player, while not a free agent, does stand to reap a financial windfall. If a player and owner (realistically, a player’s agent and the owner’s agent – the general manager) cannot agree on a contract, either side may file for arbitration. If the other does not agree to go to arbitration, then the player becomes a free agent, and may bargain with any team. If arbitration is accepted, then both sides are bound to accept the contract awarded by the arbitrator. In practice, most of the contracts are settled before they reach the arbitrator. A player will file for arbitration, both sides will submit their final contract offers to the arbitrator, and then will usually settle somewhere in between the final offers. If they do not settle, then the arbitrator must hear the case and make a decision. Both sides will argue their point, which essentially boils down to comparing the player to other players in the league and their salaries. The arbitrator then decides which of the two final offers is closer to the market value for that player, and picks that one.

Collusion under Ueberroth

The owners, used to nearly a century of one-sided labor negotiations, quickly grew tired of the new economics of the player labor markets. They went through a series of labor negotiators, each one faring as poorly as the next, until they hit upon a different solution. Beginning in 1986, under the guidance of commissioner Peter Ueberroth, they tried collusion to stem the increase in player salaries. Teams agreed not to bid on one another’s free agents. The strategy worked, for awhile. During the next two seasons, player salaries grew at lower rates and high profile free agents routinely had difficulty finding anybody interested in their services. The players filed a complaint, charging the owners with a violation of the labor agreement signed by owners and players in 1981, which prohibited collusive action. They filed separate collusion charges for each of the three seasons from 1985-87, and won each time. The ruling resulted in the voiding of the final years of some players contracts, thus awarding them “second look” free agency status, and levied fines in excess of $280 million dollars on the owners. The result was a return to unfettered free agency for the players, a massive financial windfall for the impacted players, a black eye for the owners, and the end of the line for Commissioner Ueberroth.

Table 5:

Average MLB Payroll as a Percentage of Total Team Revenues for Selected Years

Exploitation Patterns

Economist Andrew Zimbalist calculated the degree of market exploitation for baseball players for the years 1986-89, a decade after free agency began, and during the years of collusion, using a measure of the marginal revenue product of players. The marginal revenue product of a player is a measure of the additional revenue a team receives due to the addition of that player to the team. This is done by calculating the impact of the player on the performance of the team, and the subsequent impact of team performance on total revenue. He found that on average, the degree of exploitation, as measured by the ratio of marginal revenue product to salary, declined each year, from 1.32 in 1986 to 1.01 in 1989. The degree of exploitation, however, was not uniform across players. Not surprisingly, it decreased as players obtained the leverage to bargain. The degree of exploitation was highest for players in their first two years, before they were arbitration eligible, fell for players in the 2-5 year category, between arbitration and free agency, and disappeared altogether for players with six or more years of experience. In fact, for all four years, Zimbalist found that this group of players was overpaid with an average MRP of less than 75% of salary in 1989. No similar study has been done for players before free agency, in part due to the paucity of salary data before this time.

Negotiations under the Reserve Clause

Player contracts have changed dramatically since free agency. Players used to be subject to whatever salary the owner offered. The only recourse for a player was to hold out for a better salary. This strategy seldom worked, because the owner had great influence on the media, and usually was able to turn the public against the player, adding another source of pressure on the player to sign for the terms offered by the team. The pressure of no payday – a payday that, while less than the player’s MRP, still exceeded his opportunity cost by a fair amount, was usually sufficient to minimize the length of most holdouts. The owner influenced the media because the sports reporters were actually paid by the teams in cash or in kind, traveled with them, and enjoyed a relatively luxurious lifestyle for their chosen occupation. A lifestyle that could be halted by edict of the team at any time. The team controlled media passes and access and therefore had nearly total control of who covered the team. It was a comfortable lifestyle for a reporter, and spreading owner propaganda on occasion was seldom seen as an unacceptable price to pay.

Recent Concerns

The major labor issue in the game has shifted from player exploitation, the cry until free agency was granted, to competitive imbalance. Today, critics of the salary structure point to its impact on the competitive balance of the league as a way of criticizing the rising payrolls. Many fans of the game openly pine for a return for “the good old days,” when players played for the love of the game. It should be recognized however, that the game has always been a business. All that has changed has been the amount of money at stake and how it is divided among the employers and their employees.

Suggested Readings

A Club Owner. “The Baseball Trust.” Literary Digest, December 7, 1912.

Burk, Robert F. Much More Than a Game: Players, Owners, and American Baseball since 1921. Chapel Hill: University of North Carolina Press, 2001.

Burk, Robert F. Never Just a Game: Players, Owners, and American Baseball to 1920. Chapel Hill: University of North Carolina Press, 1994.

Dworkin, James B. Owners versus Players: Baseball and Collective Bargaining. Dover, MA: Auburn House, 1981.

Haupert, Michael, baseball financial database.

Haupert, Michael and Ken Winter. “Pay Ball: Estimating the Profitability of the New York Yankees 1915-37.” Essays in Economic and Business History 21 (2002).

Helyar, John. Lords of the Realm: The Real History of Baseball. New York: Villard Books, 1994.

Korr, Charles. The End of Baseball as We Knew It: The Players Union, 1960-1981. Champagne: University of Illinois Press, 2002.

Kuhn, Bowie, Hardball: The Education of a Baseball Commissioner. New York: Times Books, 1987.

Lehn, Ken. “Property Rights, Risk Sharing, and Player Disability in Major League Baseball.” Journal of Law and Economics 25, no. 2 (October1982): 273-79.

Lowe, Stephen. The Kid on the Sandlot: Congress and Professional Sports, 1910-1992. Bowling Green: Bowling Green University Press, 1995.

Lowenfish, Lee. “A Tale of Many Cities: The Westward Expansion of Major League Baseball in the 1950s.” Journal of the West 17 (July 1978).

Lowenfish, Lee. “What Were They Really Worth?” The Baseball Research Journal 20 (1991): 81-2.

Lowenfish, Lee. The Imperfect Diamond: A History of Baseball’s Labor Wars. New York: Da Capo Press, 1980.

Miller, Marvin. A Whole Different Ball Game: The Sport and Business of Baseball. New York: Birch Lane Press, 1991.

Noll, Roger G. and Andrew S. Zimbalist, editors. Sports Jobs and Taxes: Economic Impact of Sports Teams and Facilities. Washington, D.C.: Brookings Institute, 1997.

Noll, Roger, editor. Government and the Sports Business. Washington, D.C.: Brookings Institution, 1974.

Okkonen, Mark. The Federal League of 1914-1915: Baseball’s Third Major League. Cleveland: Society of American Baseball Research, 1989.

Orenstein, Joshua B. “The Union Association of 1884: A Glorious Failure.” The Baseball Research Journal 19 (1990): 3-6.

Pearson, Daniel M. Baseball in 1889: Players v Owners. Bowling Green, OH: Bowling Green State University Popular Press, 1993.

Quirk, James. “An Economic Analysis of Team Movements in Professional Sports.” Law and Contemporary Problems 38 (Winter-Spring 1973): 42-66.

Rottenberg, Simon. “The Baseball Players’ Labor Market.” Journal of Political Economy 64, no. 3 (December 1956) 242-60.

Scully, Gerald. The Business of Major League Baseball. Chicago: University of Chicago Press, 1989.

Sherony, Keith, Michael Haupert and Glenn Knowles. “Competitive Balance in Major League Baseball: Back to the Future.” Nine: A Journal of Baseball History & Culture 9, no. 2 (Spring 2001): 225-36.

Sommers, Paul M., editor. Diamonds Are Forever: The Business of Baseball. Washington, D.C.: Brookings Institution, 1992.

Sullivan, Neil J. The Diamond in the Bronx: Yankee Stadium and the Politics of New York. New York: Oxford University Press, 2001.

Sullivan, Neil J. The Diamond Revolution. New York: St. Martin’s Press, 1992.

Sullivan, Neil J. The Dodgers Move West. New York: Oxford University Press, 1987.

Thorn, John and Peter Palmer, editors. Total Baseball. New York: HarperPerennial, 1993.

Voigt, David Q. The League That Failed, Lanham, MD: Scarecrow Press, 1998.

White, G. Edward. Creating the National Pastime: Baseball Transforms Itself, 1903-1953. Princeton: Princeton University Press, 1996.

Wood, Allan. 1918: Babe Ruth and the World Champion Boston Red Sox. New York: Writers Club Press, 2000.

Zimbalist, Andrew. Baseball and Billions. New York: Basic Books, 1992.

Zingg, Paul, “Bitter Victory: The World Series of 1918: A Case Study in Major League Labor-Management Relations.” Nine: A Journal of Baseball History and Social Policy Perspectives 1, no. 2 (Spring 1993): 121-41.

Zweig, Jason, “Wild Pitch: How American Investors Financed the Growth of Baseball.” Friends of Financial History 43 (Summer 1991).

Citation: Haupert, Michael. “The Economic History of Major League Baseball”. EH.Net Encyclopedia, edited by Robert Whaples. December 3, 2007. URL
http://eh.net/encyclopedia/the-economic-history-of-major-league-baseball/

Carole E. Scott, State University of West Georgia

The Technological Development of Radio: From Thales to Marconi

All electrically-based industries trace their ancestry back to at least 600 B.C. when the Greek philosopher Thales observed that after it is rubbed, amber (electron in Greek) attracts small objects. In 1600, William Gilbert, an Englishman, distinguished between magnetism, such as that displayed by a lodestone, and what we now call the static electricity produced by rubbing amber. In 1752, America’s multi-talented Benjamin Franklin used a kite connected to a Leyden jar during a thunderstorm to prove that a lightning flash has the same nature as static electricity. In 1831, an American, Joseph Henry, used an electromagnet to send messages by wire between buildings on Princeton’s campus. Assisted by Henry, an American artist, Samuel F. B. Morse, developed a telegraph system utilizing a key to open and close an electric circuit to transmit an intermittent signal (Morse Code) through a wire.

The possibility of transmitting messages through the air, water, or ground via low frequency magnetic waves was discovered soon after Morse invented the telegraph. Induction was the method used in the first documented “wireless telephone” demonstration by Nathan B. Stubblefield, a Kentucky farmer, in 1892. Because Stubblefield transmitted sound through the air via induction, rather than by radiation, he was not the inventor of radio.

Transmission by radiation owes its existence to the discovery in1877 of electromagnetic waves by a German, Heinrich Rudolf Hertz. Electromagnetic waves of from 10,000 cycles a second to 1,200,000,000 cycles a second are today called radio waves. Eight years after Hertz’s discovery, an American, Thomas Alva Edison, took out a patent for wireless telegraphy through the use of discontinuous radio waves. A few years later, in 1894, using a different and much superior wireless telegraphy system, an Italian, Guglielmo Marconi, used discontinuous waves to send Morse Code messages through the air for short distances over land. Later he sent them across the Atlantic Ocean. On land in Europe Marconi was stymied by laws giving government-operated postal services a monopoly on message delivery, and initially only over water was he able to transmit radio waves very far.

Several Americans transmitted speech without the benefit of wires prior to 1900. Alexander G. Bell, for example, experimented in 1890 with transmitting sound with rays of light, whose frequency exceeds that of radio waves. His test of what he called the photophone was said to be the first practical test of such a device ever made. Although Marconi is widely given the credit for being the first man to develop a successful wireless system, some believe that others, including Nicola Tesla preceded him. However, it is clear that Marconi had far more influence on the shaping of the radio industry than these men did.

The Structure of the Radio Industry before 1920: Inventor-Entrepreneurs

As had been true of earlier high-tech industries such as the telegraph and electric lighting in their formative years, what was accomplished in the early years of the radio industry was primarily brought about by inventor/entrepreneurs. None of the major electrical and telephone companies played a role in the formative years of the radio industry. So this industry’s early history is a story of individual inventors and entrepreneurs, many of whom were both inventors and entrepreneurs. However, after 1920 this industry’s history is largely one of organizations.

Scientists obtain their objective by discovering the laws of nature. Inventors, on the other hand, use the laws of nature to find a way to do something. Because they do not know or do not care what scientists’ laws say is possible, inventors will try things that scientists will not. When the creations of inventors work in seeming defiance of scientists’ work, scientists rush to the lab to find out why. Scientists thought that radio waves could not be transmitted beyond the horizon because they thought that this would require that they bend to follow the curvature of the Earth. Marconi tried transmitting beyond the horizon anyway and succeeded. A typical scientist would not have tried to do this because he knew better and his fellow scientists might laugh at him.

Marconi

Marconi may not have been visionary enough to found the radio broadcasting industry. Vision was required because, while there was already an established market for electronic, point-to-point communication, there was no existing market for broadcasting, nor could the technology for transmitting speech be as easily developed as could that for transmitting dots and dashes. In point-to-point communications radio’s disadvantage was lack of privacy. Its competitive advantage was much lower cost than transmission by wire over land and undersea cable.

Due in part to his Marconi Company’s purchase of competitors who had infringed on its patents, by the time World War I broke out, the American Marconi Company dominated the American radio market. As a result, it had no overwhelming need to develop a new service. In addition, Marconi had no surplus funds to plow into a new business. Shortly after the end of World War I, the United States’ government’s hostile attitude convinced Marconi that his British-based company had no future in America, and he agreed to sell it to the General Electric Company (GE). Marconi had wanted to create an international wireless monopoly. However, the United States government opposed the creation of a foreign-owned wireless monopoly. During World War I the United States Navy was given control of all the nation’s private wireless facilities. After the war the Navy wanted wireless to continue to be a government-controlled monopoly. Unable to achieve this, the Navy recommended that an American-owned company be established to control the manufacture and marketing of wireless in the United States. As a result, the government-sponsored Radio Corporation of America was created to take over the assets of Marconi’s American company.

The four chief players in American radio’s early years, Marconi, Canadian-born Aubrey Fessenden, Lee deForest, and John Stone Stone [sic] were all inventor/entrepreneurs. Marconi successfully exploited the interdependence among technology, business strategy, and the press. He was the only one of the four to have an adequate business strategy. Only he and deForest took full advantage of the press. However, deForest seems to have used the press more to sell stock than apparatus. Marconi was also more astute in his patent dealings than were his American competitors. For example, to protect himself from a possible patent suit, he purchased from Thomas A. Edison his patent on a system of wireless telegraphy that Edison had never used. Marconi never used it either because it was inferior to one he developed.

Fessenden

Fessenden, a very prolific inventor, first experimented with voice transmission while working for the United States Weather Bureau. In 1900 he left what is now the University of Pittsburgh, where he was head of the electrical engineering department, to develop a method for the U.S. Weather Bureau to transmit weather reports. That year, through the use of a transmitter that produced discontinuous waves, he succeeded in transmitting speech.

Although discontinuous waves would satisfactorily transmit the dots and dashes of Morse code, high quality voice and music cannot be transmitted in this way. So, in 1902, Fessenden switched to using a continuous wave, becoming the first person to transmit voice and music by this method. On Christmas Eve, 1906, Fessenden made history by broadcasting music and speech from Massachusetts that was heard as far away as the West Indies. After picking up this broadcast, the United Fruit Company purchased equipment from Fessenden to communicate with its ships. Navies and shipping companies were among those most interested in purchasing early radio equipment. During World War I armies also made significant use of radio. Important among its army uses was communicating with airplanes.

Because he did not provide a regular schedule of programming for the public, Fessenden is not usually credited with having operated the first broadcasting station. Nonetheless, he is widely recognized as the father of broadcasting because those who had gone before him had only used radio to deliver messages from one person to another. However, despite being preoccupied with laboratory work and being unsuited by temperament and experience to be a businessman, he chose to directly manage his company. It failed, and an embittered Fessenden left the radio industry.

deForest

Lee deForest, whose doctoral dissertation was about Hertzian waves, received his Ph.D. from Yale in 1896. His first job was with Western Electric. By 1902 he had started the DeForest Wireless Telegraph Company, which became insolvent in 1906. His second company, the DeForest Radio Telephone Company began to fail in 1909. In 1912 he was indicted for using the mails to defraud by promoting “a worthless device,” the Audion tube. He was acquitted. The Audion tube (later known as a triode tube) was far from being a worthless device, as it was a key component of radios so long as vacuum tubes continued to be used.

The development of a commercially viable radio broadcasting industry could not have taken place without the invention of the vacuum tube, which had its origins in Englishman Michael Faraday’s belief that an electric current could probably pass through a vacuum. (The vacuum tube’s obsolescence was the result of a study of semiconductors in 1948 by William Shockley, Walter Brattain, and John Bardeen. They discovered that the introduction of impurities into semiconductors provided a solid-state material that would not only rectify a current, but also amplify it. Transistors using this material rapidly replaced vacuum tubes. Later it became possible to etch transistors on small pieces of silicon in integrated circuits.)

In 1910, deForest broadcast, probably rather poorly, the singing of opera singer Enrico Caruso. Possibly stimulated by the American Telephone and Telegraph Company transmitting from the Navy’s Arlington, Virginia facility in 1915 radio telephone signals heard both across the Atlantic and in Honolulu, deForest resumed experimenting with broadcasting. He installed a transmitter at the Columbia Gramophone building in New York and began daily broadcasts of phonograph music sponsored by Columbia. Because in the late nineteenth century the new electrical industry had made some investors multimillionaires almost over night, Americans like deForest and his partners found easy pickings for awhile, as many people were eager to snap up the stock offered by overly optimistic inventors in this new branch of the electrical industry. The quick failure of firms whose end, rather than their means, was selling stock made life more difficult for ethical firms.

Amateur Radio

In the United States in 1913 there were 322 licensed amateur radio operators who would ultimately be relegated to the seemingly barren wasteland of the radio spectrum, short wave. By 1917 there were 13,581 amateur radio operators. At that time building a radio receiver was a fad. The typical builder was a boy or young man. Many older people thought that all radio would ever be was a fad, and certainly so long as the public had to build its own radios, put up with poor reception, and listen to dots and dashes and a few experimental broadcasts of music and speech over earphones, relatively few people were going to be interested in having a radio. Laying the groundwork for making radio a mass medium was Edwin H. Armstrong’s invention based on work he did in the U.S. Army during World War I of the super heterodyne that made it possible to replace earphones with a loudspeaker.

In 1921, the American Radio Relay league and a British amateur group assisted by Armstrong, an engineer and college professor, proved that contrary to the belief of experts, short waves can travel over long distances. Three years later Marconi, who had previously used only long waves, showed that short-wave radio waves, by bounding off the upper atmosphere, can hopscotch around the world. This discovery led to short wave radio being used for long distance radio broadcasting. (Today telephone companies use microwave relay systems for long-distance, on-shore communication through the air.)

After 1920: Large Corporations Come to Dominate the Industry

In 1919, Frank Conrad, a Westinghouse engineer, began broadcasting music in Pittsburgh. These broadcasts stimulated the sales of crystal sets. A crystal set, which could be made at home, was composed of a tuning coil, a crystal detector, and a pair of earphones. The use of a crystal eliminated the need for a battery or other electric source. The popularity of Conrad’s broadcasts led to Westinghouse establishing a radio station, KDKA, on November 2, 1920. In 1921, KDKA began broadcasting prizefights and major league baseball. While Conrad was creating KDKA, the Detroit News established a radio station. Other newspapers soon followed the Detroit newspaper’s lead.

RCA

The Radio Corporation of America (RCA) was the government-sanctioned radio monopoly formed to replace Marconi’s American company. (Later, a government that had once considered making radio a government monopoly followed a policy of promoting competition in the radio industry.) RCA was owned by a GE-dominated partnership that included Westinghouse, American Telegraph and Telephone Company (AT&T), Western Electric, United Fruit Company, and others. There were cross-licensing agreements (patent pooling) agreements between GE, AT&T, Westinghouse, and RCA, which owned the assets of Marconi’s company. Patent pooling was the solution to the problem of each company owning some essential patents.

For many years RCA and its head, David Sarnoff, were virtual synonyms. Sarnoff, who began his career in radio as a Marconi office boy, gained fame as a wireless operator and showed the great value of radio when he picked up distress messages from the sinking Titanic. Ultimately, RCA expanded into nearly every area of communications and electronics. Its extensive patent holdings gave it power over most of its competitors because they had to pay it royalties. While still working for Marconi Sarnoff had the foresight to realize that the real money in radio lay in selling radio receivers. (Because the market was far smaller, radio transmitters generated smaller revenues.)

Financing Radio Broadcasts

Marconi was able to charge people for transmitting messages for them, but how was radio broadcasting to be financed? In Europe the government financed it. In this country it soon came to be largely financed by advertising. In 1922, few stations sold advertising time. Then the motive of many operating radio stations was to advertise other businesses they owned or to get publicity. About a quarter of the nation’s 500 stations were owned by manufacturers, retailers, and other businesses, such as hotels and newspapers. Another quarter were owned by radio-related firms. Educational institutions, radio clubs, civic groups, churches, government, and the military owned 40 percent of the stations. Radio manufacturers viewed broadcasting simply as a way to sell radios. Over its first three years of selling radios, RCA’s revenues amounted to $83,500,000. By 1930 nine out of ten broadcasting stations were selling advertising time. In 1939, more than a third of the stations lost money. However, by the end of World War II only five percent were in the red. Stations’ advertising revenues came both from local and national advertisers after networks were established. By 1938, 40 percent of the nation’s 660 stations were affiliated with a network, and many were part of a chain (commonly-owned).

Radio Networks

On September 25, 1926, RCA formed the National Broadcasting Company (NBC) to take over its network broadcasting business. In early 1927 only seven percent of the nation’s 737 radio stations were affiliated with NBC. In that year a rival network whose name eventually became the Columbia Broadcasting System (CBS) was established. In 1928, CBS was purchased and reorganized by William S. Paley, a cigar company executive whose CBS career spanned more than a half-century. In 1934, the Mutual Broadcasting System was formed. Unlike NBC and CBS, it did not move into television. In 1943, the Federal Communications Commission forced NBC to sell a part of its system to Edward J. Noble, who formed the American Broadcasting Corporation (ABC). To avoid the high cost of producing radio shows, local radio stations got most of their shows other than news from the networks, which enjoyed economies of scale in producing radio programs because their costs were spread over the many stations using their programming.

The Golden Age of Radio

Radio broadcasting was the cheapest form of entertainment, and it provided the public with far better entertainment than most people were accustomed to. As a result, its popularity grew rapidly in the late 1920s and early 1930s, and by 1934, 60 percent of the nation’s households had radios. One and a half million cars were also equipped with them. The 1930s were the Golden Age of radio. It was so popular that theaters dared not open until after the extremely popular “Amos ‘n Andy” show was over.

In the thirties radio broadcasting was an entirely different genre from what it became after the introduction of television. Those who have only known the music, news, and talk radio of recent decades can have no conception of the big budget days of the thirties when radio was king of the electronic hill. Like reading, radio demanded the use of imagination. Through image-inspiring sound effects, which reached a high degree of sophistication in the thirties, radio replaced vision with visualization. Perfected during the thirties was the only new “art form” radio originated, the “soap opera,” so called because the sponsors of these serialized morality plays aimed at housewives, who were then very numerous, were usually soap companies.

The Growth of Radio

The growth of radio in the 1920s and 30s can be seen in Tables 1, 2, and 3, which give the number of stations, the amount of advertising revenue and sales of radio equipment.

Table 1
Number of Radio Stations in the US, 1921-1940

Source: Sterling and Kittross (1978), p. 510.

Table 2
Radio Advertising Expenditures in Millions of Dollars, 1927-1940

Source: Sterling and Kittross (1978).

Table 3
Sales of Radio Equipment in Millions of Dollars

Source: Douglas (1987), p. 75

Impact of TV and Later Developments

The most popular drama and comedy shows and most of their stars migrated from radio to television in the 1940s and 1950s. (A few stars, like the comedy star, Fred Allen, did not successfully make the transition.) Other shows died, as radio became a medium, first, of music and news and then of call-in talk shows, music, and news. Television sets replaced the furniture-like radios that dominated the nation’s living rooms in the thirties. Point-to-point radio communication became essential for the police and trucking and other companies with similar needs. New technology made portable radio sets popular. Many decades after the loss of comedy and drama shows to television the creation of the Internet provided radio stations both with a new way to broadcast and gave then a visual component.

Government Regulation

Radio’s Property Rights Problem

Because the radio spectrum is quite different from say, a piece of real estate, radio produced a property rights problem. Originally, it was viewed as being like a navigable waterway, that is, public property. However, it wasn’t long before so many people wanted to use it that there wasn’t enough room for everyone. The only ways to deal with an excess of demand over supply are either to raise price until some potential users leave the market or to turn to rationing. The selling of the radio spectrum does not appear to have been considered. Instead, the spectrum was rationed by the government, which parceled it out to selected parties for free.

The Free-Speech Issue

Navigable waterways present no free speech problem, but radio does. Was radio to be treated like newspapers and magazines, or were broadcasters to be denied free speech? Were radio stations to be treated, like telephone companies, as common carriers, that is, anyone desiring to make use of them would have to be allowed to use them, or would they be treated like newspapers, which are under no obligation to allow all comers access to their pages? It was also established that radio stations, like newspapers, would be protected by the First Amendment

Regulation and Legislation

Government regulation of radio began in 1904 when President Theodore Roosevelt organized the Interdepartmental Board of Wireless Telegraphy. In 1910 the Wireless Ship Act was passed. That radio was to be a regulated industry was decided in 1912, when Congress passed a Radio Act that required people to obtain a license from the government in order to operate a radio transmitter. In 1924, Herbert Hoover, who was secretary of the Commerce Department, said that the radio industry was probably the only industry in the nation that was unanimously in favor of having itself regulated. Presumably, this was due both to the industry’s desire to put a stop to stations interfering with each others’ broadcasts and to limit the number of stations to a small enough number to lock in a profit. The Radio Act of 1927 solved the problem of broadcasting stations using the same frequency and the more powerful ones drowning out less powerful ones. This Act also established that radio waves are public property; therefore, radio stations must be licensed by the government. It was decided, however, not to charge stations for the use of this property.

FM Radio: Technology and Patent Suits

One method of imposing speech and music on a continuous wave requires increasing or reducing the amplitude (modulating) the distance between a radio waves peaks and troughs. This type of transmission is called amplitude modulation (AM). It appears to have first been thought of by John Stone Stone in 1892. Many years after Armstrong’s invention of the super heterodyne, he solved radio’s last major problem, static, by inventing frequency modulation (FM), which he successfully tested in 1933. A significant characteristic of FM as compared with AM is that FM stations using the same frequency do not interfere with each other. Radios simply pick up whichever FM station is the strongest. This means that low-power FM stations can operate in close proximity. Armstrong was hindered in his development of FM radio by a Federal Communications Commission (FCC) spectrum reallocation that he blamed on RCA.

Astute patent dealings were a must in the early radio industry. As was true of the rest of the electric industry, patent litigation was very common in the radio industry. One reason for the success of Marconi in America was his astute patent dealings. One of the most acrimonious radio patent suits was one between Armstrong and RCA. Armstrong expected to receive royalties on every FM radio set sold and, because FM was selected for the audio portion of TV broadcasting, he also expected royalties on every TV set sold. Some television manufacturers paid Armstrong. RCA didn’t. RCA also developed and patented a FM system different from Armstrong’s that he claimed involved no new principle. So, in 1948, he instituted a suit against RCA and NBC, charging them with willfully infringing and inducing others to infringe on his FM patents.

It was to RCA’s advantage to drag the suit out. It had more money than Armstrong did, and it could make more money until the case was settled by selling sets utilizing technology Armstrong said was his. It might be able to do this until his patents ran out. To finance the case and his research facility at Columbia, Armstrong had to sell many of his assets, including stock in Zenith, RCA, and Standard Oil. By 1954, the financial burden imposed on him forced him to try to settle with RCA. RCA’s offer did not even cover Armstrong’s remaining legal fees. Not long after he received this offer he committed suicide.

Bibliography

Aitken, Hugh G. J. The Continuous Wave: Technology and American Radio, 1900-1932. Princeton, N.J.: Princeton University Press, 1985.

Archer, Gleason Leonard. Big Business and Radio. New York, Arno Press, 1971.

Benjamin, Louise Margaret. Freedom of the Air and the Public Interest: First Amendment Rights in Broadcasting to 1935. Carbondale: Southern Illinois University Press, 2001.

Bilby, Kenneth. The General: David Sarnoff and the Rise of the Communications Industry. New York: Harper & Row, 1986.

Bittner, John R. Broadcast Law and Regulation. Englewood Cliffs, N.J.: Prentice-Hall, 1982.

Brown, Robert J. Manipulating the Ether: The Power of Broadcast Radio in Thirties America. Jefferson, N.C.: McFarland & Co., 1998.

Campbell, Robert. The Golden Years of Broadcasting: A Celebration of the First Fifty Years of Radio and TV on NBC. New York: Scribner, 1976.

Douglas, George H. The Early Years of Radio Broadcasting. Jefferson, NC: McFarland, 1987.

Douglas, Susan J. Inventing American Broadcasting, 1899-1922. Baltimore: Johns Hopkins University Press, 1987.

Erickson, Don V. Armstrong’s Fight for FM Broadcasting: One Man vs Big Business and Bureaucracy. University, AL: University of Alabama Press, 1973.

Fornatale, Peter and Joshua E. Mills. Radio in the Television Age. New York: Overlook Press, 1980.

Godfrey, Donald G. and Frederic A. Leigh, editors. Historical Dictionary of American Radio. Westport, CT: Greenwood Press, 1998.

Head, Sydney W. Broadcasting in America: A Survey of Television and Radio. Boston: Houghton Mifflin, 1956.

Hilmes, Michele. Radio Voices: American Broadcasting, 1922-1952. Minneapolis: University of Minnesota Press, 1997.

Jackaway, Gwenyth L. Media at War: Radio’s Challenge to the Newspapers, 1924-1939. Westport, CT: Praeger, 1995.

Jolly, W. P. Marconi. New York: Stein and Day, 1972.

Jome, Hiram Leonard. Economics of the Radio Industry. New York: Arno Press, 1971.

Lewis, Tom. Empire of the Air: The Men Who Made Radio. New York: Edward Burlingame Books, 1991.

Ladd, Jim. Radio Waves: Life and Revolution on the FM Dial. New York: St. Martin’s Press, 1991.

Lichty, Lawrence Wilson and Malachi C. Topping. American Broadcasting: A Source Book on the History of Radio and Television (first edition). New York: Hastings House, 1975.

Lyons, Eugene. David Sarnoff: A Biography (first edition). New York: Harper & Row, 1966.

MacDonald, J. Fred. Don’t Touch That Dial! Radio Programming in American Life, 1920-1960. Chicago: Nelson-Hall, 1979.

Maclaurin, William Rupert. Invention and Innovation in the Radio Industry. New York: Arno Press, 1971.

Nachman, Gerald. Raised on Radio. New York: Pantheon Books, 1998.

Rosen, Philip T. The Modern Stentors: Radio Broadcasters and the Federal Government, 1920-1934. Westport, CT: Greenwood Press, 1980.

Sies, Luther F. Encyclopedia of American Radio, 1920-1960. Jefferson, NC : McFarland, 2000.

Slotten, Hugh Richard. Radio and Television Regulation: Broadcast Technology in the United States, 1920-1960. Baltimore: Johns Hopkins University Press, 2000.

Smulyan, Susan. Selling Radio: The Commercialization of American Broadcasting, 1920-1934. Washington: Smithsonian Institution Press, 1994.

Sobel, Robert. RCA. New York: Stein and Day/Publishers, 1986.

Sterling, Christopher H. and John M. Kittross. Stay Tuned. Belmont, CA: Wadsworth, 1978.

Weaver, Pat. The Best Seat in the House: The Golden Years of Radio and Television. New York: Knopf, 1994.

William M. Boal, Drake University and Michael R. Ransom, Brigham Young University

What is Labor Monopsony?

The term “monopsony,” first used in print by Joan Robinson (1969, p. 215), means a single buyer in a market. Like a monopolist (a single seller), a monopsonist has power over price through control of quantity. In particular, a monopolist can push the market price of a good down by reducing the quantity it purchases. The tradeoff between price paid and quantity purchased is the supply curve that the monopsonist confronts. A competitive buyer, by contrast, confronts no such tradeoff — it must accept a price determined by the market. A monopsonized market will therefore be characterized by a smaller quantity traded and a lower price than a competitive market with the same demand and other costs of production.

Monopsony power, like monopoly power, results in economic inefficiency. This is because the monopsonist avoids purchasing the last few units of a good whose value to the monopsonist is greater than their marginal cost, in order to hold down the price paid for prior units. In principle, inefficiency from monopsony can be mitigated by a well- placed legal price floor, which removes the monopsonist’s power over price and eliminates its incentive to restrict the quantity it purchases. A modest price floor forces the monopsonist to take price as given and increase its purchases toward the level of competitive buyers. However, if the price floor is too high, the monopsonist will reduce its purchases — just as competitive buyers would do in response to a price floor — and inefficiency recurs.

In labor markets, “buyers” are employers, “sellers” are individual workers, the “good” is time and effort, and the “price” is the going wage or salary level. An employer who enjoys monopsony power holds down the wage by limiting the number of workers it hires. At the resulting inefficient level of employment, the value of the last worker’s contribution to output is greater than the wage she or he receives. This gap was termed the “rate of exploitation” by Pigou (1924, p. 754). It can be shown mathematically that a monopsonist employer will choose a rate of exploitation (expressed as a percent of the wage actually paid) equal to the reciprocal of the elasticity of labor supply (the percent of the workforce lost if wages are cut by one percent). Competitive employers face an infinite elasticity of labor supply — if they cut wages they lose their entire workforce, at least in the long run — and consequently are unable to exploit their workers. Competition thus forces the rate of exploitation to zero. Monopsonist employers by definition face a finite labor supply elasticity. For example, if a monopsonist faces a supply elasticity of five, then five percent of the workforce would be lost if wages were cut one percent, and it can be shown that the monopsonist will choose a rate of exploitation equal to one-fifth or twenty percent. Inefficiency and “exploitation” from labor monopsony can be mitigated by a well-placed minimum wage enforced by the government or perhaps by a labor union. Thus the monopsony model can provide justification for minimum wage laws and unionism because such measures raise pay, increase employment, and improve economic efficiency simultaneously!

Elaborations of the Monopsony Model

Cases of isolated labor markets with only one employer are surely rare, so the model must be elaborated to fit the real world. One elaboration is oligopsony. In oligopsony models, employers hold power over wages if they are few in number. This power might derive from collusion if employers cooperate in setting wages. Or it might derive from inflexibility of their respective workforces. The latter situation, called the Cournot model, implies that an individual employer that cuts wages cannot lose all its employees to its rivals, because those rivals cannot absorb additional employees quickly. Consequently, each individual employer enjoys some power over wages. Both collusion and the Cournot model imply that the greater the concentration of employment in a small number of employers, the lower the wage and the higher the rate of exploitation, holding determinants of labor demand and labor supply constant.

Another elaboration is employer differentiation. If employers differ by location or by working conditions, workers may not treat them as “perfect substitutes.” An employer that cuts wages might lose some workers but not all. Thus an individual employer enjoys power over wages to the extent that its rivals are far away or offer very different jobs. Recent elaborations of the differentiation concept focus on the process by which workers are hired. Models of moving costs emphasize that workers, once hired, may require a substantial wage increase to switch firms. This gives an employer power over wages for its existing workers, but not for new hires. Models of job search emphasize that workers need time to find better jobs. Thus an employer need not match the wages of other employers. However, to maintain a large workforce, an employer must pay better-than-average wages to reduce quits. Note that both moving costs models and job search models imply that workers are more mobile in the long run than in the short run. As Hicks (1932, p. 83) noted, monopsony power depends inversely on “the ease with which [workers] can move, and on the extent to which they and their employers consider the future, or look only to the moment.”

Athletes

A striking example of monopsony in an American labor market is professional baseball. Until 1976, the “reserve clause” in player contracts bound each player to a single team, an extreme form of collusion. As a result, teams did not compete for players. Estimates by Scully (1974) and others indicate that rate of monopsonistic exploitation was very high during this era — players were paid less than half of the value of their contribution to output, and possibly as little as one-seventh. After the reserve clause was eliminated in 1976, players with at least six years’ experience became free to negotiate with other teams. Salaries subsequently soared. By 1989, the rate of exploitation was estimated to have fallen close to zero (Zimbalist, 1992).

The early history of baseball, when rival leagues occasionally appeared, yields similar estimates of monopsony exploitation. Rival leagues undercut the reserve clause, which could only be enforced among teams in the same league. Thus the appearances of the American Association in 1882, the American League in 1901, and the Federal League in 1913 each prompted rapid increases in player salaries. But when the rival league was bought out or merged into the dominant league, salaries always dropped sharply — usually by about a half (Kahn, 2000). This history suggests that, in the absence of rival leagues, early professional baseball players were paid no more than half of the value of their contribution to output.

While no serious rivals to Major League Baseball have appeared since the early twentieth century, rival leagues have frequently appeared in other professional sports. For example, the American Basketball Association challenged the National Basketball Association from 1967 to 1976, the World Hockey Association challenged the National Hockey League from 1971 to 1979, and the United States Football League challenged the National Football League from 1982 to 1985. The appearance of each of these rivals seems to have caused player salaries to increase substantially in their respective sports (Kahn, 2000).

An even more striking example of monopsony is the market for college athletes. These players are clearly employees in all but name, but the National Collegiate Athletic Association strictly limits the amounts that athletes at member colleges and universities can receive. The value of the output of top college football players has been estimated at about $500,000 (Brown, 1993), many times more than such athletes are “paid.”

Teachers and Nurses

For the last few decades, researchers have investigated whether the markets for American school teachers and nurses are characterized by monopsony. Both professions may face a limited number of potential employers in any given geographical region. For teachers, employers are school districts, which are separated by political boundaries. For nurses, the dominant employers are hospitals, which are dispersed geographically except in large metropolitan areas. Moreover, teachers and nurses are (still) predominantly married women, who may find it difficult to move to a new geographic area if their husbands are employed. Researchers have considered both oligopsony and differentiation.

Early investigations measured the relationship between employer concentration and wages. A negative relationship, holding everything else constant, would suggest oligopsony. Several early studies — for example, Luizer and Thornton (1986) for teachers and Link and Landon (1976) for nurses — did in fact find negative relationships. Yet it is unclear whether everything else was held constant in these studies. Highly concentrated markets with small numbers of employers for teachers or nurses tend to be rural areas and small cities. Less concentrated markets with many alternative employers tend to be large cities. But pay for most other occupations — even less specialized ones with many potential employers — is lower in rural areas and small cities, so it is not clear that monopsony is to blame. Indeed, studies by Adamache and Sloan (1982), Boal and Ransom (1999), Hirsch and Schumacher (1995), and others have shown that employer concentration has little effect on the wages of teachers and nurses after controlling for city size or the general wage level.

A more recent investigation by Sullivan (1989) focused on differentiation among employers of nurses. Using data on hospitals, Sullivan estimated that if a hospital cut wages by one percent, it would lose only about 1.3 percent of its nurses immediately. This suggests that hospitals enjoy substantial power over wages. However, Sullivan also showed that a hospital would lose four percent of its nurses within three years and presumably even more in the long run. Sullivan’s estimates imply that if the hospital “considers the future,” it is unlikely to lower wages much more than about 10 percent below the contribution of the marginal nurse to hospital revenue.

Another recent study by Boal (2001) estimated the effects of legal minimum salaries on employment of teachers in two states. That study found that increases in legal minimum salaries tended to decrease employment, suggesting that the market for teachers was more competitive than monopsonistic.

University Professors

Several researchers have suggested that moving costs give a university monopsony power over its existing workforce because professors face moving costs. This is because professors have highly specialized skills and their potential employers (universities) are widely dispersed geographically. Now the market for newly-hired professors is surely competitive, because new hires must pay moving costs no matter who hires them. But the market for existing professors is monopsonized because professors, once hired, may require a substantial wage increase to switch universities. Moreover, since pay is usually adjusted over time for performance, universities cannot promise future salary increases at the time of original hire, as school districts do. Assuming some professors have higher moving costs than others, a modest cut in wages for existing professors will not cause them all to leave.

The model of moving costs predicts a negative relationship between wages and seniority (time spent at the same university). Ransom (1993) measured this relationship, after controlling for total teaching experience, education level, and other factors influencing professors’ productivity. He did find a negative relationship — the penalty for senior professors appeared to be roughly 5 to 15 percent. However, formal models of moving costs imply that newly-hired professors are paid more than the competitive salary level (in anticipation of later exploitation — see Black and Loewenstein, 1991) so not all of this penalty is exploitation.

Miners in Company Towns

Textbooks often cite company towns as classic examples of monopsony, especially towns in the late nineteenth and early twentieth centuries when transportation was expensive. A company town is a small town located in a remote area with only one employer. Company towns were most common in mining, where the town’s location was dictated by mineral deposits. Often the employer owned all the housing and operated all stores and other services in the town. This arrangement might seem to give the employer “control” over its workforce and monopsony power through severe differentiation of employers. However, Fishback (1992) has argued that this arrangement actually reduced living costs for employees by eliminating market imperfections in housing and retail markets. High turnover rates in company towns also cast doubt on the view that workers were “locked in” to their employers (see Boal, 1995).

Company towns were especially widespread in Appalachian coal mining in the early twentieth century. In West Virginia, for example, 79 percent of coal miners lived in company-owned housing in the early 1920s. Nevertheless, Boal (1995) showed that coal mining companies were not very differentiated and enjoyed little power over wages, at least in the long run. A one-percent cut in wages would cause at least two percent of the workforce to be lost the same year, and most of it to be lost in the long run. Thus coal miners seemed to “move with ease.” Assuming employers “considered the future” with discount rates of no more than 10 percent, they would push wages down only about 5 percent, according to his estimates.

Early Textile Mill Workers

Several researchers have investigated whether America’s first factories — New England textile mills — enjoyed monopsony power. Some researchers believe that as these factories grew in size, they were forced to raise wages in order to attract workers from farther away, at least in the early nineteenth century (Lebergott, 1960). Other researchers find no relationship between firm size and wage, but find evidence of collusion by employers in setting wages (Ware, 1966).

Still other researchers have tried to measure the rate of exploitation by comparing the value of the last mill worker’s contribution to output with her wage (most mill workers were women). Implied rates of exploitation range from 9% to over 100% for particular mills in particular years. However, most estimates of the last mill worker’s contribution to output are extremely imprecise, so most calculated rates of exploitation are not significantly different from zero (Vedder, Gallaway, and Klingaman, 1978). Moreover, the largest estimates are for the middle nineteenth century, not the early nineteenth century (Zevin, 1975).

Low-wage Workers

All monopsony models suggest that a modest increase in legal minimum wages should increase employment. In the United States, minimum wages affect only young and unskilled workers. Most studies of the effects of legal minimum wages in the 1970s and early 1980s found small decreases in employment for young unskilled workers, as predicted by the competitive model. However, later studies found almost no effect on employment (see Wellington, 1991) and a few studies found increases in employment as predicted by the monopsony model (see Card and Krueger, 1995). However, these latter studies are controversial (see exchange between Neumark and Wascher, 2000, and Card and Krueger, 2000) and have not convinced the majority of labor economists (see Whaples, 1996). In any case, the rate of exploitation, if positive, is probably small.

The Labor Market in General

Search models suggest that all employers enjoy some monopsony power because workers require time to find better jobs. Formal mathematical models of search, like those of Burdett and Mortensen (1989), imply monopsony power even in the long run and predict that larger firms must pay higher wages. This prediction explains the well-known “firm size-wage effect” — on average, if firm A employs one percent more workers than firm B, it pays 0.01% to 0.03% higher wages for the same kind of workers doing the same kind of jobs (Brown and Medoff, 1989, pp. 1304-1305). Assuming the “firm size-wage effect” is due to monopsony power, firms are pushing wages down by one to three percent below the value of the contribution of the last worker to output.

On the other hand, search models also predict that most firms and jobs pay high wages and only a few pay low wages. This prediction does not fit the facts, even controlling for skill differences across workers. Efforts to fit the model of Burdett and Mortensen (1989) to actual data have been frustrated by this problem. The best such estimates to date suggest that on average wages are pushed down 13 to 15 percent due to search (van den Berg and Ridder, 1993), but these estimates are surely very rough.

Summary

The simple monopsony model provides an alternative explanation to the standard competitive model of how wages are determined. It predicts that employers will hold wages down below the value of the last worker’s contribution to output (“exploitation”) by limiting the number of workers they hire. But it is too simple to fit real American labor markets, so elaborations such as oligopsony or differentiation of employers are needed.

Estimates of monopsony exploitation to date in American labor markets have yielded surprising results (see Table 1 for a rough summary). Monopsony does not appear to have been important in company mining towns, a standard textbook example, or in markets for teachers and nurses, early suspects. In fact, the largest plausible estimates of monopsony exploitation to date are not for blue-collar workers but rather for professional athletes and possibly college professors.

Table 1
Estimated Rates of Monopsonistic Exploitation in American Labor Markets

References and Further Reading

Adamache, Killard W., and Frank A. Sloan. “Unions and Hospitals: Some Unresolved Issues.” Journal of Health Economics 1, no. 1 (1982): 81-108.

van den Berg, Gerard J. and Geert Ridder. “An Empirical Equilibrium Search Model of the Labour Market.” Vrije Universiteit, Amsterdam, Faculty of Economics and Econometrics Research Memorandum 1993-39, July 1993.

Black, Dan A. and Mark A. Loewenstein. “Self-Enforcing Labor Contracts with Costly Mobility: The Subgame Perfect Solution to the Chairman’s Problem.” Research in Labor Economics 12 (1991): 63-83.

Boal, William M. “The Effect of Minimum Salaries on Employment of Teachers.” Unpublished paper, Drake University, 2001.

Boal, William M., and Michael R. Ransom. “Missouri Teachers.” Unpublished paper, Brigham Young University, 2000.

Boal, William M., and Michael R. Ransom. “Monopsony in the Labor Market.” Journal of Economic Literature 35, no. 1 (1997): 86-112.

Brown, Charles, and James Medoff. “The Employer-Size Wage Effect.” Journal of Political Economy 97, no. 5 (1989): 1027-1059.

Brown, Robert W. “An Estimate of the Rent Generated by a Premium College Football Player.” Economic Inquiry 31, no. 4 (1993): 671-684.

Burdett, Kenneth, and Dale T. Mortensen. “Equilibrium Wage Differentials and Firm Size.” Northwestern Center for Mathematical Studies in Economics and Management Science Working Paper 860, 1989.

Card, David E., and Alan B. Krueger. Myth and Measurement: The New Economics of the Minimum Wage. Princeton, New Jersey: Princeton University Press, 1995.

Card, David E., and Alan B. Krueger. “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Reply.” American Economic Review 90, no. 5 (2000): 1397-1420.

Fishback, Price V. “The Economics of Company Housing: Historical Perspectives from the Coal Fields.” Journal of Law, Economics, and Organization 8, no. 2 (1992): 346- 365.

Hicks, John R. The Theory of Wages. London: Macmillan, 1932.

Hirsch, Barry T., and Edward Schumacher. “Monopsony Power and Relative Wages in the Labor Market for Nurses.” Journal of Health Economics 14, no. 4 (1995): 443-476.

Kahn, Lawrence M. “The Sports Business as a Labor Market Laboratory.” Journal of Economic Perspectives 14, no. 3 (2000): 75-94.

Lebergott, Stanley. “Wage Trends, 1800-1900.” Studies in Income and Wealth 24 (1960): 449-498.

Link, Charles R., and John H. Landon. “Market Structure, Nonpecuniary Factors and Professional Salaries: Registered Nurses.” Journal of Economics and Business 28, no. 2 (1976): 151-155.

Luizer, James and Robert Thornton. “Concentration in the Labor Market for Public School Teachers.” Industrial and Labor Relations Review 39, no. 4 (1986): 573-84.

Neumark, David and William Wascher. “Minimum Wages and Employment: A Case Study of the Fast-Food Industry in New Jersey and Pennsylvania: Comment.” American Economic Review 90, no. 5 (2000): 1362-1396.

Pigou, Arthur Cecil. The Economics of Welfare, second edition. London: Macmillan, 1924.

Ransom, Michael R. “Seniority and Monopsony in the Academic Labor Market.” American Economic Review 83, no. 1 (1993): 221-231.

Robinson, Joan. The Economics of Imperfect Competition, second edition. London: Macmillan, 1969.

Scully, Gerald W. “Pay and Performance in Major League Baseball.” American Economic Review 64, no. 6 (1974): 915-930.

Sullivan, Daniel. “Monopsony Power in the Market for Nurses.” Journal of Law and Economics 32, no. 2 part 2 (1989): S135-S178.

Vedder Richard K, Lowell E. Gallaway, and David Klingaman, “Discrimination and Exploitation in Antebellum American Cotton Textile Manufacturing.” Research in Economic History 3 (1978): 217-262.

Ware, Caroline. The Early New England Cotton Manufacturers: A Study of Industrial Beginnings. New York: Russell & Russell, 1966.

Wellington, Alison J., “The Effects of the Minimum Wage on the Employment Status of Youths: An Update,” Journal of Human Resources 26, no. 1 (1991): 27-46.

Whaples, Robert. “Is There Consensus among American Labor Economists? Survey Results on Forty Propositions.” Journal of Labor Research 17, no. 4 (1996): 725-34..

Zevin, Robert B. The Growth of Manufacturing in Early Nineteenth Century New England. New York: Arno Press, 1975.

Zimbalist, Andrew. “Salaries and Performance: Beyond the Scully Model.” In Diamonds Are Forever: The Business of Baseball, edited by Paul M. Sommers, 109-133. Washington DC: Brookings Institution, 1992.