Journal of Economic Behavior Organization Vol. 44 2001 201–219
Why do black basketball players work more for less money?
Robert E. McCormick
a
, Robert D. Tollison
b,∗
a
Department of Economics, Clemson University, Clemson, SC 29631, USA
b
School of Business, University of Mississippi, University, MS 38677, USA Received 1 November 1998; received in revised form 23 March 1999; accepted 31 March 1999
Abstract
We explore Kahn and Sherer’s finding that National Basketball Association players’ salaries are lower for black than white players. In general, we do not find evidence that this salary differential
is due to the racial preferences of fans. Specifically, we observe that black players actually play more than comparable white players. We offer a theory of price discrimination based on relative
supplies and supply elasticities, in lieu of the racial discrimination argument, as an explanation for the blackwhite wage differential. © 2001 Elsevier Science B.V. All rights reserved.
JEL classification: J15 Keywords: Wage differential; Customer discrimination; Price discrimination
1. Introduction
The literature on the economics of sports has demonstrated that sports data and organiza- tions provide a useful and accurate laboratory for the study of some economic issues Goff
and Tollison, 1990. Nonetheless, the enduring value of the economics of sports lies in its ability not just to understand the play of sports, but to improve our understanding of general
economic problems. Take the problem of racial discrimination. There is a well developed literature on this general issue, but a host of questions remain for researchers. For instance,
Kahn and Sherer 1988 presented evidence that black professional basketball players are
∗
Corresponding author. Tel.: +1-601-232-5041; fax: +1-601-232-5821. E-mail address: tollisonbus.olemiss.edu R.D. Tollison.
0167-268101 – see front matter © 2001 Elsevier Science B.V. All rights reserved. PII: S 0 1 6 7 - 2 6 8 1 0 0 0 0 1 5 6 - 6
202 R.E. McCormick, R.D. Tollison J. of Economic Behavior Org. 44 2001 201–219
compensated as much as 20 percent less than white players with comparable skills.
1
They explained this differential by appeal to an argument about customer discrimination by Na-
tional Basketball Association NBA fans, which they test and find not to be refuted for six seasons worth of data on NBA attendance. In other words, NBA fans prefer to see more
white players, all else the same. Kahn and Sherer estimated that an additional white player of equal skills increased home attendance by some 8000–13,000 fans per season. At an av-
erage ticket price plus concession revenues of US12, the revenue effect of the additional white player more than outweighs the estimated salary differential, suggesting that team
owners and white players share in the gains from satisfying customer preferences for white players.
2
While Kahn and Sherer present an interesting thesis, it has not been carefully compared with alternative explanations of pay differentials. This is the problem tackled here. Indeed,
when all is said and done, the expression “racial discrimination” is very confusing. More precisely, is there a theoretical distinction between racial and price discrimination? If so,
what does it mean? In the classical model of third-degree price discrimination, a single-price seller or in this case buyer separates the market into two or more submarkets based on
some easily identifiable characteristic, for example, foreign or domestic buyers. If these sub- markets have different elasticities of demand or supply, and if recontracting is costly and
if the antitrust authorities can be kept at bay, a profit opportunity arises. The buyer reduces the consumption of the relatively inelastically supplied input and increases consumption of
the homogeneous elastically supplied input.
Few have any trouble with this model with minor exceptions.
3
But the real issue involves the question, if the market happens to be separated on the basis of race, but solely for purposes
of price discrimination, is that what one wants to call racial discrimination? Put differently, if race or skin color reveal information about a buyer’s or seller’s idiosyncratic elasticity
of demand or supply, should this characteristic be called racial or should the issue more appropriately focus on the underlying reasons why there is a connection between race and
elasticity. The normal idea of racial discrimination involves the special treatment of black or white or yellow or red people simply because their skin is different without regard
to questions of whether their elasticity of demand or supply might be collinear with their skin color. Accepting Kahn and Sherer’s wage-differential result, do black professional
basketball players make less money than white players, all else equal, because fans and owners have racial preferences at the margins? That is, do fans or owners simply not like to
see black players play? Or, in the alternative, do black professional basketball players earn less money, other things the same, because they belong to a class of identifiable people, who
1
Dey 1997 suggests that convergence has taken place and that today there is no racial salary differential. For additional work in this general area see Andersen and LaCroix, 1991; Bodvarsson and Brastow 1994; Brown
and Jewell, 1995; Brown et al., 1991; Burdekin and Idson, 1991; Hamilton, 1991; Koch and Vander Hill, 1988; Marburger, 1996; Nardinelli and Simon, 1990. Kahn 1991 provides a useful overview.
2
NBA revenue sharing does not include live attendance revenues. The home team retains these revenues, less a stipulated percent charge which goes to support the league office. The NBA shares equally with each team
all revenues generated by national television TV contracts. Local teams keep virtually all of the TV revenues generated by local TV broadcasts. We note that the sharing rule for national TV revenue mutes the incentive of
any team to practice racial discrimination in the first place even if fans are racially biased.
3
See Lott and Roberts 1991, who suggest that the idea is more a theoretical curiosity than an empirical regularity.
R.E. McCormick, R.D. Tollison J. of Economic Behavior Org. 44 2001 201–219 203
for some currently unknown reason, are not very responsive to wages paid in professional basketball?
4
Why is this distinction important? If racial bias provides the explanation of the wage gap, then cultural shifts and education and integration of black people more completely into
the culture should reduce the wage gap as the tastes of racially biased fans recede. On the other hand, if fans are not biased, that is, they do not care about the skin color of players,
only that they play well and win, the wage gap persists as the society loses its racially segregated attitudes. If price discrimination is the basic reason why black NBA players earn
less than white players, the attitude of the fans is irrelevant. Indeed, the extent of the wage gap depends on the relative supply elasticities of black and white players.
This paper explores Kahn and Scherer’s results in search of a better understanding of this issue. We accept their result of a 20 percent salary differential. In an expanded sample of
NBA seasons, however, we find no evidence of general customer discrimination by NBA fans. To the contrary, if anything, there is a preference for more black players and more black
playing time in our results.
5
However, there do appear to be patterns of racial composition across teams in the NBA. We start with the same empirical model as Kahn and Scherer, but
add two more seasons’ worth of attendance data.
6
We identify a pattern of racial preference in NBA cities with large black populations. We also model playing time for NBA players
as a function of performance and race. Definitively, black players play more minutes than seemingly comparable white players.
In light of these results, we are left with the following: a a large salary differential between black and white players, b a weak basis for a claim of general customer dis-
crimination, and c more playing time for black players, all else equal. This pattern of results, in our view, is suggestive of price discrimination. NBA owners and executives are
engaging in price discrimination across classes of players who have different elasticities of supply. For whatever reason including past racial discrimination, black players have
a more unresponsive elasticity of supply with respect to providing professional basketball services than do comparable white players, and hence their salaries can be set lower without
erasing their supply of labor. The salary differential identified by Kahn and Scherer is most likely a result of this condition.
2. Monopsony power?
