Immigration doesn’t lower wages for American NBA players

by on July 20, 2016 at 12:34 am in Data Source, Economics, Law, Sports | Permalink

Justin Winkler has a new thesis from Haverford (pdf):

This paper analyzes the impact that the influx of foreign players has had on the salaries and labor market outcomes of domestic players in the National Basketball Association (NBA). The study builds on previous literature in the field of labor economics by examining this research question in a highly specialized labor market with a rigid salary structure. First, an unbalanced panel data set at the player-year level from 1990-2008 is used in combination with a log-linear regression model to estimate the impact that the number of foreign players in the NBA has on the wages of domestic players. Results are insignificant. A handcrafted dataset tracking the careers of Chad Ford’s top 50 American prospects from 2001 through 2015 is used with a series of ordered logistic regressions to examine foreign players’ impact on the career length and outcomes of American players. Additional ordinary least squares regressions are used to estimate the career quality of American prospects by the quality of the leagues in which they played. Results of all regressions investigating the career outcomes of American prospects are also insignificant.

The initial pointer is from Ben Southwood, see his older and broadly similar paper on soccer.

1 LR July 20, 2016 at 12:37 am

I bet immigration doesn’t lower wages for investment bankers, CEOs, programmers or chess players either!

2 The Anti-Gnostic July 20, 2016 at 12:52 am

Or for tenured academics.

3 carlospln July 20, 2016 at 10:24 am
4 El Gringo July 20, 2016 at 1:07 am

Immigration for very highly skilled individuals that speak English. Are those really the type of immigrants at the center of today’s immigration debate? Hmm… not really.

5 j r July 20, 2016 at 1:31 am

No, but that’s because the people at the center of today’s immigration debate largely don’t actually exist. There are a few real life examples thrown around here and there when they fit the nativist narrative, but mostly this debate is centered on sophomoric misunderstanding of basic-to-intermediate empirical methods and ridiculously simplistic stereotypes spread around on internet forums and reactionary web sites.

There is a reason that the nativist crowd adopted the pejorative of “cuck” from the 4chan crowd (hint: it’s because they’re preoccupied with something other than rational economic arguments).

6 Cliff July 20, 2016 at 9:38 am

Have you read Jason Richwine’s dissertation? Second generation Hispanic immigrants do better than first generation by a variety of metrics, but third generation do worse and fourth generation still worse, nearly back to the first generation again. The gaps between the descendants of illegal Hispanic immigrants and the American average is rather staggering.

7 Christian P Hansen July 20, 2016 at 1:27 am

Given the NBA has a fixed number of players and a CBA that gives approx half league revenue to players this doesn’t seem all that surprising.

8 Lord July 20, 2016 at 8:35 am

No, and I am quite sure it does reduce the amount of total wages going to natives since that is basically true by definition.

9 Lord Action July 20, 2016 at 9:41 am

Yeah, am I misunderstanding something, or is this thesis dodging basic arithmetic? For each foreign born NBA player, there’s some American who would be playing in the NBA but isn’t.

10 JWatts July 20, 2016 at 10:08 am

“American prospects’ NBA careers and total professional careers ranging
from 3 years after their draft year to 10 years after their draft year are not impacted by an increase
in the percentage of foreign players in the NBA”

So the study explicitly includes players that weren’t drafted to begin with.

The title says “Employment of American Basketball Players”. The paper’s value is marginal or perhaps even negative. It’s cherry picking American Basketball players by only examining players with an established career. A study that looked at the prospects of college players before and after the more recent uptick in foreign players would provide some reasonable data to the question.

11 Lord Action July 20, 2016 at 10:31 am

As I note in a comment farther down the page, he’s explicit about this and says “The effects of foreign players is most likely felt by the lowest tier of American professional basketball players[.]”

Cowan is the one with the misleading description. The thesis author is upfront. He’s basically shown that Lebron and Curry are not bothered by Yao Ming.

12 Lord Action July 20, 2016 at 10:33 am

The thesis title is a bit problematic.

13 JWatts July 20, 2016 at 10:52 am

“The thesis title is a bit problematic.”

That’s exactly the point that led me to add the “negative” description. Without a misleading title, the paper would have been fairly unremarkable and marginal.

14 Urso July 20, 2016 at 12:01 pm

Explicitly includes or explicitly excludes? But take into account the fact that many NCAA stars go to European leagues if they can’t make the NBA (Euro leagues pay much more than the NBADL). So the net effect of “open borders,” so to speak, might actually be positive for those marginal players.

15 JWatts July 20, 2016 at 12:22 pm

“Explicitly includes or explicitly excludes?”

My mistake. It explicitly excludes.

“But take into account the fact that many NCAA stars go to European leagues if they can’t make the NBA. So the net effect of “open borders,” so to speak, might actually be positive for those marginal players.”

If the paper had addressed this factor, it might have been a significant paper.

16 Yancey Ward July 20, 2016 at 12:05 pm

I haven’t read the paper, but a lot of marginal American players play overseas these days. Aren’t they included in this study?

17 Lord Action July 20, 2016 at 2:21 pm

“The effects of foreign players is most likely felt by the lowest tier of American professional basketball players who could not be included in this study because of a lack of salary and career outcome data.”

18 Nebfocus July 20, 2016 at 1:29 am

Huh? The NBA has a defined number of roster spots. Clearly, the marginal player that is replaced by a foreign player takes a very significant hit to his income.

19 8 July 20, 2016 at 1:41 am

Considering some of these guys’ next best skill may be bagging groceries or cat in tree removal, that is an understatement.

The pool of people to look at is the players making league minimum who left the league following an influx of foreign talent. Did these guys find jobs making the same or more money? Or maybe the increase in foreign players did not coincide with an exodus of domestic talent, but fewer American’s drafted? Finding the bubble players in a draft year might be hard, but the league or the union must keep track of all former players.

20 Nebfocus July 20, 2016 at 1:43 am

Many end up playing in Europe, so they can make a decent income, but nothing near the NBA.

21 Unanimous July 20, 2016 at 3:52 am

The foreign players also increase NBA TV income from the countries they come from, and 50% of that is then distributed to all players. Long term perhaps more than 50% once the percent is bargained over. Players bargain roughly for the surplus left after legitimate non player operating costs are deducted from revenue.

22 Lord Action July 20, 2016 at 9:43 am

That’s a legit point, but I don’t think the thesis is analyzing it.

As for the objections most people are raising, the author does note in his conclusions “The effects of foreign players is most likely felt by the lowest tier of American professional basketball players who could not be included in this study because of a lack of salary and career outcome data.”

23 Jason Bayz July 20, 2016 at 2:36 am

+1

Suppose you have 500 people who enter the competition for a set amount of money. 20 will win. Suppose next year those same 500 competitors are joined by 500 equally skilled competitors. Now of the original 500 10 will win, but they’ll each get the same amount the winning 20 got in the first competition.

The teams are going to be competing for the top 500 or so players. By definition, the number of top 500 players can’t change, so an increase in the number of talented individuals should not increase the bargaining position of the employer. Absolute talent doesn’t matter, what matters is talent relative to competing players. This is quite unlike the rest of the economy.

24 JC July 20, 2016 at 4:36 am

And they don’t recruit foreigners necessarily because they’re cheaper. They hire them based on their skills and because they have professional managers they usually get the best contract possible.

25 Willitts July 20, 2016 at 8:17 am

The question is not whether the displaced worker suffered s loss of pay. The question is whether the foreign player got into the labor pool by offering his services cheaper than the marginal domestic worker. In other words, does increased foreign competition bid wages down.

In a competitive model, one need look only at the marginal player because all workers are assumed to be identical. But this market is characterized by players with differing levels of ability and different complementarity of talents. Thus foreign competition could attack salaries at each and every skill level or skill type.

But the same characteristics that make this market conducive to downward wage pressure are subject to countervailing pressures upward. The NBPA collectively bargains for wages and conditions, limiting the impact of foreigners.

26 Daniel Weber July 20, 2016 at 9:57 am

Can’t they both be questions?

It’s pretty clear that if someone immigrates to play for the NBA they are going to get a skilled agent who helps them negotiate to get paid what a native would.

But existing players also have their wages pushed down, because some have to leave. But that’s also the market (literally a competitive market) they signed up for.

27 JWatts July 20, 2016 at 10:11 am

“But existing players also have their wages pushed down, because some have to leave.”

The paper deliberately left out the young players that were displaced. To me that makes the title of the paper misleading. A more accurate title would have been something like:
“Examining the Impact of Foreign NBA Players on the Wages and Employment of Established Professional American Basketball Players

28 prior_test2 July 20, 2016 at 1:35 am

Want to guess whether emigrating American former or almost NBA players raise or lower wages when they play for teams outside the U.S.?

Proving that the right kind of immigrant does not require higher education, but does require being tall. So, open borders for NBA players should work out just fine.

29 RJ July 20, 2016 at 1:39 am

Just when you think Cowan has posted the stupidest article possible, he hits a new low.

30 Ray Lopez July 20, 2016 at 2:20 am

The study is true enough, however, a clever antagonist to the study could say that the relevant counterfactual is what the wages of the American NBA players would be without any immigration. Classic economics theory predicts since supply is more limited, then wages should go up. However, the quality of play would go down slightly, since the talent pool would be smaller, so if the fans realized this, perhaps they might not patronize the game, so demand would go down too (if fans are motivated by watching only the best players in the world, which I’m not sure they are, it seems basketball for most casual US fans is simply ‘my town’s players are better than your town’s players’).

Games economists play.

31 Unanimous July 20, 2016 at 3:58 am

See comment above about foreign players increasing foreign TV revenue. It’s a globally watched league due largely to foreign players. Foreign players moving to the US has significantly damaged all other leagues in the world, and much of that lost revenue has moved to the NBA TV rights.

32 Thiago Ribeiro July 20, 2016 at 4:05 am

Remember, remember! The fifth of August.

33 JWatts July 20, 2016 at 10:15 am

Good post. August 5th is the premiere of Suicide Squad !

http://www.imdb.com/title/tt1386697/

34 Willitts July 20, 2016 at 8:05 am

Barriers to Entry.
National Basketball Players Union.

Why would you expect to see effects expected in a competitive market affecting one with substantial market power?

35 Dan W. July 20, 2016 at 9:38 am

Does the influx of foreign players help or hurt the NBA prospects of the average American college player?

Economists are fond of saying that the true minimum wage is zero. Well so is the minimum NBA wage for the basketball player who fails to land an NBA roster spot. Despite this observation, I don’t know of any who are upset that the NBA is employing the best athletes it can find for its teams. It is not as if the average American can relate to a job that 500 people in the world are competing for.

36 Ricardo July 20, 2016 at 12:56 pm

I’ve never heard an economist say the true minimum wage is zero. If you want to go in that direction, the true minimum wage is definitely negative: the employee would have to pay *you* for the privilege of working at your company. I would not be surprised if that is already happening — e.g., paying an “application fee” to apply for an unpaid internship.

37 Chris July 20, 2016 at 12:42 pm

I’m pretty sure the labor market for NBA players is completely different for most jobs, especially low skill, low wage jobs.

There are only a very few spots open for NBA professionals, and they would be considered to he highly skilled since very few people have the talent, skills, and experience to fill those roles. Furthermore, teams want the absolutest highest skilled players. At that level of the Bell Curve, even little differences mean a huge disparity in effect. Most NBA professionals are not at the level of Lebron James or Steph Curry.

I would not expected an increased labor pool to bring down wages of NBA players. Instead, I would expect foreign talent to DISPLACE local players OUT of the NBA. And of course, highly skilled basketball players NOT in the NBA see their basketball compensation decline immensely (assuming they stay in basketball).

NBA players are paid multi-millions of dollars every year. Only the bottom tenth of players get paid hundreds of thousands of dollars (between half a mill and a mill). The NBA Development League pays a range between $12,000-24,000. The average player playing in the top European leagues gets about $65,000. The rest of the minor leagues are even worse. In the Premier Basketball League, players get $500 per game. So for the players who are displaced by foreign talent, it means a HUGE drop in their incomes even though NBA salaries are unaffected. A marginal NBA player making $600,000 who gets bumped (because better foreign players drive him out of the NBA) will be making $100,000 at best if he goes to Europe, and only $24,000 if he stays in the US.

The NBA is only one employer of basketball players, not the entire “basketball market” as a whole. And the economics of professional sports is not like that of other job markets.

38 dsgntd_plyr July 20, 2016 at 4:19 pm

the NBA has a minimum wage that’s going up to $650+k at the end of the current collective bargaining agreement (cba). also, teams try to replace their current players with better players. i.e., more expensive players. the cba also requires wage increases that are higher than inflation with each new contract.

if the nba’s cba was america’s immigration policy (high wage, high skilled workers with guaranteed contracts) trump would have topped out at 10% in the primary.

matt yglesias had a similar blog post a few years ago in slate. he was roasted in the comments section.

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