The economics of atheletes’ salaries

A friend updated their Facebook status to lament overpaid athletes relative to seemingly more important things like… saving lives. It seemed an opportune moment to flesh out the economics of athletes’ paychecks.

It’s true, athletes may play a kid’s game, but bear in mind that no matter the sport, they are employing millions of people both directly and indirectly. The people in the back offices, the groundskeepers, the people that work for the TV networks, the people that work for the advertisers, etc. So while your average athlete may bring in $3-500K/yr (not everyone’s a superstar), they’re generating billions in economic wealth that’s spread over many, many working people like you and I.

The other thing to consider is that health care is a cost, not a wealth-driver in the macroeconomy. Buying health services is always an inferior choice to spending your money in another way, unless you need that service. (This is one of the reasons I feel that healthcare shouldn’t count as a positive input into GDP calculation.)

So anyway, I can understand the frustration associated with high salaries for athletes, because what they do at a fundamental level is so trivial. But I can also understand why athletes are paid the way they are. From a narrow point of view, their contribution to society is very small. But from a higher-level view, their contribution is much greater than we often given them credit for:

  1. Hit a ball with a stick or save a life?
  2. Save a life or create 10,000 direct jobs and support millions of others with the through the interaction by yourself and your team with your opponents?

Who contributes “more” to society is less clear from PoV #2. From a low-level one-on-one perspective, the physician saving a life does. But from society’s point of view, #2 is obviously the winner, outliers (maybe) excepted.

I don’t say any of this to marginalize those who work in the healthcare or teaching professions. It is not my intent to diminish what they do in any way. One of the problems associated with teaching and being a physician is that it’s so hard to measure their long-run economic impact on a society because the gains may take a lifetime to measure in the case of early childhood education, or may be represented as hours of productivity saved in the case of a medical intervention.

It’s quite a bit easier to measure TV viewership, sponsorship monies, and whether or not your stadium is full on game day than it is to measure lifecycle productivity gains.

We could get normative and make judgment calls about what should happen and how people should be paid based on the inherent value of the job they do, but these are meaningless arguments because in order to effect any of them, we’d have to shift society’s values. Everything in our economy is a byproduct of consumer priorities: where consumers choose to spend their scarce resources (money). Salaries are a byproduct of these consumer choices, and nowhere is this more pronounced than in the entertainment business.

6 thoughts on “The economics of atheletes’ salaries

  1. This isn’t necessarily true:

    The other thing to consider is that health care is a cost, not a wealth-driver in the macroeconomy. Buying health services is always an inferior choice to spending your money in another way, unless you need that service. (This is one of the reasons I feel that healthcare shouldn’t count as a positive input into GDP calculation.)

    Heathcare improves efficiency and productivity. Although hypochondriacs overuse their share of health services, healthcare in general aids people in a more consistent pursuit of wealth.

  2. Yes, I thought about it while I was writing and chose not to address it. Healthcare isn’t a wealth-driver, but it does indeed preserve the wealth-crreating abilities of a society. But you’ll never have a system where the primary economic engine is healthcare because that’s not sustainable unless you’ve got constant influx of capital from outside sources. (Which is itself unsustainable… cf Iceland.)

    But you’re absolutely right about its importance.

  3. OK sure, we’re talking semantics here, when we distinguish between wealth-drivers and wealth-preservers.

    But you’ll never have a system where the primary economic engine is healthcare because that’s not sustainable

    I agree, but will you ever find a sustainable system where there is only one primary economic engine?

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