Labour mobility effect on wages: The professional footballersâ case

The sports industry is an example of an industry in which an organisation’s outcome depends strongly on human capital, in particular on the skill of the players. The football labour market offers a particular opportunity for studying the topic of incentives and human capital accumulation. In theory, this is the case where wages are largely determined by the workers’ performance that is observable to the employer – in our case, the players’ performance. One way to set workers salary is by tournaments. Lazear and Rosen (1981) show that companies cannot base salary just on workers’ effort choices. Companies must establish a tournament between workers and determine prizes for winners and losers, independently of the difference between outputs.

Our study uses data from Quadros de Pessoal (QP), a longitudinal matched employer-employee data set with information on Portuguese workers and firms, collected yearly by the Ministry of Social Security. The QP information is matched with club statistics collected between the 2002/03 and the 2009/10 seasons. During this period, we identify almost 7,000 players, an average of more than 800 players per year. Pay is clearly structured in ranks and football clubs spend a considerable amount of resources on pay, therefore they should seek an optimal pay ranking to induce effort and the further development of individual abilities in order to achieve maximum efficiency (Ribeiro and Lima 2011).

The Portuguese football league system has a hierarchical format with national and regional divisions. All divisions are open and clubs compete for the best possible rank in order to get promotion to a higher division or to avoid relegation to the division below. The number of clubs promoted and relegated can vary from division to division. This system means that, in theory, every club can rise from local divisions to the Primeira Liga, the Portuguese top division.

The national league is divided into four tiers, the first two are professional divisions and the remaining two are semi-professional. In the years considered in this research, the Portuguese first and second divisions had 18 teams, of which the last three were relegated, up to the 2005/06 season. Since 2006/07, the two top divisions have had 16 teams each, with the last two relegated to the lower division. In Table 1 we have the descriptive statistics.

Table 1 Description statistics

More than 50% of players were new hires, and less than 5% of players stayed more than three years at the same club. Considering these specific characteristics of the market, i.e. low tenure and age, we could follow 1,345 moves by nearly 900 players in the years covered. We used five types of movement; Table 2 shows and describe the type and number of moves considered in our research.Â

Table 2 Player movements between 2002/03 and 2009/10

Results

We identified clubs and players who repeatedly appeared in the database so that we could follow their path along the seasons covered. After the identification, we order players by salary within each club and by year and set which quartile they are. In the first quartile are those who have lowest wages, and in the fourth quartile are those players who are among the best paid. We then followed the six possible moves and inspect the quartile changes. We were also able to check and compare real salaries over the years. Table 3 presents the results.

Table 3 Results

Table 3 shows the sum of quartile changes for all the six events considered.  When we sum up all the quartile changes, there are positive results (i.e. a higher level in the team hierarchy) when players get transferred to lower divisions (DOWN), when they stay at the same club (REL and STAY), or when they move to another club in the same division (SAME). For the other two types movement, the changes are not so considerable. It is also possible to see that around 70% of players do not change by more than one quartile from one year to the next in all types of movement.

Regarding salaries, the majority of players take a pay cut when they play in lower divisions (DOWN and REL). On the other hand, players earn more money when they play in higher divisions (UP and PROM) or in the same division (SAME and STAY) as the previous year.

Conclusions and discussion

Using detailed data on professional football players’ wages, we determine which salary quartile players are in within each club for all years covered. After defining five different possible types of player movement, we can conclude that professional football players are willing to lose importance within a team in exchange for playing in a higher division. However, this loss in hierarchy does not mean lower wages. The opposite is also true – players are willing to lose money and visibility through playing in a lower division in exchange for greater importance within the new team. We also saw that typically players who move between clubs in the same division expect to earn a wage increase and also a rise the internal rank in terms of monthly salary. There are two more �moves’ considered: players who stay in the same club after promotion should not expect to receive a salary bonus or a rise in internal ranking. In contrast, players who stay in the same club after relegation in general rise in the teams’ pay hierarchy. However, this rise does not mean that players receive more money.

A common conclusion across all changes is that a player who climbs in a teams’ pay hierarchy can expect a salary increase. This means that these players have their efforts recognised in two different ways: a monthly salary increase and greater hierarchical importance within the team.

Acknowledgments

This work was partially supported by the Portuguese Foundation for Science and Technology (PTDC/EGE-ECO/101493/2008 and PTDC/EGE-ECO/118070/2010). We are also thankful to the Portuguese Ministry of Labor and Social Solidarity for giving us access to the data used in this research.