Wage Inequality and Firm Performance: Professional Basketball's Natural Experiment‪.‬

A Natural Experiment from Professional Basketball An issue highlighted in the National Basketball Association's (NBA) 1998-99 labor strife was the disappearance of the league's middle class. While a few athletes had garnered the attention of the media for contracts in excess of 100 million dollars, a larger number of veteran players were playing at the minimum wage, albeit NBA style. (1) The changes in salary equity were primarily a result of the 1995 collective bargaining agreement (CBA). (2) Not only did this agreement increase the team payroll cap by 45 percent, it also eliminated the institution of restricted free agency. Hence, all players without a contract at the conclusion of the 199596 season were free to negotiate and sign with any team in the NBA. As a result, several organizations began the summer of 1996 with relatively empty rosters and significant amounts of money to spend on the acquisition of talent. The path taken by many of these teams was to devote a substantial amount of team payroll to a few star players. The remainder of the roster was then filled with players only offered the NBA minimum wage. (3)