Wage Dispersion and Team Performance: A Review of 25 Years of Research on Professional Sports

Abstract

Since initial studies in the late 1990s, researchers have examined the relationship between wage dispersion and team performance in professional sports. While no definitive consensus has emerged across the sports studied, it is still useful to consider where this literature stands after 25 years of research given its clear importance not just for professional sports, but also for economic decision-making in general. This review of the relevant literature organizes discussion of: (1) the theoretical foundations underlying the wage dispersion–team performance empirical studies, (2) the favorable conditions found in professional sports that provide a unique “laboratory” for researching this topic, (3) conclusions from the empirical literature about the relationship in focus and the different factors in those studies which likely contribute to the varied conclusions, and (4) promising avenues for furthering this line of research in the near future.