I have an article published in the latest edition of the IMF house journal about the labour market for European footballers. They asked me to write the article because their perception was that footballers move freely across European markets, and that this makes for an “efficient” outcome. Efficiency can be a tricky concept in economics. Much of the literature in the mainstream concerns unemployment- which is not really a concern in football labour markets. Alsthough one might argue (and I think this was the IMF’s interest) the European football market has been better at generating employment for footballers in recent years than most other European industries have been at generating new jobs.
Another sense of efficiency is that the player ends up where he is most highly valued. But this really begs a systemic question. The observation that wages and success are highly correlated (assuming causation flows in the right direction) could be taken to imply that market is efficient. This is efficiency in a sense analogous to financial market efficiency. However, this also assumes that fans in aggregate get the best possible entertainment from a system which tends to be dominated by the same small subset of teams over time. The American view of this (or at least the position of the major leagues) is that there should be restraints imposed to ensure that talent is distributed more evenly around the league. The Americans do not seem to believe that free markets are efficient while Europeans do- at least when it comes to sports.
As something of an economics layman, I’m struggling to understand how the labour market of football could be measured by its efficiency, even if we accept how observable it is.
I suppose my central point would be that if we are unable to accurately measure the significance of on-field actions, then how can we begin to draw conclusions about if the best players play for the best clubs? Lionel Messi is obviously paid for what he contributes on the field at our current level of understanding, but arguably Daniel Alves’ performance effects Lionel Messi’s goal return more than Lionel Messi himself. With this example in mind, does it not start to taint the hypothesis that Lionel Messi is rewarded financially at a reasonable level in the current market?
I’m not trying to make a point concerning football tactics, I’m trying to suggest that we have an imperfect understanding of what constitutes as talent on the football pitch, because it is difficult to isolate the major factors on, or even off the pitch, that contribute towards scoring goals and preventing them (if these are even the two things we should be concerned about).
It strikes me that Lionel Messi could very well be an externality from a transaction on the field we are yet to gain a full understanding of, or we know nothing about, rather than the sole contributing force to positive on-field actions.
I hope I have made myself clear, and I hope we are not talking on cross purposes, but I’m skeptical that our current assessments as to what makes a good football player are based on anything other than cognitive bias. It’s possible that a player we deem as poor or insignificant contributes more positively to the success of a football team than a 40-goal-a-season player. This would make the labour market for football very inefficient. Surely we cannot measure market efficiency until we know what makes a difference in the sport.
I’d be fascinated to hear your thoughts…..
Efficiency is a word that can be used in different ways. I mean it in the sense that the money paid to players in wages is a fairly accurate indicator of the performance of the team. I think most aspects of the wage contract are fixed before the season starts, and performance bonuses play a small role. So the wage bill in that sense is a good predictor of performance. Sometimes the relationship does not hold very closely, but then these errors seem to be random and to cancel out over time. We only know the wage payments to the team as a whole, not to the individual players, so it’s not easy to say anything about individual contributions.