Last week I looked at the most overpaid players in 2006-07. The surprising leader of this group was Shaquille O’Neal. What made this especially surprising was revealed on Friday. Across his career, Shaq has clearly been exploited.
To understand what this statement means, we have to understand the term “exploited.” Again, this is what I said on Friday:
The famed economist Joan Robinson stated (back in 1933): “What is actually meant by exploitation is usually that the wage is less than the marginal revenue product.”
Or to put it more simply… if you make more money for your employer than your employer pays you, then you be exploited.
This means that a worker who is paid $3 an hour, but only generates $2 in revenue, is not exploited. And a worker who is paid $200 million, but generates $300 million, is indeed exploited.
And again, according to this definition, Shaq has been exploited during his time as an employee of the National Basketball Association.
This past season, though, Shaq was clearly overpaid.
Who, though, was exploited in 2006-07?
The answer is in Table One:
Table One: The Exploited or Underpaid in 2006-07
Topping this list is the man who is supposed to make Orlando fans forget about Shaq. Dwight Howard was paid $4.8 million in 2006-07 by the Orlando Magic. In return, the Magic received 20.5 wins. With each win valued at $1.478 million (again, look at the post on the overpaid to see how this value was estimated), Howard was worth an estimated $30.3 million to Orlando. So he was underpaid, or exploited, by more than $25 million.
Exploitation of the Young
There is a clear pattern that stands out when we look over this list. The majority of these players have played less than five years in the league. This is not surprising, since the NBA has a rookie salary scale. To eliminate rookie hold-outs and large contracts to unproven players, the salaries paid to first round draft choices are set by the NBA’s collective bargaining agreement. These salaries, as the above table indicates, are often well below the revenue these young players are apparently creating.
To put “well below” in perspective, the fourteen players on the list with less than five years of experience produced $234 million more in value than these players were paid. Given this result, is it any wonder teams intentionally lose to enhance their draft position?
Exploitation of Veterans
The young were not the only players exploited. The top ten includes Jason Kidd, Steve Nash, and Marcus Camby. Kidd was paid more than $18 million. But with 24.8 Wins Produced, he was worth more than $36 million. Such a result tells us that even those who receive the NBA’s maximum salary can still be exploited.
So this means that even when the much bigger contracts of Chris Bosh and LeBron James kick in this season, these two players may still be producing more revenue for both their teams and the NBA than either will be paid. In other words, the days of being exploited may not be ending too soon for King James.
– DJ
Our research on the NBA was summarized HERE.
Wins Produced and Win Score are Discussed in the Following Posts
Simple Models of Player Performance
What Wins Produced Says and What It Does Not Say
Wages of Wins Journal 
stone
September 10, 2007
the formula doesn’t take into account how fans are screwed by the high cost of tickets as a result of both overcompensated owners and players.
mubic
September 10, 2007
The rookie contracts are pretty much a crock of shit. The only reason they can get away with that is because the rookies dont have union representation until after they sign their deals. The veterans are basically stealing money from the young players. The same is true of the age minimum, the then-current members of the union had a vested interest in screwing over the then-future members of the union. This will go on indefinately. Also, it makes sense that max contract players would also be exploited because other than rookies, theyre the only people forced to sign deals below their time-of-signing market value.
mubic
September 10, 2007
stone, shut up.
Jerome
September 10, 2007
What an asinine article. Overpaid CEO’s aside, no employee is paid commensurate to what he “produces” at his workplace. To even suggest that an athlete making $20 million a season is “exploited” because the team owner made even more money because of that employee is the dumbest thing I have heard in a while. Yank your head out of your butt, please.
Bill Schauer
September 10, 2007
You are using the term “exploited” in a way that I have never herd it used before. To “exploit” is a verb with a subject and object. When it is use to describe an employment situation in common usage the subject is the employer and the object is the employee. Yet your first assumption is equivalent to saying that the owners are paying exactly what the players are producing collectively, which is equivalent to saying the employers are not exploiting the players.
Because of the assumptions you use the receivers of the excess value are those players who are overpaid, not the owners. Thus the “exploiters” of the underpaid players are the overpaid players.
I think the term “exploited” is inappropriate for this usage. I suspect that you used the term “exploited” either for its sensational value or you are deliberately trying to deceive.
dberri
September 10, 2007
Bill,
The definition of “exploitation” is taken directly from the work of Joan Robinson (and any economics textbook).
Alien Human Hybrid
September 10, 2007
Dave-
No problem with the term “exploited” here, but I have noticed an interesting consequence of your construction.
There appear to be circumstances where a player’s level of exploitation is tied to the number of minutes he plays.
In other words, a player with a high WP48 is being exploited only if he plays enough to generate a significant number of wins.
Therefore a team could cut its overall exploitation level of certain players by playing them less (diminishing productivity) instead of paying them more. This just seems a bit odd.
Tangentially, I’d be really interested in career summaries of high profile players; specifically the value of the wins produced over their career versus their total compensation. Does the gross “exploitation” of young players in the NBA generally balance out over time, or does it tilt in the direction of the owners? I would surmise the latter, but would certainly be interested to know some empirical foundation to those thoughts.
mubic
September 10, 2007
Alien Human. You could bench a player so hes no longer being exploited, instead he will merely be imprisoned. Its like one of those blacksmith indentureships. The kid has no choice but to work in your shop for less than he’s worth. You can let him sit on his ass instead of working, but then he’d probably be worse off because once he’s finally liberated, he won’t have the skills or reputation to get a decent blacksmith job elsewhere.
Also, overall the owners are exploiting the players due to the simple fact that theres a salary cap and a rookie pay scale. They can get away with this because the NBA is essentially a cartel. Players can try to circumvent the cartel by playing in Europe, but those leagues have rules saying that only so many Americans are allowed on each team.
Bill Schauer
September 10, 2007
The term “exploitation” is such a muddle-headed concept that I am surprised that any economist outside of a Marxist purist uses it. If we stick to the exact definition that you quoted – “The famed economist Joan Robinson stated (back in 1933): “What is actually meant by exploitation is usually that the wage is less than the marginal revenue product.””
Then the only way any transaction can be non-exploitative is for wage earners to get exactly their marginal revenue product, something that is almost impossible to arrange for. And if they get more than their marginal revenue product then they are exploiting the employers because the bosses are not getting their marginal product. So it turns out that all transactions are exploitative except in the extremely rare cases in which you just hit it right on the head. So what is the point of defining a special word for “all transactions with tiny exceptions”.
When you use a word like exploitation that has a long and controversial history you are bound to decrease the precision of any communication. This is because you are dragging in all the associated baggage that word carries.
You can see the examples of this in the replies to your post. Despite the fact that you disclosed that you assumed that the owners were paying exactly the marginal product of the players collectively, and hence could not be exploiting the players, Alien Human Hybrid seems to assume they are and mubic explicitly states that they are.
I wish you had quoted more of Joan Robinson (How about a Lit. Ref?) because is sounds as if she was wrestling with the muddle herself because she says exploitation “usually” means…
BTW I looked up exploitation in the few economics text that I have at hand. They all use the word but give no precise definition.
Akiva
September 11, 2007
But how is Dwight Howard or any of the other who are “exploited” personally responsible for the wins you tally? The whole team helps make a win!
David Moro
September 12, 2007
Duh.
The NBA is a business that makes MONEY, right?
The owners of an business always get WAY more
than they give out, or it wouldn’t be business.
There wouldn’t be a job, period.
I work in Korea right now, andI am less expolited
than most people because I have my house, utilties and
most everything else paid for on top of my salary.
But I alsowork 15 hour days. I guarantee you, no one
out there is benefitting as an employee more than the revenue
they create for a business. Nobody.
David Moro
September 12, 2007
And yes, that means most of us are being exploited..
.welcome to the world.
No kidding.