Labor Economists Have Extensively Researched the Determinants of Earnings Where Earn Is Annual Salary in Dollars, Years Is Number

question 12

Essay

Labor economists have extensively researched the determinants of earnings.Investment
in human capital, measured in years of education, and on the job training are some of the
most important explanatory variables in this research.You decide to apply earnings
functions to the field of sports economics by finding the determinants for baseball pitcher
salaries.You collect data on 455 pitchers for the 1998 baseball season and estimate the
following equation using OLS and heteroskedasticity-robust standard errors: $$\begin{array} { l } \widehat { \operatorname { Ln } \left( \text { Earn } _ { i } \right) } = 12.45 + 0.052 \times \text { Years } + 0.00089 \times \text { Innings } + 0.0032 \times \text { Saves } \\ \quad \quad \quad \quad \quad \quad( 0.08 ) \quad( 0.026 ) \quad \quad \quad \quad \quad ( 0.00020 ) \quad \quad \quad \quad \quad\text { (0.0018) } \\\\- 0.0085 \times E R A , R ^ { 2 } = 0.45 , \text { SER } = 0.874 \\ \quad( 0.0168 ) \\\end{array}$$ where Earn is annual salary in dollars, Years is number of years in the major leagues,
Innings is number of innings pitched during the career before the 1998 season, Saves is
number of saves during the career before the 1998 season, and ERA is the earned run
average before the 1998 season.
(a)What happens to earnings when the pitcher stays in the league for one additional year?
Compare the salaries of two relievers, one with 10 more saves than the other.What effect
does pitching 100 more innings have on the salary of the pitcher? What effect does
reducing his ERA by 1.5? Do the signs correspond to your expectations? Explain.

---

Definitions:

Ending Finished Goods

The inventory of goods that are completed and ready for sale at the end of an accounting period.

Sales

The total amount of goods or services sold by a business during a particular period.

Early Warning System

A system designed to detect early signs of risk or failure, allowing for preemptive action.

Top Management

The highest level of management in an organization, including positions such as CEO, CFO, and COO, responsible for overall strategy and direction.