Even Economists Care About LeBron’s Choice

Well, certainly this is not true of all economists, in fact there might even be some who cannot tell you who LeBron played for last season.  However, the NBA does offer an interesting marketplace to discuss for economists.  Unlike some other labor markets, the suppliers of labor (players) and the demanders of labor (teams) are not free to negotiate the price of labor (salary) because of collective bargaining agreements.

Lebron Dunk


The structure of the price controls in the NBA has changed over time.  Today’s price controls are much more restrictive than in the final year of Michael Jordan’s contract when he negotiated a $33 million deal (compared to LeBron’s current $21 million/year deal).  Since salaries are controlled, players may choose employment based on non-monetary considerations.  Tyler Cowen, an economist at George Mason University, suggests that LeBron might have considered his durability as a factor http://marginalrevolution.com/marginalrevolution/2014/07/lebron-james-and-the-theory-of-price-controls.html .  Unfortunately, Professor Cowen begins his argument by asserting that neither Cleveland nor Miami could offer LeBron more money.  Under the collective bargaining agreement, Miami could have offered a five year deal of $127.7 million and all other teams could offer a maximum of a four year deal at $94.8 million.  Clearly, Miami had the ability to offer more (particularly if you factor in the income tax for Florida – 0.0% – and 5.92% for Ohio).

Cleveland Cavaliers v New York Knicks

So, Miami could offer more money but he chose to go to Cleveland, and here is where the economists become intrigued.  I don’t think it is that surprising that people consider factors other than money when making a decision regarding employment (disclaimer: I recently chose employment with a lower salary).  This decision becomes even less painful for an athlete who earns more than $50 million in endorsements.  To me, it was refreshing to hear an athlete talk about factors that impact an employment decision, beyond the simple “it gives me the best chance to win a championship” or “I took the deal that was best for me.”  We can all guess as to why LeBron chose to take less money.  Or we can simply believe LeBron when he explains that the decision had everything to do with Northern Ohio.


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