Mixing the princes and the paupers: Pay and performance in the National Basketball Association

We investigate how team and individual performances of players in the National Basketball Association respond to variations in intra-team pay inequality. By breaking down team dispersion into conditional and expected components, we find that expected pay dispersion has a positive effect on team and individual performance. We find that team and individual performances are essentially orthogonal to conditional pay inequality, counter to the hypotheses of fairness and cohesion proposed in the literature both for sports and general occupations. A change in collective bargaining regime in 1996 had little impact on either team or player productivity. ► How is worker productivity affected by variations in intra-firm pay inequality? ► We examine this question using data from the National Basketball Association. ► Team and worker performance vary positively with expected (‘justified’) pay inequality. ► Team and worker performance are unaffected by unjustified (conditional) pay inequality. ► Our results are consistent with tournament theory.