Sir Tom Finney - widely regarded as the best English footballer of all time - earned £20 a week, or around £1000 in today's wages. Wayne Rooney is about to get a a pay deal worth £300,000 a week. Why the difference?
A useful framework for thinking about this is the Nash bargaining solution*.
Let's say that the joint surplus to both Manyoo and Rooney from Rooney's playing for Manyoo is A - (c + p), where c is the club's payoff if a contract is not agreed and p is the player's payoff if there's no agreement.
It can then be shown that Rooney's payoff will be:
p + b(A - (c + p))
where b is Rooney's bargaining power; this is a coefficient between 1 and 0, where 1 means he has all the power and Manyoo has none, and 0 means Manyoo has all the power.
This tells us that Rooney's wage depends upon three things:
- his payoff if there's no agreement, p.
- the size of the pie to be split, A.
- his bargaining power, b.
Given the amount of money in the game, A is big. Similarly, Rooney's payoff if contract talks break down, p, is also big; he plays for Chelsea instead. And his bargaining power is also strong because Manyoo's is weak; if they let him go, the fans will be angry and the club will be signalling a lack of ambition and hence find it difficult to attract the new players they'll need in the summer. In the extreme but not implausible case of Rooney having all the bargaining power, he can extract all of the surplus from his playing for Manyoo for himself, leaving the club with nothing.
Now, contrast this to Sir Tom's position:
- A was low, because there was less money around; there were no big TV revenues in his day.
- p was low, because the maximum wage of £20 per week meant his outside options paid no better than Preston did.
- b was low. When Sir Tom was offered big money by Palermo in 1952, his employers refused to let him go, and he acquiesced in this. How far this was because of the club's actual power and how far because of Sir Tom's placid nature and loyalty to the town needn't detain us here.
Now, here's the thing. The player's skill enters into our equation only indirectly - as one factor determining A; Manyoo gains more from employing a skilful player than it does from employing a clogger. But how much of the total surplus the skilful player can extract for himself depends upon the other factors determining A, outside payoffs c and p, and bargaining power.
These coefficients favour Rooney but did not favour Sir Tom. They depend upon institutional factors (whether there's a maximum wage or not); cultural ones (deference towards football club owners, willingness of fans to pay to see a game); temporary stength (such as Manyoo's desperation now); or individual character (a person's timidity or narcissism).
The message of all this should be obvious to anyone who isn't blinded by ideology. It's that incomes don't depend merely upon an individual's skill. Instead, they depend upon the power to extract a share of the surplus, or rent, which arises from job matches. As Robert Solow says (pdf):
Rents are pervasive...It is too nonchalant to presume that all market incomes reflect true productivity.
* I'm following ch 5 of Sam Bowles Microeconomics.