Management faculty research uses NFL as example of labor market’s tradeoffs
Management associate professor Donald “D.J.” Schepker focused his recent research on the NFL's 1993 free agency and salary cap that reduced teams’ abilities to stockpile the best players and how those shifts put more pressure on coaches to perform.
“Firms' responses to changes in frictions in related human capital factor markets” — Strategic Management Journal, November 2021.
Why it matters:
- There are significant labor market frictions in a variety of corporate and professional settings. Labor market frictions are different policies, procedures or other characteristics that affect the market’s ability to work most efficiently. Efficient markets are beneficial because they help resources flow to their most productive use.
- Competitive advantage is about finding a strategy that others cannot duplicate easily now or in the future. Having the right talent is important, but it is also important to ensure that talent is acquired at a cost that is appropriate for the value that is created. Further, managing this talent can be a significant source of advantage, particularly if acquiring and retaining talent is difficult.
- In today’s environment where talent is moving freely between companies at an increasing pace, the market seems to be more efficient than ever, i.e., with reduced focus on geographic locations, the ability to remotely work, etc. As employees move between jobs frequently and work remotely, managers with the ability to coordinate and integrate talent to create value are likely to grow in importance.
- Schepker and his co-authors looked at data for all NFL teams from 1979-2006 to incorporate an equal number of years prior to and after the advent of free agency and the salary cap. The 1993 free agency and salary cap altered the market so that human capital, the players, were more mobile due to free agency, and teams were limited on their overall expense for player salaries with the cap.
- The research team found that with the free agency flexibility and salary cap restrictions, coaches were considered more important to organize and mobilize players, and teams had less patience retaining coaches. The finding also applied to NFL general managers, who were fired more often after the implemented free agency and salary cap.
Examples of labor market frictions beyond the NFL findings:
- Schepker and his research team applied the same logic to restrictions related to nurse practitioners versus doctors. If strict regulations for NPs were removed, they could perform more procedures strictly reserved for doctors. This would put a greater emphasis on NPs in the medical practitioner market since nurse practitioners are typically cheaper to employ as a functional, and albeit imperfect, substitute for M.D.s, Schepker said.
- The Silicon Valley wage collusion case is another widely known human capital case that was affected by labor market frictions and is included in Schepker’s piece. Tech companies, including Apple, Google, Intel, Intuit, Adobe and Pixar, were among companies who admitted to illegally conspiring to prevent workers from getting better job offers at competing companies between 2005-09. The resolution, Schepker said, was that tech companies could no longer stockpile individual workers who could not leave for higher salaries because the collusion was uncovered, and instead, had to identify other means to defeat the competition than merely acquiring better workers at lower wages.
Learn more about D.J. Schepker's research.
About D.J. Schepker:
- Schepker joined the Moore School’s management department in August 2012 as an assistant professor and is currently a Moore Research Fellow and the research director for the Center for Executive Succession.
- His research focuses on corporate governance, executive succession and turnover, board level decision-making and dynamics within and between executives and boards.
- Schepker has taught strategic management at the undergraduate, graduate and doctoral levels. He also leads strategic management professional development courses for UofSC’s Executive Education.
- He earned his bachelor’s degree in business administration with a focus on finance and economics at Babson College and a doctorate in strategic management from the University of Kansas.
Schepker researched this topic with Clint Chadwick, the Howard Fitch/Fred Ball Professor of management and entrepreneurship for The University of Kansas; and W. David Allen, a professor of economics and computational analysis for The University of Alabama in Huntsville.
Schepker is currently researching three primary areas: executive succession planning, the influence of executive characteristics on employee perceptions and board of directors’ dynamics. With regard to succession planning, his current research is exploring why companies differ in the degree to which they perform systematic succession planning activities as explained by a CEO’s narcissism, the board’s experience in HR functions and the board’s leadership structure.
His current research on board dynamics is exploring the conditions under which gender diverse boards better contribute to firm performance. This research illustrates that boards with greater contact between men and women directors perform better. At the same time, gender diverse boards with more men directors who have worked with fewer women colleagues perform more poorly.
Schepker’s work on executive characteristics includes exploring how employees perceive work-life balance in their companies based on whether the CEO has publicly disclosed information regarding his or her family. Future research is expected to explore whether a CEO’s family status influences organizational policies his or her company adopts, particularly related to gender equality issues.