Babe Ruth was a famous baseball player in the 1920s. He made a salary of $80,000 in 1930, which was considered outrageous because it was more than President Hoover made. Nowadays, baseball players make much more than $80,000; the average major league salary in 2019 was $4 million per year, and the highest salary paid was $37.4 Million, paid to Max Scherzer of the Washington Nationals. Part of the difference in salaries between Babe Ruth and today’s players may be due to inflation that has occurred since 1930, and some of it may be due to the fact that major league players make more in real terms today, because the market for baseball has grown over time, and because labor’s share of the baseball pie has grown over time because baseball players now have a powerful union.
What is Babe Ruth’s 1930 salary in 2019 dollars? How much can inflation explain the difference between Babe Ruth’s salary in 1930 and Max Scherzer’s salary in 2019? Have real salaries risen in baseball after adjusting for inflation? You can use the same “index method” formula that we used to convert nominal GDP to real GDP in class. You can find the annual CPI for the years 1930 and 2019 on various websites.
The Correct Answer and Explanation is:
Step 1: Understand the problem
- Babe Ruth’s salary in 1930 = $80,000 (nominal dollars of that time)
- Max Scherzer’s salary in 2019 = $37.4 million (nominal dollars of 2019)
- Average MLB salary in 2019 = $4 million (nominal dollars of 2019)
- Need to convert Babe Ruth’s 1930 salary into 2019 dollars using CPI (Consumer Price Index)
- Then compare Babe Ruth’s inflation-adjusted salary to Max Scherzer’s salary to see how much inflation accounts for the difference
- Determine if real salaries (adjusted for inflation) have increased
Step 2: Find CPI data for 1930 and 2019
Using official US CPI data (e.g., from the U.S. Bureau of Labor Statistics or historical CPI websites):
- CPI in 1930 ≈ 16.7
- CPI in 2019 ≈ 255.7
Step 3: Convert Babe Ruth’s 1930 salary to 2019 dollars using the index method
Formula to convert: Value in 2019 dollars=Value in 1930 dollars×CPI in 2019CPI in 1930\text{Value in 2019 dollars} = \text{Value in 1930 dollars} \times \frac{\text{CPI in 2019}}{\text{CPI in 1930}}Value in 2019 dollars=Value in 1930 dollars×CPI in 1930CPI in 2019 =80,000×255.716.7=80,000×15.31=1,224,800= 80,000 \times \frac{255.7}{16.7} = 80,000 \times 15.31 = 1,224,800=80,000×16.7255.7=80,000×15.31=1,224,800
Step 4: Interpretation
- Babe Ruth’s 1930 salary of $80,000 is equivalent to approximately $1.22 million in 2019 dollars.
- Max Scherzer’s salary is $37.4 million in 2019.
- The difference in nominal terms is huge: $37.4M – $80K nominally, or $37.4M – $1.22M in real terms.
Step 5: How much of the salary increase is explained by inflation?
- Inflation accounts for increasing Babe Ruth’s salary from $80,000 to $1.22 million.
- But Max Scherzer’s salary is still much higher ($37.4 million) than Babe Ruth’s inflation-adjusted salary.
- Inflation explains only part of the increase — Babe Ruth’s salary adjusted for inflation is far less than current top salaries.
Step 6: Have real salaries risen?
- Yes, real salaries have increased significantly.
- Babe Ruth’s inflation-adjusted salary ($1.22 million) is about 30 times less than Scherzer’s $37.4 million.
- This rise in real terms reflects:
- The growth of the baseball market (TV deals, merchandising, global audience)
- Increased players’ bargaining power due to strong unions (e.g., MLB Players Association)
- Increased revenues and profitability of MLB teams
Babe Ruth’s 1930 salary of $80,000 can be converted to 2019 dollars by using the Consumer Price Index (CPI). With a CPI of approximately 16.7 in 1930 and 255.7 in 2019, the inflation multiplier is about 15.31. Multiplying Babe Ruth’s salary by this factor results in an inflation-adjusted salary of roughly $1.22 million in 2019 dollars. Comparing this inflation-adjusted figure to Max Scherzer’s actual 2019 salary of $37.4 million reveals that inflation alone does not explain the dramatic increase in player salaries over time.
While inflation accounts for an increase of Babe Ruth’s salary from $80,000 to about $1.22 million, Scherzer’s salary remains over 30 times higher in real terms. This indicates that real salaries have increased substantially in Major League Baseball. The reasons for this real increase include the expansion of the baseball market, which has grown due to media rights, merchandising, international appeal, and overall popularity. Furthermore, the formation and empowerment of the MLB Players Association gave players collective bargaining strength, enabling them to negotiate higher salaries and a larger share of baseball’s revenues.
In conclusion, while inflation accounts for some of the increase in salaries from Babe Ruth’s era to today, the majority of the salary growth is due to genuine increases in players’ real earnings. This reflects both the growing economic value of professional baseball and changes in labor dynamics within the sport.
