The Impact of Foreign Direct Investment on the Relative Return to Skill

In this paper we investigate wage determination among professional football players ranked in the Italian A and B series. Since football is a highly labor intensive activity, both scale economies and scarcity of the most talented players emerge as the main determinants of the high earnings levels observed. In particular, the marginal revenue product of a player is related to the extra price that a spectator is willing to pay to see him play (live or on television) times the number of spectators who are attracted. In this context, the relationship between individual productivity and pay can lead to "superstar" effects. We use data on individual earnings and other personal characteristics of Italian football players in the 1995/6 season to estimate pseudo-human capital earnings equations and test the relevance of "superstar" effects in wage determination. Significant "superstar" effects are found in earnings after controlling for a large set of personal characteristics, individual performance indicators and either team fixed effects or team-specific variables