Wages and labor productivity. Evidence from injuries in the National Football League

Studies in labor economics face severe difficulties when identifying the relationship between wages and labor productivity. This paper presents a novel identification strategy and demonstrates that the connection between wages and labor productivity is remarkably robust even when institutional constraints serve to distort the relationship. Identification is achieved by considering injuries to professional football players as an exogenous shock to labor productivity. This is an ideal empirical setting because injured players in the NFL can not be replaced easily because franchises are constrained by the salary cap. Injuries are shown to play a major role in franchise success and a tight connection between wages and marginal productivity emerges. This is in spite of regulatory frictions that serve to hold down wages for some workers.