Labour economics: golf caddying edition

By Seamus Hogan 22/04/2013 4


Radio Sport yesterday was consumed with a debate about whether Steve Williams, the caddy for Masters winner, Adam Scott, is worth the money he is paid.

For those who don’t follow golf, here is the background. Steve Williams is a New Zealander who was the professional caddy for Tiger Williams in his heyday (1999-2011). They had an acrimonious break-up two years ago, and since then Williams has been caddying for the Australian, Adam Scott. Williams’ contract sees him earning 10% of Scott’s prize earnings, which I gather is a typical contract for a professional caddy. Obviously, if you can caddy for one of the greats, that is a very lucrative contract indeed. (The prize for winning the Masters this year was $1.44m USD.)

Now the debate on Radio Sport concerned whether any caddy is worth that amount of money. And for an economist, “worth” would typically mean what a caddy can contribute relative to the next best alternative. Is it really the case that a top caddy can improve a golfer’s winnings by more than 10%, relative to what he would earn with one of the throng of enthusiastic golf fans who would be prepared to do the job for a normal kind of salary? While there has been much commentary on the advice that Williams gave Scott on his winning shot at the Masters this week, it seems unlikely that the best caddy is really that much better than the alternative.

There is a second labour-economics question that I did not hear addressed on Radio Sport: Why are caddies paid on a commission basis (percentage of income) rather than a flat rate? The standard answers to these questions from the contract literature would be that either the golfer is more risk averse than the caddy, or that this is a hidden-information problem and that the caddy needs a financial incentive to exert the effort needed to do a good job. The former hardly seems likely given the relative incomes of the golfer and his caddy. The second is even less likely to pass the sniff test: Does it really take additional costly effort to give good advice on which club to use and how a putt is likely to break?

Instead, maybe we should be looking to the efficiency wage literature which contains a number of different theories for why above-market-clearing wages can persist in the face of unemployment. My favourite model to explain caddy wages would be Shapiro and Stiglitz’s classic model of shirking. In their model, the high (“efficiency”) wage persists as a preference for employment over unemployment is needed to induce a fear of being fired and hence an incentive not to shirk in the face of costly monitoring of effort. The model I have in mind for caddies is similar. The top golfers are big superstars whose flaws and foibles would be fodder for the tabloids. A caddy who works closely with a golfer is likely to have considerable information that tabloids would love to get hold of. So why might one pay above the market-clearing wage for a caddy? So that the cost to the caddy of losing his job would not be dwarfed by payments he might be offered by a tabloid. And why pay caddies on a commission basis? Because the greater is a golfer’s earnings, the greater is his stardom, the more a tabloid would be prepared to pay for information, and hence the greater would be the needed efficiency wage.

What other explanations explain the twin puzzle of high remuneration and a percentage-of-earnings contract. If I were teaching labour economics, I would set this as an essay question.


4 Responses to “Labour economics: golf caddying edition”

  • So. You are saying that someone should be able to improve a “Body’s” worth by more than X% to justify their payment of X%.

    How does that fit with Telecoms of (at least) 10 people earning more than $1m? And god knows what the CEO gets.

    Being a sporting coach I DO take exception to this kind of “valuing of a person”. My athletes apparently apperciate my “worth”.

    My take on why the pay goes up the better the golfer gets is that the caddy is providing a better service surely. Your argument is that more “normal” people will squeal unless thyey are paid more to shut up. I say that caddying is just another profession. And in a professional world, professionals don’t squeal.

    I will mention Graham Henry and his worth. eg. Losing the world cup and not being fired and coming up trumps four years later. What was he worth? By your reckoning, nothing after the first one but millions after the second???

    But would you really consider the alternative (whoever that might be) would have done the job better?

    Keeping a losing coach on after the biggest loss in the sport was a watershed in NZ sport.

    I am about to go do some research on Tiger’s performance pre Williams, with Williams and post Williams. I vouch it may reveal his “worth”.

    Steve Williams has been a caddy for yonks. He was a caddy for Peter Thompson (at age 13), Ian Baker-Finch, Greg Norman, Raymond Floyd. Tiger Woods, And now Adam Scott.

    All winners. Go ask them whether Steve was worth it. Greg Norman even wanted him back after he fired him!!

    http://en.wikipedia.org/wiki/Steve_Williams_(caddy)

  • Actually, it might be interesting to do a bit more research. The Masters used to provide all golfers with from THEIR caddy selections. Therefore there might be a way of telling the difference between a golfers caddy and and any old (heh – in the Masters case, black) “alternative”.

    Wow!

    “Before 1982 all players in the Masters were required to use the services of an Augusta National Club caddy, who by club tradition was always an African American”.

    http://en.wikipedia.org/wiki/Masters_Tournament

  • I can’t comment on the rationale for the different ways a caddie might be paid, but I have no doubt that for the upper echelons of professional golf, caddies earn their keep.

    It is very easy to underestimate the difficulty of the courses prepared for the PGA tournaments, especially majors, and most especially the Masters. On these courses, on practically every shot a golfer faces, there is a continuous range of options, with each making some compromise between risk and reward. Very often, the golfers are forced to take some risk just to have a chance of scoring a par. This is especially apparent at Augusta National where the greens are notorious for the vicious and varying slopes. Having missed a green on the high side, it can be near impossible keep the next shot on the green, let alone close enough to save par. There are quite a few places where a bad miss might cost three shots – or more – two golfers scored 10s on the par 3 12th hole this year. Even a bad position on the green can be expensive – Danny Lee six putted the 10th at Augusta the year he played – the very hole where Scott won this year.

    Combine these difficluties with different pin placements, changing winds, unwanted fades or draws that always creep into golfers’ swings, and the testing emotional conditions, then having an extra reliable and trustworthy head to cover the options is definitely worthwhile.

  • @ Ross

    Back to these comments after a week away. I don’t actually have an opinion on how good Steve Williams is. I was just framing the question as it was being asked on Radio Sport. Either Williams is worth as much to his golfer as he is paid relative to the next best alternative or there is a gift component to his remuneration. There is no doubt that he is very good indeed, and it might be that he is worth his salary purely in terms of how much he increases his golfer’s earnings. It might be, as you say, that the golfers he has caddied for value his marginal contribution to their success by much more than the increase in prize money (which seems reasonable). In either case, the pundits on Radio Sport saying he was overpaid are simply wrong about his value. But even if they are right, it doesn’t mean that Adam Scott and Tiger have been overpaying him. The efficiency-wage literature gives a whole bunch of reasons why a wage contract might include a gift component, and it is interesting, I would think, to ask if one of those stories *might* explain the contracts that we observe.