Rev Ind Organ (2009) 34:81–98 DOI 10.1007/s11151-009-9200-9 Gains from Specialization and Free Agency: The Story from the Gridiron Rob Simmons · David J. Berri Published online: 7 February 2009 © Springer Science+Business Media, LLC. 2009 Abstract In the field of personnel economics, there are few opportunities to con- vincingly test for salary returns to specialization as against versatility. This paper performs such a test by modeling returns to performance measures associated with two different skills practiced by running backs in the National Football League. We find gains to both specialization and free agency with substantial predicted differences in returns for alternative skills. These differences vary across the salary distribution. In the top half of the salary distribution, model simulations show that specialists in either particular skill generate higher marginal returns than do versatile players. Keywords Free agency · National Football League · Salary · Specialization 1 Introduction Two of the most fundamental principles of economics, taught in ECON 101 classes worldwide, are diminishing marginal returns to labor in production and the gains, to both workers and employers, from specialization. The advantages of specialization and division of labor were highlighted in Adam Smith’s celebrated example of the pin factory, with the important caveat that the level of specialization is limited ‘by the extent of the market’ (Stigler 1951). These principles seem to be well-suited to manufacturing plants with production line technology where workers perform well- defined, specific tasks. In this environment, workers generate increased productivity, R. Simmons (B ) Department of Economics, Lancaster University, Lancaster LA1 4YX, UK e-mail: r.simmons@lancaster.ac.uk D. J. Berri Department of Economics, Southern Utah University, Cedar City, UT, USA 123