Salary Caps as a Constraint on Wage Setting: Evidence from the National Hockey League

Abstract

This thesis examines how the National Hockey League’s (NHL) salary cap, introduced in the 2005 Collective Bargaining Agreement, has shaped player compensation. While often justified as a tool for competitive balance, the cap also functions as a binding labor market institution that constrains team payroll and ties player wages directly to league revenue. Using a player-level panel dataset from the 2011–12 to 2024–25 seasons, this study combines player salary data, performance metrics, and team-level cap measures. Specifically, this paper analyzes the cap’s effects across three dimensions. At the market level, it asks whether the cap compresses wages by distorting the relationship between performance and pay. At the intra-team level, it asks whether payroll constraints reshape bargaining and roster construction within organizations. At the dynamic level, it asks whether cap ceiling growth translates proportionally into player salary increases over time. A predicted salary model for skaters is estimated using performance variables selected via LASSO and calibrated in an unconstrained market sample, allowing for comparison between players’ actual compensation and expected market value. Measures of team cap tightness and predicted teammate salary identify constraints and payroll pressure within teams. Year-over-year changes in the cap ceiling are analyzed against changes in player cap hit to examine the dynamic transmission of revenue growth. The results show that market pricing broadly holds under the cap. Salaries track expected performance-based value across both constrained and unconstrained teams, and the cap does not broadly distort the relationship between on-ice production and pay. The one meaningful exception is elite players at the top of the distribution. Furthermore, cap pressure most visibly operates within teams. Players on rosters with higher predicted teammate value earn below their own expected market wage, and this effect falls most heavily on lower-tier depth players. Dynamically, cap ceiling growth does not reach player salaries proportionally for all teams. When the cap rises, salary growth is weaker for players on previously constrained teams. Qualitative interviews with the Executive Director of the NHLPA, an NHL general manager, an NHLPA-certified agent, and two active NHL players are used to analyze and contextualize the quantitative results. Policy implications and recommendations are provided for future collective bargaining agreements. Overall, the NHL salary cap does not broadly alter market pricing but instead reshapes how compensation is allocated within teams and how revenue growth is transmitted over time.