Squawking Baseball posts a nice piece on the pros and cons of signing players long term. The cons are mostly on the player side of things. While clubs are controlling costs with younger players, they may actually be ratcheting up free agent salaries:

But there's another dynamic that is in play here: as more and more players sign these deals, the supply of premium players on the free agent market will continue to drop. That, combined with the growing war chests many teams have already put together, will create excess demand for whatever talent ends up on the open market.

In fact, this has likely already happened in the past few years. Teams have a certain amount of money they can spend on payroll; as revenues rise and each win becomes more valuable, those budgets increase. With a limited supply of free agents, there will inevitably be high demand for some mediocre players (i.e. Carlos Silva).

The real question is this: at what point does the potential reward of becoming a free agent outweigh the risks of turning down $30+ million when you have nothing in the bank? If supply continues to dwindle, free agency may simply become too rational a choice to pass up.

I just had a conversation with Terry Bross on the show The Positive Side of Sports. Terry, former pitcher, is upset with these youngsters because they're costing others money. By not going to arbitration, they're not ratcheting up salaries as much. I understand the union point of view on that, and that most of these players would make a lot more money going year-to-year until they reach free agency. Turning down a lifetime of security, however, is very difficult to pass up. The owners, through hiring better GMs, have finally figured this out.