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Thursday, August 1, 2013

Simkovic: The Economic Value of a Law Degree (Final Post)

Michael Simkovic (Seton Hall), The Economic Value of a Law Degree: Correcting Misconceptions:

In The Economic Value of a Law Degree, Frank McIntyre and I estimate the increase in annual and lifetime earnings that is attributable to a law degree.  To do so, we compare those with law degrees to similar individuals with less education.

Because those who matriculate at law schools may be different from the average bachelor’s degree holder, we compare law degree holders to a group of similar bachelor’s degree holders.  

There is a misperception—apparently started by Brian Tamanaha (here and here) and repeated by others—that we simply compare law degree holders to all bachelor’s degree holders, or that we compare the 25th percentile of law degree holders to the 25th percentile of all bachelor’s degree holders.  This is not true.

At a high level, what we essentially did was to create two subgroups of bachelor’s degree holders—all bachelor’s degree holders, and a subset of bachelor’s degree holders who look like the law degree holders with respect to many observable characteristics that predict earnings—demographics, academic achievement, parental socio-economic status, measures of motivation and values.  It is this second group of bachelor’s degree holders that we compare to the law degree holders. ...

These controls bring down our earnings premium estimates by around 10 percent at the mean and around 8 percent at the 25th percentile. 

Controls and no controls

In other words, the data and statistical techniques that we use suggest that the kinds of people who go to law school would probably earn about 10 percent more than the average bachelor’s degree holder even if they hadn’t gone to law school.  But the law school earnings premium is much greater than that, and the earnings premiums we report are after controls for ability sorting. ...

[W]e found very little to suggest that law graduates’ above average undergraduate academic performance translates into higher earnings other than what we had already accounted for.  This may be surprising to people for two reasons.  First, law degree holder undergraduate academic performance is better but not fantastically better than the typical BA.  Second, that above average performance does not actually translate into much of a boost to earnings.   It turns out higher undergraduate grades, for example, do not show a strong correlation with later earnings.  We find that this is especially true, by the way, in the majors preferred by law students in the humanities and social sciences.

 College Majors

... A very large fraction of law degree holders do not end up practicing law.  For some, this is a disappointment and for others it is a preferred outcome.  We include all these people in our estimates of the value of a law degree.  That is because the question we are interested in answering is the value of the law degree, not the earnings of the subset of individuals who practice law.   Controlling for occupation would have been methodologically improper because occupation is an outcome variable, not a pretreatment covariate.

Thanks and Goodbye

It’s been a fun couple of weeks.  We’d like to thank Brian Leiter, Brian Tamanaha, and others for the wonderful opportunity they’ve given us to explain our research to a wider audience.  And I’d like to thank Frank McIntyre for his contributions to this post and previous posts.  This will hopefully be our last post about The Economic Value of a Law Degree, at least for a little while.

Prior TaxProf Blog coverage:

http://taxprof.typepad.com/taxprof_blog/2013/08/simkovic-.html

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