Paul L. Caron

Saturday, July 20, 2013

More on The $1 Million Value of a Law Degree

One MillionFollowing up on my prior posts (links below):

A fascinating new paper argues that a J.D. is worth $1 million over the course of a career, and that the recession hasn't dampened its value. But don't go racing for your LSAT prep book just yet. ...

Having scoured through it -- and having asked the Hamilton Project's Adam Looney, who has done similar work on college graduates, for a second opinion -- Simkovic and McIntyre's paper seems to be both based on a reasonable set of economic assumptions and a very by-the-book interpretation of their numbers. ...

That said, I'm not sure young political-science majors should take this study as a green light to go rushing back to their LSAT prep books. For ease of digestion, here are my reasons in bullet-point form:

Reason 1: The Legal Job Market Continued Deteriorating Well Past 2008. ... The question is whether the problems law graduates have faced a temporary jobs drought thanks to the recession, or if something has fundamentally changed in the industry.

Reason 2: The Boom Times Might Be Over for Good. ... [T]he slow rebound nonetheless suggests something's amiss in law-firm land. Unless government hiring rebounds with a vengeance, or jobs open up en masse thanks to retiring boomers, it's hard to see the hiring picture dramatically improving for young J.D.'s.

Reason 3: Students From Bottom of the Bottom Schools Are Still Suffering. ... Even if law-school graduates on the whole do reasonably well, the law-school boom of the last decade helped spur the growth of bottom-tier institutions that now post 20% or higher unemployment rates among their graduating classes. ...

I'm not yet comfortable saying that many young Americans are missing out by saying no to law school.

If the Simkovic & McIntyre analysis of the value of a law degree is correct, there are two somewhat counterintuitive implications.  First, law schools have been massively undercharging for tuition in the past. If what is now a $150k investment produces $1M increase in income, why are law schools permitting students to capture all of that benefit? Presumably there'd still be plenty of takers for a $300k investment that produces $1M in benefits. And recall that the study is using data from 1996-2011, but that tuition in 1996 was hardly $50k/year.

The second implication is that if Simkovic & McIntyre are correct about the system basically holding going forward, it also suggests that law schools should be raising their tuition. To the extent that it reduces enrollment, it might only boost the value of the degree by constraining the supply of lawyers. Still, I can't imagine any schools going this route (competition is apparently keeping tuition in check).

I think the best critiques of the study I’ve heard so far are:

  1. Maybe there really is a structural shift going on in the way legal services are delivered. ...
  2. Because it uses general averages, the study may mislead people who invest large sums in law degrees from low-quality (or even low-prestige, which isn’t necessarily the same thing) institutions. ...
  3. The study doesn’t discuss bar passage. ...
  4. The study doesn’t discuss the financial, much less hedonic, consequences of carrying heavy debt from college and law school. ... 
  5. The study treats the experience of law school as neutral, neither better nor worse than the three-year alternative job. ...
  6. I happened to have a really good time in law school, so for me it was a net benefit; other people report hating the experience and for them it is a net cost. ...

Thus, the study is a useful data point for law school applicants/entrants and a useful corrective to some recent sturm und drang. But it’s not by any means 100% of the story either.

Clearly, this article has given new life to those who would defend the status quo. However, even assuming the statistical methodology is sound (which I do, as I have no reason to believe otherwise and no time to recreate it), the study suffers from a number of crucial weaknesses.

In general law school graduates might be slightly better off than their peers with no graduate degrees, but a damn lot of them still have pretty bad jobs. It’s also possible the problem might still get worse; law firms are simply not at the size where they were before the Great Recession began, nor are they likely to expand again in the future.

But the new study is a very important contribution to this debate. Law school is perhaps no longer the easy ticket to financial stability that it seemed back when I was in college, but it’s not really clear that law-school is a straight-up bad investment.

Prior TaxProf Blog coverage:


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you cannot get a good estimate of the law school "premium" by simply comparing 4 year degree holders with jds. you need a population that matches jd holders in terms of career ambitions and other characteristics. the data that they have on observable characteristics is not adequate for this purpose. i'm quite surprised that people do not seem to understand this point and that one of the co-authors of that study is actually a labour economist.

Posted by: buerro | Jul 22, 2013 4:55:05 AM

I don't know if this can be gotten from the Sim-Mac study, but it would be interesting to estimate the present value of the earnings increase for law grads *who do not practice law*. If the legal market has weakened, that number is more relevant than ever.

Posted by: Eric Rasmusen | Jul 20, 2013 12:23:44 PM