Harper, Diamond: The $1 Million Value of a Law Degree: Distraction, Astronomy, or Astrology?

The American Lawyer:  A Dangerous, Million-Dollar, Law School Distraction, by Steven J. Harper (Former Partner, Kirkland & Ellis; Adjunct Professor, Northwestern):

With their new study, “ The Economic Value of a Law Degree," a pair of university professors become the latest academics to try to defend this country's troubled model of legal education. This particular attempt is especially disheartening because co-author Michael Simkovic spent the year before he joined Seton Hall University School of Law in 2010 as an associate at Davis, Polk & Wardwell. At some level, Simkovic must be aware of the difficulties confronting so many young law graduates.

Nevertheless, he and his co-author, Rutgers Business School assistant professor of finance and economics Frank McIntyre, “reject the claim that law degrees are priced above their value” (p. 41) and “estimate the mean pre-tax lifetime value of a law degree as approximately $1,000,000 (p. 1).”

As the academic debate over data and methodology continues, some professors are already relying on the study to resist necessary change. That’s bad enough. But my concern is for the most vulnerable potential victims caught in the crosshairs of the—to use a term taken from the article's original title—“Million Dollar Law Degree” headlines: today’s prelaw students. If these young people rely on an incomplete understanding of the study’s limitations to reinforce their own confirmation bias in favor of pursuing a legal career primarily for financial reasons, they will be making a serious mistake.

The study targets respected academics (including Professors Herwig Schlunk, Bill Henderson, Jim Chen, Brian Tamanaha, and Paul Campos), along with “scambloggers” and anyone else arguing that legal education has become too expensive while failing to respond to a transformation of the profession that is reducing the value of young lawyers in particular. Professors Campos and Tamanaha have begun responses that are continuing. (Tamanaha's latest installment is here.) University of Chicago Law School Professor Brian Leiter’s blog, meanwhile, has become the vehicle for Simkovic’s answers.

One obvious problem with touting the $1 million average earnings figure is that, for the bimodal distribution of lawyer incomes, any average is meaningless. In a recent ebuttal to Campos that Simkovic endorsed, professor Stephen Diamond calculated the net lifetime premium at the median (midpoint) to be $330,000 over a 40-year career. That might be closer to reality. But a degree that returns, at most, a lifetime average of $687 a month in added value for half of the people who get it isn’t much of an attention-getter. As noted below, even that number depends on some questionable assumptions and, when you get down to the 25th percentile, the economic prospects are far bleaker. ...

It doesn’t take a multiple regression analysis to see the problems confronting the legal profession—but it can be used to obscure them.

Stephen F. Diamond (Santa Clara), Astronomy or Astrology: A reply to Steven Harper at American Lawyer:

Mr. Harper,

There are a number of problems with your response to the work of Professors Simkovic and McIntyre and I am sure the authors will reply as they see fit.

However, I should point out that your understanding of the implication of the valuation process is incorrect. A careful reading of my posts on this matter should help clarify the problems. In a nutshell, when faced with only two choices, it makes sense to choose the one with relatively higher positive net present value. The magnitude of the difference is irrelevant.

The challenge for an individual law student is to determine where they are likely to fall along the distribution. I don’t think the Simkovic/McIntyre paper was intended to be a calculator for prospective law students and so criticizing them for that issue is unfair. However, the paper does provide concrete evidence that such a distribution actually exists and that for most points on the distribution the present value of the earnings premium associated with a JD is positive. 

This is the difference between engaging in “astrology” and “astronomy” and it should and I think has shifted the debate away from amateur stargazers. ...

Prior TaxProf Blog coverage:

• What Is the Economic Value of a Law Degree -- $1 Million? (July 17, 2013)
• More on The $1 Million Value of a Law Degree (July 18, 2013)
• NY Times, WaPo, Others Debate The $1 Million Value of a Law Degree (July 18, 2013)
• What Is the Economic Value of a Law Degree -- $1 Million or $100,000? (July 19, 2013)
• More on The $1 Million Value of a Law Degree (July 20, 2013)
• Merritt on The $1 Million Value of a Law Degree (July 21, 2013)
• Diamond on The $1 Million Value of a Law Degree (July 22, 2013)
• Tamanaha:  How 'The Million Dollar Law Degree' Study Systematically Overstates Value (July 23, 2013)
• Tamanaha:  How the 'Million Dollar Law Degree' Study Understates Risk (Part I) (July 24, 2013)
• Tamanaha:  Why the “Million Dollar Law Degree” Study Fails (Final Post) (July 25, 2013)
• Rasmusen:  Critics of The Economic Value of a Law Degree Are Making the Paper Better (July 25, 2013)
• Pasquale and Simkovic Respond to Tamanaha (July 25, 2013)
• The American Lawyer:  Paper on Law Degree's Economic Value a Non-Sequitur (July 26, 2013)
• Simkovic Responds to Tamanaha (Part 3) (July 26, 2013)
• Tamanaha:  Short Term Versus Long Term Perspective (July 27, 2013)

Update:

• Simkovic Responds to American Lawyer Op-Eds (July 29, 2013)
• Diamond Responds to Tamanaha (July 29, 2013)
• Rasmusen:  The Economic Value of a Law Degree and the 'Typical' Law Student (July 29, 2013)
• Simkovic Responds to Tamanaha (Part 4) (July 30, 2013)