Financial Returns to Legal Education

I was busy with several projects this week, so didn’t have a chance to comment on the new paper by Michael Simkovic and Frank McIntyre. With the luxury of weekend time, I have some praise, some caveats, and some criticism for the paper.

First, in the praise category, this is a useful contribution to both the literature and the policy debates surrounding the value of a law degree. Simkovic and McIntyre are not the first to analyze the financial rewards of law school–or to examine other aspects of the market for law-related services–but their paper adds to this growing body of work.

Second, Simkovic and McIntyre have done all of us a great service by drawing attention to the Survey of Income and Program Participation. This is a rich dataset that can inform many explorations, including other studies related to legal education. The survey, for example, includes questions about grants, loans, and other assistance used to finance higher education. (See pp. 307-08 of this outline.) I hope to find time to work with this dataset, and I hope others will as well.

Now I move to some caveats and criticisms.

Sixteen Years Is Not the Long Term

Simkovic and McIntyre frequently refer to their results as representing “long-term” outcomes or “historic norms.” A central claim of the study, for example, is that the earnings premium from a law degree “is stable over the long term, with short term cyclical fluctuations.” (See slide 26 of the powerpoint overview.) These representations, however, rest on a “term” of just sixteen years, from 1996-2011. Sixteen years is less than half the span of a typical law graduate’s career; it is too short a period to embody long-term trends.

This is a different caveat from the one that Simkovic and McIntyre express, that we can’t know whether contemporary changes in the legal market will disrupt the trends they’ve identified. We can’t, in other words, know that the period from 2012-2027 will look like the one from 1996-2011. Equally important, however, the study doesn’t tell us anything about the years before 1996. Did the period from 1980-1995 look like the one from 1996-2011? What about the period from 1964-1979? Or 1948-1963?

The SIPP data can’t tell us about those periods. The survey began during the 1980s, but the instrument changed substantially in 1996. Nor do other surveys, to my knowledge, give us the type of information we need to perform those historical analyses. Simkovic and McIntyre didn’t overlook relevant data, but they claim too much from the data they do have.

Note that SIPP does contain data about law graduates of all ages. This is one of the strengths of the database, and of the Simkovic/McIntyre analysis. This study shows us the earnings of law graduates who have been practicing for decades, not just those of recent graduates. That analysis, however, occurs entirely within the sixteen-year window of 1996-2011. Putting aside other flaws or caveats for now, Simkovic and McIntyre are able to describe the earnings premium for law graduates of all ages during that sixteen-year window. They can say, as they do, that the premium has fluctuated within a particular band over that period. That statement, however, is very different than saying that the premium has been stable over the “long term” or that this period sets “historic norms.” To measure the long term, we’d want to know about a longer period of time.

This matters, because saying something has been “stable over the long term” sounds very reassuring. Sixteen years, however, is less than half the span of a typical law graduate’s career. It’s less, even, than the time that many graduates will devote to repaying their law school loans. The widely touted Pay As You Earn program extends payments over twenty years, while other plans structure payments over twenty-five years. Simkovic and McIntyre’s references to the “long term” suggest a stability that their sixteen years of data can’t support.

What would a graph of truly long-term trends show? We can’t know for sure without better data. The data might show the same pattern that Simkovic and McIntyre found for recent years. On the other hand, historic data might reveal periods when the economic premium from a law degree was small or declining. A study of long-term trends might also identify times when the JD premium was rising or higher than the one identified by Simkovic and McIntyre. A lot has changed in higher education, legal education, and the legal profession over the last 25, 50, or 100 years. That past may or may not inform the future, but it’s important to recognize that Simkovic and McIntyre tell us only about the recent past–a period that most recognize as particularly prosperous for lawyers–not about the long term.

Structural Shifts

Simkovic and McIntyre discount predictions that the legal market is undergoing a structural shift that will change lawyer earnings, the JD earnings premium, or other aspects of the labor market. Their skepticism does not stem from examination of particular workplace trends; instead it rests largely on the data they compiled. This is where Simkovic and McIntyre’s claim of stability “over the long term” becomes most dangerous.

On pp. 36-37, for example, Simkovic and McIntyre list a number of technological changes that have affected law practice, from “introduction of the typewriter” to “computerized and modular legal research through Lexis and Westlaw; word processing; electronic citation software; electronic document storage and filing systems; automated document comparison; electronic document search; email; photocopying; desktop publishing; standardized legal forms; will-making and tax-preparing software.” They then conclude (on p. 37) that “[t]hrough it all, the law degree has continued to offer a large earnings premium.”

That’s clearly hyperbole: We have no idea, based on the Simkovic and McIntyre analysis, how most of these technological changes affected the value of a law degree. Today’s JD, based on a three-year curriculum, didn’t exist when the typewriter pioneered. Lexis, WestLaw, and word processing have been around since the 1970s; photocopying dates further back than that. A study of earnings between 1996 and 2011 can’t tell us much about how those innovations affected the earnings of law graduates.

It is true (again, assuming for now no other flaws in the analysis) that legal education delivered an earnings premium during the period 1996-2011, which occurred after all of these technologies had entered the workforce. Neither typewriters nor word processors destroyed the earnings that law graduates, on average, enjoyed during those sixteen years. That is different, however, from saying that these technologies had no structural effect on lawyers’ earnings.

The Tale of the Typewriter

The lowly typewriter, in fact, may have contributed to a major structural shift in the legal market: the creation of three-year law schools and formal schooling requirements for bar admission. Simkovic and McIntyre (at fn 84) quote a 1901 statement that sounds like a melodramatic indictment of the typewriter’s impact on law practice. Francis Miles Finch, the Dean of Cornell Law School and President of the New York State Bar Association, told the bar association in 1901 that “current conditions are widely and radically different from those existing fifty years ago . . . the student in the law office copies nothing and sees nothing. The stenographer and the typewriter have monopolized what was his work . . . and he sits outside of the business tide.”

Finch, however, was not wringing his hands over new technology or the imminent demise of the legal profession; he was pointing out that law office apprentices no longer had the opportunity to absorb legal principles by copying the pleadings, briefs, letters, and other work of practicing lawyers. Finch used this change in office practices to support his argument for new licensing requirements: He proposed that every lawyer should finish four years of high school, as well as three years of law school or four years of apprenticeship, before qualifying to take the bar. These were novel requirements at the turn of the last century, although a movement was building in that direction. After Finch’s speech, the NY bar association unanimously endorsed his proposal.

Did the typewriter single-handedly lead to the creation of three-year law schools and academic prerequisites for the bar examination? Of course not. But the changing conditions of apprentice work, which grew partly from changes in technology, contributed to that shift. This structural shift, in turn, almost certainly affected the earnings of aspiring lawyers.

Some would-be lawyers, especially those of limited economic means, may not have been able to delay paid employment long enough to satisfy the requirements. Those aspirants wouldn’t have become lawyers, losing whatever financial advantage the profession might have conferred. Those who complied with the new requirements, meanwhile, lost several years of earning potential. If they attended law school, they also transferred some of their future earnings to the school by paying tuition. In these ways, the requirements reduced earnings for potential lawyers.

On the other hand, by raising barriers to entry, the requirements may have increased earnings for those already in the profession–as well as for those who succeeded in joining. Finch explicitly noted in his speech that “the profession is becoming overcrowded” and it would be a “benefit” if the educational requirements reduced the number of lawyers. (P. 102.)

The structural change, in other words, probably created winners and losers. It may also have widened the gap between those two groups. It is difficult, more than a century later, to trace the full financial effects of the educational requirements that our profession adopted during the first third of the twentieth century. I would not, however, be as quick as Simkovic and McIntyre to dismiss structural changes or their complex economic impacts.

Summary

I’ve outlined here both my praise for Simkovic and McIntyre’s article and my first two criticisms. The article adds to a much needed literature on the economics of legal education and the legal profession; it also highlights a particularly rich dataset for other scholars to explore. On the other hand, the article claims too much by referring to long-term trends and historic norms; this article examines labor market returns for law school graduates during a relatively short (and perhaps distinctive) recent period of sixteen years. The article also dismisses too quickly the impact of structural shifts. That is not really Simkovic and McIntyre’s focus, as they concede. Their data, however, do not provide the type of long-term record that would refute the possibility of structural shifts.

My next post related to this article will pick up where I left off, with winners and losers. My policy concerns with legal education and the legal profession focus primarily on the distribution of earnings, rather than on the profession’s potential to remain profitable overall. Why did law school tuition climb aggressively from 1996 through 2011, if the earnings premium was stable during that period? Why, in other words, do law schools reap a greater share of the premium today than they did in earlier decades?

Which students, meanwhile, don’t attend law school at all, forgoing any share in law school’s possible premium? For those who do attend, how is that premium distributed? Are those patterns shifting? I’ll explore these questions of winners and losers, including what we can learn about the issues from Simkovic and McIntyre, in a future post.
.

  • Peter D. Lederer

    Good analysis (and reasonable in tone, which in itself deserves brownie points in this evolving discussion!). It is truly remarkable, given the staggering amounts of expenditure at stake on the part of students, law schools, the government and the profession, how little deep research has been done to date. At the very least, Simkovic and McIntire have rendered a service in providing a fresh stimulus. As noted elsewhere (by John Steele?) it will be interesting to have Bill Henderson weigh in. My own bias is that there is serious underweighting of the probability that the future of the profession — and thus legal education — is likely to see disruptive change.

    • Barry_D

      Paul Campos has had several posts on this (http://www.lawyersgunsmoneyblog.com/2013/07/the-problem-with-back-in-the-day):

      “Second, S&M claim their data demonstrate that the earnings premium
      for law degree holders is “cyclical,” rather than manifesting any signs
      of structural change. What data they do have really show is that the
      earnings premium has been basically flat between 1996 and 2011, with
      year to year variations that, given their abruptness, appear to be noise
      rather than signal (For example, per their data the law degree earnings
      premium was at its lowest point in 1999 and 2002, but at one of its
      highest points in 2001).”

      Considering that this study lives or dies on the idea that 1996-2011 can be extrapolated to the 2050′s, that’s bad.

      “For one thing, as the authors concede, the number of law graduates
      produced each year by law schools remains far higher than the number of jobs for lawyers being generated by the American economy. (The BLS estimates that there will be an average of 21,800 new jobs for lawyers over the course of the decade. ABA-accredited law schools are currently graduating more than 46,000 people per year, although after this year that number will decline somewhat). In other words, the oversupply of lawyers gets markedly worse with every passing year. It seems implausible that an increasing level of over-saturation in a labor market will not produce a decline in the relative earnings in that labor market, all other things being equal.”

      Note that this is actually being observed:

      “For another, there is no question that the earnings of new law
      graduates have in fact declined sharply. How sharply? Let’s compare
      the earnings of new law graduates in 2002 – note that 2002 marks the
      single worst year for the earnings premium earned by all law degree
      holders in the authors’ study – with the most recent class for which we
      have data, 2012 (All figures below are in 2012 dollars):

      Median salary for 2002 graduates (53% of all graduates had a reported salary): $73,383

      Median salary for 2012 graduates (44.7% of all graduates had a reported salary: $61,250

      In other words, reported entry-level salaries for law graduates have
      declined by 20%, while the real decline is probably larger, given the
      significantly lower percentage of 2012 graduates who had a reported
      salary. (I estimate the real median salary for 2012 graduates was in
      the neighborhood of $45,000).

      Furthermore, in the course of this decade, the cost of law school
      attendance has continued to increase dramatically, with private law
      school tuition rising by 42% in real terms, and resident tuition at
      public law schools nearly doubling, again in inflation-adjusted dollars.”

  • Joan Howarth

    Thanks for this helpful analysis. I’ll share it with the Michigan State faculty. I appreciate the Simkovic and McIntyre entry into the discussion, but expect that their analysis is limited by insufficient account of the structural changes in the profession wrought by technology, globalization and new economic pressures. So we’ll continue to invest in educating students for the new realities of the profession (see ReInvent Law at MSU).

  • brero

    how much of the estimated effect is selection bias? i imagine most of it….

  • RB

    Simkovic responds to the issue of lack of historical data here: http://leiterlawschool.typepad.com/leiter/2013/07/brian-tamanahas-straw-men-part-3-we-use-better-and-more-data-than-studies-tamanaha-praised-in-his-bo.html and the idea of historical data not predicting the future here: http://leiterlawschool.typepad.com/leiter/2013/07/brian-tamanahas-straw-men-part-4-we-would-have-to-be-off-by-85-percent-for-our-basic-conclusion-to-b.html. I am not endorsing these posts as correct, but bringing them to your attention so you can respond to in your future posts, which I look forward to reading.