New Study on Economic Value of Law Degree

I won’t spend much time summarizing the new paper by Michael Simkovic, an associate law professor at Seton Hall University School of Law, and Frank McIntyre, an assistant professor of finance and economics at Rutgers University Business School. Inside Higher Ed summarized the report just fine.

Instead, I want to comment on what I see as a misguided attempt to quell critics claiming that the law school investment is not a sound choice for many people. I hope Professor Simkovic and Professor McIntyre are correct that, on average and even down to the 25th percentile, the law school investment makes financial sense.

It just completely misses the point and grossly under-appreciates the human element.

Rather than viewing law degree holders in isolation, we can get better estimates of the causal effect of education by comparing the earnings of individuals with law degrees to the earnings of similar individuals with bachelor’s degrees while being mindful of the statistical effects of selection into law school.

Unfortunately, law degree holders are individuals who are sometimes (perhaps often) hurt by going to law school. Talking about groups necessarily smooths over the stories underneath the data—the ones that make you feel good and the ones that make you sick to your stomach. The reality is that there are many people that have been hurt and are hurt right now as a direct consequence of the costs associated with entering the legal profession (or trying to). These graduates very well may make more money in the long run. But this is hardly comforting to those considering law school and those who care about the people who do.

As I told Inside Higher Ed, law schools have made a habit out of capturing as much value out of their students as possible—and for a long time, used deceptive and immoral marketing tactics to do so. The dynamics are changing and should change because of the outrageously high price of obtaining a legal education. Even if an analysis shows an investment has a positive net present value in the long run, people are not like corporations. The short-term matters more for real people. Tens of thousands of law graduates leave school each year wondering how they’re going to manage to pay off their six-figure loans. That’s what motivates critics and frightens prospective law students.

Long-term value is not irrelevant, but using it to argue that education isn’t priced too high troubles me. If we think our society and our country are better for having an educated population, as these two authors do, then we had better stop pricing people out of education.

Perspectives:

Crucial Weaknesses

Law School Cafe guest, Jack Graves, shares his perspective on some of the weaknesses of the “Million-Dollar Law Degree.”

  • IndyLegal

    “One limit to Simkovic’s and McIntyre’s data is that the most recent data from the Survey of Income and Program Participation are from law school graduates who graduated in 2008.”

    Post-crisis numbers would significantly change their findings.

  • Pine Valley

    I get the feeling scam believers are playing whack-a-mole. For years those of us who knew that law school was a bad decision for us and intuitively knew it was bad for many others were shouted down with the employment and salary stats published by the schools. Now, the schools or their apologists, are telling us what the lifetime value of the degree will be. I wonder if they’ll start breaking that down by school or should we assume that Cooley = Harvard?

  • James

    This really does not seem to be much of a revelation. Law schools have long argued, even during the recession that “a JD pays for itself, a career is 40 years not nine-months, what else are you gonna’ do with your [insert liberal arts degree here], and in our world of synergistic globailized interconnectivity
    information age there’s going to be an increased need for workers who can read and think good.” Applicants haven’t been buying it. Even assuming the study is accurate, that the investment might produce a positive return 10 or 15 years from now might not be a reason to take on 150K to get a 40K job.

  • Jack Graves

    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.

    First, Part IV makes the assumption that current market challenges reflect no more than the historically cyclical nature of the legal market. If you do not agree with this assumption (and I do not–I think Susskind’s view on this issue is far more sound), then the entire study is fundamentally flawed. However, even if you buy this assumption, there remain further issues with the study.

    The title itself, the “Million-Dollar Law Degree” is misleading at best. This million dollar figure reflects the mean value, where the mean is skewed significantly higher than the median. Thus, it overstates the value more significantly more than half of all JD grads. It also reflects “pre-tax” value, a point that the authors do not address until near the end of the article at Part V.C. There, the authors acknowledge that their calculated benefit must be divided between private “after-tax” earnings and public tax revenues.

    Interestingly, the authors’ IRR numbers are calculated only on pre-tax value, and are not provided for after-tax value. However, the authors do acknowledge on page 44 that “[e]ven at the 25th percentile and after subtracting federal taxes, the value of a law degree will still typically exceed its cost, although the private returns are substantially reduced.” In fact, one can easily see a “loss” at the 25th percentile, when considering typical costs at institutions charging more than $40,000 per year tuition (and the well documented “reverse Robin Hood” effect insures that the weaker students will typically pay the highest tuition amounts)–even under this vigorous defense of the status quo.

    The 25th percentile purportedly realizes an increase in pre-tax value of $350,000. The authors assume a 25% federal tax rate for this group, but magically assume away state or city taxes, as equal to corresponding private benefits–an assumption I am guessing prospective law students don’t share. Let’s add 5% state income tax for a hypothetical student from NY, for an average tax rate of 70%. $350,000 is now $245,000. It’s pretty easy to imagine total law school debt, plus interest, paid out over 30 years, significantly exceeding $245,000. Perhaps that’s why the authors avoid this detailed analysis.

    Again, I am not saying I buy the most basic assumption made by the authors with respect to the future of the market for legal services. However, I find it remarkable that, even this vigorous defense of the status quo, leaves at least a quarter of JD students with what is likely a losing proposition over the long haul.

    • Barry_D

      “First, Part IV makes the assumption that current market challenges
      reflect no more than the historically cyclical nature of the legal
      market. If you do not agree with this assumption (and I do not–I think
      Susskind’s view on this issue is far more sound), then the entire study
      is fundamentally flawed. However, even if you buy this assumption, there
      remain further issues with the study.”

      BTW, is the current situation is cyclical, then the authors of the study should have noted that, and listed times when the situation was this bad.

  • Patricia O Sturm

    I am a not a cloistered resident of the academic ivory tower who is sitting around writing about percentiles and medians and earnings over a lifetime, yadda, yadda, yadda. I am a recently admitted attorney who after a disheartening and fruitless 18 month job search finally got a very short-term, very temporary position at my alma mater. Prior to that I came across a job in a realty firm looking for a lawyer to prepare title document and mortgage papers. The pay? 10 dollars and hour and I had to pay my own malpractice insurance.
    Yet my alma mater is constantly publishing “rah-rah-rah, Siz boom bah” news releases about the booming job markets for its grads. Funny, when I talk to my classmates, plenty are in the same boat as myself, out of law school close to two years with not much hope of legal employment. I’ve gotten quite a few platitudes such as “hang out your own shingle” event though I do not have the means to do so.
    Law schools need to come clean and cut the “merde” as the French say. All this talk about law being a noble profession and a law school a worthy endeavor is just “merde.” Law is a business, law school is a business. Law schools only want to fill the seats with live tuckuses. If those tuckuses don’t have jobs when they graduate, well “too bad, so sad”, but be sure to send in your contribution to the Alumni Appeal.