Is Law School a Good Deal After All?
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.
The Atlantic
Ever since the Great Recession sucked the air out of the legal industry, an extremely vocal group of writers -- myself included -- has been trying to warn pretty much any 20-something with an Internet connection to think twice about going to law school. The job market for recent grads has been murder. And there's an abiding sense that the business model which sustained many big corporate firms, the ones that offer those plum $160,000-a-year jobs of lore, isin danger of becoming obsolete, if it hasn't already.
So it was with both great skepticism and a bit of personal trepidation that I cracked open "The Economic Value of a Law Degree," a new draft paper by Seton Hall Law Professor Michael Simkovic and Rutgers economist Frank McIntyre. The two researchers argue that over the course of a career, your average J.D.-holder will make almost $1 million more than a similar worker with just a bachelor's degree (or about $700,000 after taxes). Even law grads on the low end of the salary scale seem to fare better than their merely college-educated peers. Crucially, the paper finds no evidence that the earnings premium has declined since the economy crashed.
"[O]ur results suggest that attending law school is generally a better financial decision than terminating one's education with a bachelor's degree," they write. Or to put it more bluntly, the law school haters are wrong.
So, are we? Is paying $60,000 a year to learn torts, tax, and civil procedure really a great deal after all? I don't think there's neat yes or no answer to that question. But I do think law school critics need to take Simkovic and McIntyre's conclusions seriously.
But before we get into precisely why, let's talk a bit about what went into this study. Using Census data dating back to 1996, the paper compares the earnings of law school graduates -- mind you, not just practicing lawyers, but anyone with a J.D. -- at all stages of their careers to the earnings of bachelor's degree holders, while accounting for factors like academic performance, race, socio-economic background, the chance of unemployment, and gender. The comparison comes out looking like this.
So on average, J.D.'s have traditionally earned about $53,000 more per year than similar college-educated workers. This should shock nobody. Using some standard accounting techniques, Simkovic and McIntyre estimate that pay bump is worth about $990,000 over a lifetime, far more than the cost of tuition at any law school.
But the post-recession critique against law schools has never been about the fate of the average J.D. Rather, the concern is about the least successful grads, the ones who find themselves jobless after commencement, or toiling at legal temp work. But Simkovic and McIntyre don't just find that law grads fare better on average. Rather, they fare better all over the salary spectrum. The paper calculates that a law grad at the 25th percentile of earners with a J.D. makes about $17,000 more per year than a college graduate at the 25th percentile of earners with just a bachelor's. The median law grad earns $32,000-a-year more than the median B.A.
That, in turn, would make a law degree a very good investment. Assuming tuition costs $60,000 a year (the average is closer to $30,000), you can think of a J.D. as a bond that pays off about 8 percent to 10 percent for the median earner. Stocks, by comparison, pay off about 6.8 percent a year, traditionally. (Important note: If a male lawyer at the 25th percentile of earnings pays average tuition, the paper says they're still beating stocks).
Of course, everyone knows lawyers had a great run until the financial crash. What about today's young esquires? While legal salaries have tumbled and unemployment has risen, the paper argues, based on data from the class of 2008, that lawyers seem to have essentially maintained their advantage over their less educated peers. In fact, as the economy soured, their earnings premium seemed to rise.
The economy has been terrible for everyone. But it may have been better if you had a law degree to keep you afloat.
As we all learned thanks to a certain Excel error, it's a bit foolish to put too much stock in a single academic paper, especially one that hasn't yet been subjected to a thorough vetting. That said, 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 2008So far as law-school grads go, the class of 2008 did not get the worst of the recession. There's a reason lawyers sometimes refer to graduates from 2010 and 2011 as "the lost generation." Meanwhile, the job market only showed the barest signs of a rebound for the class of 2012. So the experience of lawyers who finished their degrees before Lehman collapsed may not fully reflect the challenges faced by recent J.D.'s. And while many of those young attorneys will have years to make up some of that lost salary, economists will tell you that early unemployment or low pay can have a lasting echo throughout a worker's career.
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 GoodAs Simkovic and McIntyre note, the predictions about the imminent ruin of the legal profession "date back at least to the invention of the typewriter." But at the risk of saying this time might be different, well, this time might be different. Even as corporate profits have come roaring back, particularly at banks, demand for high-end legal services has remained soft, and firms are facing unprecedented pressure to keep costs down. Many believe corporate law is entering a lean new world, which will only get leaner as software continues to automate and slim the margins on once-profitable activities.
The legal academy tends to dismiss the troubles facing Big Law because the vast majority of attorneys don't actually spend their lives making millions representing banks and oil companies. But according to the Census, from 2002 through 2007, the 50 largest firms were responsible for about one-third of employment growth at all law offices (in the industry the top 200 firms by revenue are generally considered large). That jobs engine, for the time being, is dead. The entire U.S. economy has recovered almost three-quarters of the jobs lost thanks to the recession, but legal services has recovered just 16 percent of its losses. Many of those missing positions may have belonged to legal secretaries and paralegals. But the 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 percent or higher unemployment rates among their graduating classes. Those students may not be defaulting on their hefty debts en masse -- unlike the dropouts who are most likely to default on undergraduate debt, law grads are probably better at using programs like income-based repayment to protect themselves -- they're still suffering. I don't think there's anything about Simkovic and McIntyre's study that means something shouldn't be done to fix or restrain those schools.
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 percent or higher unemployment rates among their graduating classes. Those students may not be defaulting on their hefty debts en masse -- unlike the dropouts who are most likely to default on undergraduate debt, law grads are probably better at using programs like income-based repayment to protect themselves -- they're still suffering. I don't think there's anything about Simkovic and McIntyre's study that means something shouldn't be done to fix or restrain those schools.
Of course, the market is already doing that in its own way. Thanks to anenormous drop in law-school applicants, the class of 2016 may not have to face the nightmarish hiring environment that greeted grads from the last few years. Simkovic and McIntyre's paper is compelling. But I'm not yet comfortable saying that many young Americans are missing out by saying no to law school.
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*If there's anything that makes me uneasy about the paper's mechanics, it's that it compares the bottom quarter of law-degree holders to the bottom quarter of bachelor's-degree holders. Their analysis suggests that had they not gone to law school, most J.D.'s would make only a small premium over the average B.A. (somewhere in the range of 0-5 percent). Intuitively, that strikes me as off. But I honestly don't have a good data based reason to reject their approach at the moment. (This footnote has been clarified from an earlier version that used some imprecise language).
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