The continuing disconnect between law school critics and market reality

I just happened to notice that the law school critics continue to distort the findings of the Simkovic and McIntyre paper on the economic value of earning a JD. This paper sends a chill down the spines of the critics because it lays waste to their argument with straightforward data. This requires them to engage not just in mental gymnastics that lead to the kinds of absurd confusions about valuation found here and here but now to outright falsehoods posted to one of the most important law school blogs in the country.

One egregious example is found in the comments section at Paul Caron’s blog, TaxProf. There one finds another anonymous (and ubiquitous blog) commenter named “Unemployed Northeastern” (UNE) who thinks that he has a better grasp on the economics of legal education than that provided by the exhaustive research of S&M.

UNE states, for example, that the paper is not peer reviewed. But the Journal of Legal Studies which just published the S&M paper is a peer reviewed journal published by the University of Chicago. As it states on its web page: “Manuscripts are reviewed in a single-blind process: the identities of authors are revealed to referees, but referees remain anonymous.”

UNE makes other false or misleading statements as well such as a claim that:

“The study does not include any salary information for law school graduates from the classes of 2008 through 2014, which is a period about 40% as long as the cohort in their study (mid-90’s through 2007). *Coincidentally,* that is when law school grads’ prospects and salaries fell off a cliff.”

The clear suggestion is that S&M purposely cut off their data at a point when new data would contradict their initial conclusion. This is baseless and unfair. It is also just plain wrong.

First, the paper relied on data from four year panels produced by the Census Bureau. The authors begin their work with the 1996 panel and the last one available to them when they conducted the analysis was for students who graduated in 2008. They then track what happens to all JD holders in those panels through 2013. This includes, therefore, the entire period of the recent recession. It does not include someone who earned a JD after 2008 but S&M make clear that it is all but impossible to conclude that this would change their result.

As they write (p. 273):

“Although our sample does not include those who graduated after 2008, it includes 2008 graduates who, as young and inexperienced workers, are likely vulnerable to many of the same shocks. Our sample also includes individuals who graduated during previous recessions, and the long-term impact of early-career recessions on subsequent earnings is therefore averaged into our results. Future research could explicitly consider cohort effects.”

There is certainly no basis for the insinuation made by UNE that the authors were fixing the data.

Their logic is simple: they are measuring career earnings for JD holders relative to holders of a BA. Earnings in the early years of a career as a JD holder are lower and rise over time. In fact, JD holder earnings peak nearly 20 years after law school, much later than those of BA holders.

Fig. 1:

The Economic Value of a Law Degree Fig 1

As S&M write (p. 271):

“Another limitation of the NALP data and of studies that focus on starting salaries is that earnings of professional degree holders, including law degree holders, typically grow rapidly and peak in middle age. First year earnings represent a small fraction of the present value of lifetime earnings—roughly 2 percent for law degree holders—and are imperfect predictors of subsequent earnings.”

In addition, earnings of lawyers are cyclical, as their data make starkly clear.

Fig. 2:

The Economic Value of a Law Degree

As S&M write: “we investigate changes in the law school earnings premium from 1996 to 2013 and find a cyclical pattern….Although the earnings estimate declined from its 2008 peak in recent years, the estimate remains close to the long-term historical average. Indeed, the estimate was lower in the late 1990s and early 2000s than in the last 3 years. The estimate today is about the same as it was in 1996.”

The impact of the recession caused a downturn in the earnings of JD holders but the effect was short lived as the data I summarize below indicates (with only one down year – 2008 – in lawyer incomes since 1997). UNE also ignores the fact that the value of a JD is relative, as S&M make abundantly clear: “The economic value of a law degree turns not on whether law school graduates practice law but rather on how much more readily they find work with the law degree than they would have without and how much more they earn with the law degree than they would have without.” (p. 252)

The alternative for most law school applicants is life without an advanced degree or certainly life without one as valuable as a JD. Thus, the question that always must be posed is whether one is better off with a JD, even in the middle of an economic downturn.

The S&M answer is unambiguously yes: “The unadjusted log earnings gap of .67 between the general population of bachelor’s degree holders and law degree holders translates into an average earnings premium of 95 percent.” (See Table 2.)

UNE continues his baseless attack on S&M with a suggestion that the authors lack the training to carry out the project, suggesting that one of the authors, law professor Michael Simkovic, is not as highly credentialed as another leading law school critic named Stephen Harper. Harper spent his entire career as a litigator for a major Chicago law firm and has been criticized by me and others for his failure to understand the basics of valuation as it applies in the law school debate. It borders on silly to suggest Harper is more capable of analyzing the JD labor market than S&M.

UNE also attempts to minimize the fact that the S&M paper was widely circulated in advance of its publication in a peer reviewed journal and was read favorably in advance by a wide range of leading figures in labor economics. This is a standard part of the academic vetting process and is intended to test the results and methodology of a research project. UNE seems unfamiliar with this aspect of scholarship. I detailed the results of this process in a blog post at the time because a similar kind of attack on the paper was made by Brian Tamanaha who quickly folded his tent. As I wrote then:

“Their research was reviewed in advance of its posting on SSRN by a large array of respected senior scholars in law, economics and business. It was also peer reviewed prior to its acceptance at the American Law and Economics Conference held at Vanderbilt earlier this year, prior to its public posting on SSRN. As a test, without telling the authors, I wrote to one of those reviewers [fwiw, a very senior figure in labor economics] who, in fact, is a fan of the work of Tamanaha and asked him for his view of the research. He sent me the copy of the comments he originally sent to the authors in which he concluded their paper to be ‘very careful and well done’ although he reserved judgment on whether what is happening in the market for JDs is ‘all cyclical or at least partially structural.’ This is hardly the reaction of a reader who believes the work he is considering is sloppy much less faulty or misleading.”

Suffice to say that while Professor Simkovic is a young scholar he is more than capable of carrying out the research and UNE (whose academic credentials remain a mystery) has failed to identify a serious flaw in the work. It is not a surprise that it was published in a leading peer-review academic journal published by the University of Chicago.

(Professor Simkovic also, of course, had the assistance of a co-author, finance professor Frank McIntyre. This is a standard form of co-authorship in the academic world where specialization requires collaborative work across fields. I make no apologies, for example, for the fact that I rely heavily on my co-author, an economist, for our work on the structure of stock markets. UNE simply ignores this, no doubt because it weakens his position.)

In fact it is clear that the law school critics have a very weak understanding of labor economics and of the particular nature of market for lawyers. They also make the mistake of conflating the market for law schools and the market for holders of a JD and for lawyers. The latter markets have been very stable over time, consistent with the S&M results.

Below are several charts that indicate the disconnect between the “market” for law schools in terms of numbers of law school applicants and enrollees, on the one hand, and the market for lawyers. As a comparative metric, I have included a chart showing US GDP growth. The picture one sees is a very volatile market for law schools and a very stable market for lawyers and GDP growth, the recent downturn notwithstanding.

US GDP 1997-2013:

GDP

Working Lawyers 1997-2013 (BLS):

Working Lawyers US 1997-2013

Licensed Lawyers 1997-2013 (ABA):

Licensed Lawyers 1997-2013

Lawyer Incomes 1997-2013 (BLS):

Lawyer Incomes 1997-2013

First Year Enrollment 1997-2013 and Law School Applicants 2005-2013 (ABA and LSAC):

Enrollment Applicants

Because the available LSAC data begins only with the recent downturn, compare this chart from an LSAC memo which shows in the top black line LSATs administered and in the green line first year admits and then most relevant for this blog in red the number of applicants going back to 1980-81.

ABA data

Note the prior peaks and valleys in applicants. We have seen this picture before.

Finally, here is JDs granted 1997-2012 (ABA):

JDs granted

The conclusion one draws from this picture is that the labor market for JDs remains stable, healthy and continues to grow. Law schools are producing licensed lawyers and JD holders in a pattern that is fairly consistent with the growth in the market for those graduates, and, importantly, with the earnings premium they will accrue over a career compared to going through life with only a BA degree (the only realistic alternative for most law school applicants).

The more volatile swings up and down in law school enrollment and applicants remain to be explained. I have suggested elsewhere that several factors impacted the current situation including the steep rise in enrollment in the wake of the crisis due to the “law school as hideout” factor linked in turn to the fact that the economy did not recover in time to provide immediate employment to graduates at the rate they desired. But for those bitter-end critics still hoping to see widespread closures of law schools (for reasons that seem more ideological than logical) they are likely to be sorely disappointed. The data stacks up against them.