Category Archives: The future of American law school

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UNE states, for example, that the paper is not peer reviewed.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.

As market reality sets in law school critics get testy

As the economic recovery continues and evidence emerges that the job market for lawyers is continuing its steady growth, the small group of hard core law school critics is getting a little nervous. From the very beginning the critics have been fueled by misguided notions about how markets actually work and severely challenged abilities to understand the empirical evidence of the relative health of the market for lawyers.

One recent example is an ongoing exchange between Professor Ted Seto of Loyola Law School and blogger Matt Leichter. Seto had the temerity to note that projections about future legal employment made by the BLS, long and heavily relied upon by law school critics, had recently been adjusted. Under the old, now discredited, BLS methodology it appeared that law schools, collectively, were graduating far more JDs than could be absorbed by the market. It turns out the opposite is very likely to be the case, as Seto explains quite clearly.

Now retired lawyer Steven Harper expands the critics’ new offensive with a claim that many law school deans and professors will soon declare the “crisis” to be over. He provides no basis for this claim, which he likely will suggest was purely rhetorical. It is extremely rare that “many” deans, much less “many” law professors, ever declare anything collectively to be true. I don’t know about the law schools Harper is familiar with, but we have trouble getting committees of seven people to agree on a time for a meeting.

Unfortunately, this kind of rhetoric is typical of the way he plays loose with the facts. It’s the kind of approach one has come to expect from Harper, as demonstrated here and here. In the same post, for example, he relies on data for something he calls “total legal services employment” with a link, not to the original data – which is from the BLS, but to a compilation of the BLS data by Ben Barros for the blog Faculty Lounge.

This data shows a slight decline, he notes, between the end of May 2013 and the end of November 2014 of 100 jobs (out of a total of more than 1.1 million.)

This leads to his key conclusion: that despite what he admits is an overall macroeconomic recovery, “the hoped-for increase in attorney demand was nowhere to be found.”

There is only one problem, well, actually three problems.

First, Harpers fails to explain that the data Barros provided is seasonally adjusted.

This means the data has been smoothed by the BLS wizards to provide a different picture of the labor market. The BLS does this with its employment numbers because it can sometimes be helpful to abstract away from seasonal ups and downs in the labor market. But that also means you are not seeing the actual employment data and that you will not get end of year averages. More specifically in the law context, while the BLS has its own reasons for seasonal adjustment one impact is to reduce the employment numbers in summer months failing to show the impact of hiring of summer associates.

In fact, the unadjusted data (link below) show an increase in legal services employment between May 2013 and November 2014, from 1,131,300 to 1,134,800.

Second, the data category Harper uses includes more than just lawyers. Now Harper notes this in a parenthetical reference but he does not explain it. In fact that “legal services” category includes so many non-lawyers (e.g., some 270,000 paralegals) that the category is nearly double the size of the number provided by the BLS for people actually working as lawyers. Of course, the ups and downs of that larger “legal services” category tells us something about the state of the legal industry though what exactly is not entirely clear. But it is not automatically a good proxy for “attorney demand” and Harper makes no case that it is, instead he just blindly relies on it.

This might be ok if we did not actually have data for people who do work as lawyers but in fact the BLS tracks that, too. Inconveniently for Harper, however, it shows a fairly steady recovery in employment (and incomes) for lawyers since the onset of the 2008 crisis.

As I pointed out in a recent post: “The number of lawyers employed in the US has risen steadily every year over the last decade (except for a one time drop in 2008 to 553,690) to a high in 2013 of 592,670. Average annualized earnings have grown every year as well from $107,800 in May of 2003 to the May 2013 total of $131,990.”

(There were 425,170 people working as lawyers in May of 1997. That climbed to 504,370 in May, 2002 and hit a pre-crisis high of 555,570.)

The third problem is that even if one only had the “legal services” employment data, that data actually shows steady recovery from the crisis, too. Here is a link to the entire data set month by month for the last decade, non-seasonally adjusted, thus allowing the creation of annual averages. So at year end, what do annual averages show?

That jobs in legal services grew steadily from 2004 to 2007 and then as the crisis took hold fell off in the following three years (2008-10) before beginning to grow steadily over each of the next four years (2011-2014) hitting a number last year higher than any since 2008.

In fact, if Harper had gone back to the original data he could have seen that even his seasonally adjusted number (data set here) improved from November to December in 2014.

Of course, steady recovery over the last several years in employment of lawyers does not mean the crisis is over for law schools. Just as many more students delayed job hunting by going to law school post 2008, now the delayed impact of the inevitable downturn in enrollment is hitting home.

It does mean, however, that the dominant meme of the law school critics – that law schools themselves are fraudulent institutions that should be radically restructured if not eliminated – is discredited.

“It’s the economy, stupid,” as James Carville famously pointed out, not the allegation of central planning made by the critics and their right wing friends at the Cato Institute.

As explained here and many other places, law school enrollment tends to be counter-cyclical. Law school was seen in the past by many recent college grads as a place to hide out if economic conditions were weak. Since most business downturns subside more quickly than the 2008 crisis, this was a reasonable strategy. But it proved unworkable with such an unusually severe and prolonged downturn. So an overhang of law school graduates was created and it will take time for that to resolve.

Perhaps even more important to take note of: law schools are not great at tightly controlling the production of new lawyers. We don’t have central planning in the US. Despite what the critics may think of the ABA it does not exercise Stalinist levels of control over law schools in our free market society. So there is always going to be some level of mismatch between supply and demand.

Meanwhile, Ted Seto is probably right to note the potential for a swing in the opposite direction now. What led to oversupply over the last few years may lead to undersupply in the near future.

A related data point (also based on historical BLS and ABA data, not projections) is significant: while law schools specialize in producing licensed lawyers, that does not mean they produce graduates who predominantly work as lawyers. The ABA tracks the number of licensed lawyers in the US and the BLS, as noted, tracks the number of people working as lawyers. Over the past 17 years (I could not access precise BLS data for lawyers prior to that), slightly less than half of all licensed lawyers are, it appears, actually working as lawyers. (There are others who work as judges and in other JD-required roles.) I think it’s reasonable to presume that relationship has been stable for some time. (It was 45% in 1997, 49% in 2003 and 47% in 2013.)

Whether we admit it or not, in other words, law schools have for a long time been in the business of producing almost as many non-working lawyers as working lawyers – and that is not a function of any kind of misleading brochures handed out by marketing staff. It’s a function of the value of a JD to the many thousands of people who continue to maintain their law license even though they are not working as lawyers. That’s why the best study of the earnings premium associated with a JD – by Simkovic and McIntyre – is able to demonstrate a career earnings premium for the JD itself not for a career working as a lawyer.

No one wanted the kind of mismatch in JD’s and jobs that occurred after 2008. And I didn’t want to sell my home at a significant loss in the wake of the crisis either. But as court after court has pointed out law students cannot blame the law schools for the problems of the wider economy any more than I can blame the bank that loaned me money to buy my house. Had the law school critics taken up the calls for debt relief that I and others issued instead of worrying about over-wrought theories of law school as a scam, thousands of recent graduates might be better off today.

Washington Post joins the myth making about law schools and legal employment – New Year’s Update

There is no question that law schools have suffered from the impact of the dramatic collapse of the world economy in 2008. Because of a lag effect the full impact was delayed a couple of years but now indeed enrollment has dropped significantly.

The delay in the enrollment decline occurred because new college grads tried to flood into law schools from 2008-2010 in order to wait out the economic turmoil. The problem they then faced was that the recovery only took hold in 2012-13 and that meant oversupply in the market. The enrollment bubble can be seen in this chart prepared by the ABA. As the economy took off under the influence of low interest rates in 2003 enrollment steadily climbed and jumped up significantly as the credit crisis was in full swing. The peak in first year enrollment was in AY2010-2011 at 52,488. The continuing impact of that bubble period is indicated by the fact that the highest number of JD’s ever awarded in the US occurred in 2013, three years after the peak of first year enrollment.

Now, of course, law schools face both a reputational effect of that oversupply problem and the fact that with a wider economic recovery underway law school is no longer necessary as a hiding place for unemployed college grads. Many college graduates can get jobs right away with just a BA, even if these gigs don’t pay as well as lawyering.

Ironically, and as has happened in several prior business cycles, the decline in the attractiveness of a JD is occurring as the legal employment market is steadily recovering. New BLS data analyzed by Ted Seto at Loyola Law School in Los Angeles suggests there will be a shortage of lawyers beginning as early as 2016. One legal industry consultant, Peter Zeughauser, told the Wall Street Journal that “the legal industry across the country was faring better than in the years following the financial meltdown of 2008. ‘For the first time in six years, the legal economy is back on track,’ he said.”

These basic facts about economic cycles and the BLS data on legal employment do not bother the Washington Post, however. Their legal reporter Catherine Ho reports today that there is a “shrinking job market for young lawyers” and a “major retrenchment” underway since 2008 in the legal sector.

This would certainly come as a surprise to the many large law firms handing out bonuses that are larger than any they have awarded associates since 2007. The conclusion also flies in the face of the data the BLS carefully assembles on legal employment and wages. The number of lawyers employed in the US has risen steadily every year over the last decade (except for a one time drop in 2008 to 553,690) to a high in 2013 of 592,670. Average annualized earnings have grown every year as well from $107,800 in May of 2003 to the May 2013 total of $131,990.

And even in Washington, D.C.’s lawyer rich environment, legal employment and incomes have recovered steadily. Employment reached a crisis period low of 28,390 in 2010 but hit 31,810 in 2013, well in excess of the pre-crisis 2007 number of 29,060. Average annual earnings have been slightly more volatile but hit $162,800 in 2013, a significant bump up from the pre-crisis number of $143,520 in 2007. In fact, lawyer incomes increased in DC in 2008, 2009, and 2010, with a slight drop in 2011 before hitting a record high $165,590 in 2012 and then settling back in 2013.

These numbers hardly suggest a shrinking market much less a major retrenchment. It is possible that the Post, like many law school critics, prefers anecdotes to data, so I asked the Post reporter Catherine Ho if she could provide me the basis for her reporting but have not yet received a reply. If I receive it I will update this post.

[New Year’s Day Update: Ms. Ho has not yet responded to my inquiry. The facts about a recovering economy are hard to deal with for the law school critics. Even the man made global warming crowd in a post authored by Professor NPV himself chose to ignore what the BLS data and other indicators of rising lawyer employment and incomes tell us in their quixotic effort alongside their friends at the Cato Institute to destroy the American law school.

[A year by year look at enrollment indicates that enrollment flattened and even fell during the impact of the dotcom bubble then started to rise when that bubble burst only to flatten again once the real estate bubble took hold, then rose again as that bubble burst only to start falling off now that recovery has – slowly – started to take hold. It is this kind of cycle effect that mystifies the law school critics in a manner that is reminiscent of those who used to think man caused global warming. At least the global warming crowd has had the courage to change their mantra to “climate change.”]

Leading study of JD’s million dollar value published in Journal of Legal Studies

The widely respected Journal of Legal Studies has now published “The Economic Value of a Law Degree,” the most important and widely discussed study of the value of earning a JD authored by legal scholar Michael Simkovic and economist Frank McIntyre.

The study concludes based on exhaustive empirical analysis that includes the impact of the recent recession that “a law degree is associated with median increases of 73 percent in earnings and 60 percent in hourly wages. The mean annual earnings premium is approximately $57,200 in 2013 dollars. Values in recent years are within historical norms. The mean pretax lifetime value of a law degree is approximately $1 million.”

A working paper version of the article released last year triggered an intense debate because it provided strong empirical evidence that, despite the difficulties of recent law school graduates, over a career a JD had significant value relative to entering the workforce with only a BA. The concrete data assembled by the authors flew in the face of the anecdotal approach taken by most critics of the JD who dominated discussion of the future of law school in the wake of the economic crisis. Examples of the debate can be found here, here and here.

Here is the full abstract from the article:

“We investigate the economic value of a law degree and find that for most law school graduates, the present value of a law degree typically exceeds its cost by hundreds of thousands of dollars. The median and 25th-percentile earnings premiums justify enrollment. We track lifetime earnings of a large sample of law degree holders. Previous studies focused on starting salaries, generic professional degree holders, or the subset of law degree holders who practice law. We incorporate unemployment and disability risk and measure earnings premiums separately for men and for women. After controlling for observable ability sorting, we find that a law degree is associated with median increases of 73 percent in earnings and 60 percent in hourly wages. The mean annual earnings premium is approximately $57,200 in 2013 dollars. Values in recent years are within historical norms. The mean pretax lifetime value of a law degree is approximately $1 million.”

Some critics claimed, inaccurately, that the paper was not subject to peer review. It was, however, peer reviewed prior to its circulation in working paper form (as I explained here) and now has been published in a leading refereed journal published by the University of Chicago Press.

As the economic recovery from the collapse of the 2008-10 period continues its momentum there is some evidence that applications to top tier JD programs remain strong with applicants with very LSATs now having increased. Nonetheless, second and third tier schools remain challenged to survive the prolonged economic cycle. This study, however, is likely to reinforce the argument that the JD and law schools remain a viable and important economic institution.

Schooled, In debt, Struggling


Frank Wu, the dean of UC Hastings College of the Law, flutters about his third-floor office adjusting things, making sure his emails are answered and…

Source: Schooled, Indebt, Struggling

An up close and personal portrait of the challenges facing an important Bay Area law school as the “new normal” takes hold in legal services and education. A must read.

Pied piper of law school reform crowd is lost once again

imagesIn a response to my remarks about the relatively thoughtful though narrow comments of Justice Scalia on the future of the legal academy, the leader of the dwindling law school reform crowd  throws up his hands. He just cannot explain the difference between “hyper elite” School A (let’s call it Stanford) and “strong regional” School B (let’s call it Colorado). Nor can he find any reason to justify the increased expenditures at both schools.

And this despite the fact that he actually admits the key variable: the salaries of Stanford graduates have increased.

He does not say how much but since I graduated from a similar school to Stanford I recall starting salaries on Wall Street in the mid-90s to be $85,000. Today they are $160,000. With no disrespect intended towards Colorado I think we can safely assume that their median is substantially lower than that, perhaps 100-120K. In other words, Stanford salaries, at least, have kept pace with the increase of expenditure – both of which have roughly doubled in the same time frame.

Perhaps more importantly what does that salary differential tell us about the per capita expenditure differential between the schools?

Simply that over a career it is more likely that Stanford grads will earn substantially more than Colorado grads. And that makes it far more likely that Stanford will earn back substantially more from those grads than Colorado. That means from the standpoint of the Stanford board of trustees – who have a fiduciary obligation to the institution – it is perfectly rational to spend twice per capita at their law school than they do at Colorado. Anecdotal information suggests their calculation makes perfect sense – it’s why they have one brand new building named after alum William Neukom, former Microsoft general counsel, and another named after Charlie Munger, business partner of Warren Buffet and father of a Stanford Law School alum, while Colorado struggled for years – to the brink of putting their accreditation at risk – to come up with the funds for a new building. (Granted, when they got it built it was pretty spectacular.)

It strikes me as odd that someone once feted at the Cato Institute as the “bad cop” of law school reform (do his colleagues at the allegedly left wing site Lawyers Guns and Money care where he spends his spare time?) seems to have a very weak grasp on the nature of capitalism but there you have it. Stanford makes money from its law school. It does not lose money. It invests in its physical plant and in its human resources calculated against the potential of making money off of that investment. Of course Stanford is an educational institution, a non-profit entity, so it does not and should not look for ways to merely maximize its earnings. But it certainly is not going to engage in activities that throw away the tuition dollars and donations it receives.

In a world of Stanfords, Harvards and Yales, is it any wonder that places like Texas, Virginia and Colorado look for ways to keep up?

And yes even at lower ranked schools like mine this has become essential. We maintained a view that resisted that kind of competition for many years, proudly proclaiming that we were the anti-Stanford (a hang over from the days when Kingsfield ruled the roost). No matter one’s views of the values inherent in this approach (and many felt and still feel they were more appropriate to the practice of law than those at major law schools) it was no longer tenable, particularly when we were located in a setting like Silicon Valley. We may all delight in railing against the rankings but at some level they do reflect market reality and pretending we could live in a world where they do not count only further hurt our reputation.

The school started to change. Not to toot our own horn, as we have a ways to go and we are a Jesuit-affiliated institution after all, but we now have one of the nation’s leading intellectual property programs, recently put in place a startup law clinic that is in great demand from students, and at the university level there are plans afoot for a new STEM center as well as new programs that will link up the law school and business school more closely.

I think one problem the law school critics seem to have is an expectation that all who enter here shall succeed. That has never been the case in professional schools and certainly is not the case in today’s hyper-competitive and highly stratified society.

This new reality is reflected in the battle that occurred at the University of Virginia a couple of years ago. Their board of trustees panicked when they saw the kind of innovation underway at Harvard, MIT and Stanford. They tried, unceremoniously, to fire a very popular (some would say too popular) campus president. The campus erupted and the president was reinstated.

But I have little doubt that concerns remain there and elsewhere that the emerging “Stanford model” (which I wrote a bit more about here) is causing a new division within higher education – and that is a challenge across the board to either keep up or come up with a viable alternative.

I am not happy, for example, about the administrative bloat the model seems to entail. One is reminded of the prescient work of Cornelius Castoriadis on the inevitable and apparently unstoppable bureaucratization of capitalism. But normative considerations should not get in the way of recognizing reality.

It has been said that at Stanford when you are hired as a junior professor in the sciences they don’t care whether you stay to get tenured or leave to found a new biotech firm. The school is happy with either path – every entering professor gets a base salary, a lab and shared ownership of their future IP. It’s an incubator model. In fact, their current President, John Hennessy, sits on the board of Google and Cisco and himself founded a highly successful and path breaking technology company while on sabbatical.

(There are, of course, alternatives to the Stanford approach – at least in California. Prospective lawyers need not attend law school and need not attend an ABA accredited school. Many choose not to do so, taking advantage of the lower cost teaching-dominant model that many law school critics espouse yet seem not to believe really exists. They need to get out more.)

This culture has spread widely. A friend who was a graduate student in computer science at an east coast Ivy had trouble finding a dissertation advisor because each faculty member told him his dissertation topic had to be the basis of a new startup (upon whose board the professor would sit) or else they were not interested. He left but many others stayed and are no doubt building new companies as we speak.

How shocked can we profess to be that Stanford is happy to continue subsidizing its law students to the tune of 100K per capita (when sticker tuition is 50K) in the happy prospect that every few years a Peter Thiel (a founder of PayPal and early lead investor in Facebook) will emerge from their graduating class? It is analogous to the model they use in the hard sciences – in fact they likely hope that their law students will become counsel to the graduates of their hard science programs. Or even more compelling – find ways for their students to start their own alternative legal firms incorporating technology from across the campus.

Personally I think this approach is both exciting and has serious longer term potential pitfalls. It is, in many ways, a symptom of what I call an emerging new era of “insider capitalism.” But there is little doubt about its impact and importance.

Perhaps it is time for young JDs to consider alternatives to their whistling muse.

 

Justice Scalia throws red meat to law school critics

Relying heavily on some of the more data challenged members of the law school critics’ camp (see here and here) and ignoring the only serious study of the long term economic value add of a JD, conservative Justice Antonin Scalia made headlines this week for a relatively moderate law school commencement speech. Frankly, it came across as closing the barn door after the horses had escaped.

One of the two main themes of the speech was his view that a two year JD does not make sense. Quite sensibly he points out that the three years is critical to preparing young people for a lifelong profession. While reasonable minds can differ on his view that the curriculum has become too diverse, he is certainly on to something when he suggests that we think carefully about sacrificing “legal learning” for other reforms driven by short term market considerations. As someone who teaches bread and butter corporate law courses like securities regulation and corporate finance, I certainly wonder how these can be taught if students must use up their only time in law school to take bar tested courses.

In other words, it is a mistake to think narrowly about complex economic considerations. That means, of course, that universities have an obligation to step up and defend the place of law schools as part of their institutions when they are under economic pressure. As it is only sensible to conclude that the current downturn is cyclical not structural that view also happens, happily, to coincide with the economic rationale of law schools.

That important point is lost on the critics of course, and, unfortunately, seems to have eluded the Justice as well who makes the high cost of law school the second theme of his remarks. The critics do not seem to realize that it is expensive to create an effective modern law school. The actual cost of doing it right is vastly underestimated. At HYS for example sticker tuition is now north of 50K per year but that is, as far as I can tell from publicly available information, about one third of the actual cost spent per student each year. Other lower ranked schools have to try to get the job done with far less, of course, and most are effective in doing so. But it is no surprise, is it, that the schools with the most resources continue to dominate in the rankings?

This cold economic reality has not stopped the critics from seizing on the few morsels the good Justice threw out to the parents who have already spent significant sums on their childrens’ educations. He suggests that cost cutting may have to lead to lower salaries for law faculty. There is little in depth analysis here, however. And that may be because even critics acknowledge that cutting faculty salaries would have little more than symbolic impact on the cost picture.

Far more important in the cost structure has been the riskier bureaucratic trend found across academia of beefing up the hiring of all sorts of “academic staff” who help lower faculty-student ratios and boost per capita student spending but may be doing very little to improve educational outcomes. At the same time these efforts dilute heavily the academic and policy impact of traditional tenure track faculty. This is great for deans and provosts and presidents who like to have chess pieces they can move around – something of a challenge when it comes to tenure track faculty. But the value to the profession of law is very much more in doubt.

Scalia ignores as well the logic of the faculty labor market. Critics love to claim that faculty salaries can be lowered because current faculty are not as mobile as is sometimes thought. But that focuses on the wrong issue. Indeed as any experienced faculty member can tell you (and as some of the law school critics no doubt know themselves) the only leverage you have with a dean or provost is the threat to leave for a competing school. When I was engaged in negotiations to become the CEO of a large non-profit some years ago (at a salary more than 3x my faculty salary) I certainly was not operating under the illusion my University would try to match it.

What will keep current faculty salaries relatively stable and motivate movement in the direction of other cost cutting measures to deal with the downturn – and in fact already has at many schools – is that universities have longer term concerns. They may not have to be too anxious about keeping current faculty unless a competitor comes calling, but they do have to think about future recruitment. At some tipping point it will be more attractive for top tier faculty candidates to stay in the private sector. The fall off in top tier law school applicants noticed recently suggests this may already be an operative factor.

A second consideration for universities is that once the current cycle is complete, as has happened several times in the last thirty years (recall the prior cycles associated with the real estate crisis of the early 90s and the dot com crash in 2000-01), law schools will once again generate significant net earnings for their campuses. That comes both in the form of current tuition flows as well as future donations. The per capita dollar value of a member of a professional school will always be far higher than that of the English department (of course, it must be granted that indirectly that is not a completely fair view as it is helpful if students come to law school knowing how to read and write). That is one reason why even while they are an expensive investment it remains rational for universities to have professional schools.

It is also worth noting that Justice Scalia, a captive perhaps of the beltway, ignores the structure of one of the country’s largest legal markets – California. We already have here a multi-tier legal education market with faculty salaries that match. And, in fact, aspiring lawyers are free in this state to not attend law school at all, thus not helping pay any faculty salaries. They can – and some do – apprentice and then sit for the bar exam. And we allow JDs who do not attend ABA accredited schools to also sit for the bar. The interesting result of this experiment is that most of those students with the highest test scores and grades still flock to the highest ranked schools with – wait for it – the highest faculty salaries!

Certainly that suggests that one lesson of this tempest in a teacup that we have called the law school crisis debate is that aspiring JD’s are far more thoughtful about what choices they are making than we give them credit for. Getting caught in a 100 year economic storm was not something they had counted on, of course. That is why it would have been a far better expenditure of the critics’ time to agitate for debt relief and innovative training programs to bridge the gap between the graduation dates of recent JDs and an economic recovery.

Given all of this, I do wish Justice Scalia had cast his intellectual net a bit wider than friends of the Cato Institute when crafting his recent remarks. Well, at least he kept it short.

ABA does the right thing in keeping tenure standard for law schools

At a weekend meeting the ABA’s Council of the Section of Legal Education and Admissions to the Bar voted (pay wall) to retain tenure as a condition of becoming an ABA accredited law school. In light of an earlier call by a majority of the Council’s members to change that requirement, this is a significant victory for academic freedom and quality at the nation’s most important law schools.

The decision is being justly celebrated, as well, by the American Association of University Professors (AAUP), which helped create the modern interlocking institutions of academic freedom, tenure and shared governance. The AAUP commented on the proposed cutback to tenure and helped law faculty weigh in in defense of tenure.

While some law school critics argue that requirements like tenure are a barrier to affordable legal education, in fact, it is tenure that insures that law students get what they pay, sometimes dearly, for: quality faculty who must demonstrate to their peers over several years their ability to teach, engage in relevant scholarly research and give back to their universities and surrounding communities through various forms of service. In several states, of course, California included, it is possible for students to pick non-ABA law schools and still sit for the bar, thus offering lower cost alternatives.

It is an important sign as well that the ABA leadership listened to the many faculty from law school academia who spoke up in defense of tenure. A culture gap has long existed between practicing lawyers, who dominate the ABA, and the legal academy. Hopefully with this battle behind us, new constructive efforts to bridge that gap can be made. Our best and best known legal scholars should make a point of being available on a regular basis to the bar for discussion of their work.

Legal academics can listen and learn from the practicing bar as well. In one of my fields, business law, it is almost not possible to tackle complex research problems without being close to the experience of the practicing bar but no doubt even there we could do a better job.

State bars, together with law school deans, could take the lead in developing such relationships. It can potentially benefit all constituencies that make up the broader legal community. As an example, I recently wrote an article on insider trading and the startup world of Silicon Valley. It was first written for a California state bar audience and then was seen by a leading corporate law scholar and I revised it for inclusion in an academic collection that scholar edited. Both the academic world and the practice world benefited, presumably, as did I by working through the issues first for that real world audience and then for a more academic audience.

AAUP national elections: why I am voting to re-elect the “Organizing for Change” slate

National elections for the American Association of University Professors are now underway. An incumbent slate called Organizing for Change is being challenged by the Unity slate which is led by AAUP figures who used to be in power. I am voting to re-elect the Organizing for Change slate and I think if you are an AAUP member in good standing you should do the same.

The reason I support OFC is straightforward. The challenges facing faculty across all sectors of higher education are dramatic and are taking on a momentum that we have probably never experienced in this country. We need a national advocacy group that wants to respond to those challenges aggressively and with creativity. Most importantly we need the AAUP to have real meaning and impact on the ground where it really counts. I think that is the basic goal of OFC and it represents an important and relevant shift in the orientation of the organization. I think for the first time in many years (I have been an AAUP member since I joined my faculty as a junior professor in 1999) the AAUP feels like a real presence not just in Washington but on our campuses where it counts.

Part of what OFC is trying to do is strengthen the collective bargaining arm of the organization. That likely creates some tension in the AAUP because it means a shift in culture and even resources. There is a suggestion by some that this means giving less attention to academic freedom, the issue for which AAUP is best known historically. In reality these two efforts are two sides of the same coin.

This does not mean that collective bargaining is always the right approach or even necessary but it must be a viable part of what we do if we take academic freedom seriously. Why? Because the greatest challenge we face in academia today, whether at the junior college level, or at Berkeley and Harvard, is the change in organizational structure of the university.

A permanent new administrative, if not bureaucratic, caste is taking hold of managerial authority in the universities. Instead of an experienced faculty member spending a few years as a dean or even provost or president and then returning to the teaching faculty, today individuals who take on  those positions have almost uniformly left teaching and research behind forever.

Inevitably, these individuals develop a skill set and outlook that matches that of the corporate executives who now control most university boards of trustees. In turn the trustees and administration increasingly treat faculty not as partners in the governance of an academic institution but as employees of a giant corporation. And indeed as government funding for higher education has receded corporate and foundation spending has ramped up making it appear as if we do work for corporations. Corporate executives, of course, feel more comfortable with deans, provosts and presidents who can talk their language and that often means reassuring the trustees that they can get their faculty “under control.” That has led to a wide range of conflicts with faculty as well as to developments like the widespread use of contingent faculty and the waning of the tenure track.

This turn of events is not healthy for the fundamental purpose of our system of higher education: to generate knowledge in order to help solve social problems while preparing young people to join our society prepared to confront those same problems. Employees or, worse, automatons are not good at original thinking. Control and creativity rarely go well together.

In such a situation the AAUP needs to be a living, breathing organization that has a meaningful presence on campus. In my experience with the OFC leadership they have been successful at helping build that kind of presence. I teach at a relatively small and private institution. While collective bargaining might be helpful there it is not a likely outcome given the legal and political constraints we face. But there is a role for our chapter to raise that issue and even pursue it if our colleagues wish to do so. And a “union outlook” on issues is not a bad way to motivate fellow faculty and stir up discussion of important issues even shy of actual bargaining.

At a minimum AAUP chapters can play an advocacy role that makes issues clear and signals to the administration the limits of their ability to manage the institution without robust shared governance. Right now on our campus it is the only forum for just faculty members to assemble and discuss important issues independently of the administration. And the OFC leadership has been very helpful to me and my fellow AAUP chapter members in understanding how to play a constructive role in an ongoing governance crisis on the campus. They have been there when it counted several times in the last two years.

So, in sum, I think OFC has breathed new life into the AAUP. It does not have all the answers and I have a great deal of respect for the traditions of the organization. I hope that the Unity slate will continue to be an active force but for now I think OFC deserves more time to help  move us ahead as we confront the significant changes impacting higher education today.

 

Before you let the ABA ruin your law school, listen to this talk by Dean Harry Arthurs

As the pressure on legal education and new JD’s from the fallout of the worst financial crisis in the modern era continues, there are efforts underway to transform the nature of American legal education. As I have suggested elsewhere in some depth, the goal of this effort is the death of the autonomous law school as an academic institution in favor of what can, at best, be referred to as “training.”

Thus, the recent ABA Task Force Report on the Future Legal Education calls for a substantial weakening of tenure, and by implication, academic freedom. (Notably, the words academic freedom do not appear in the Report, as if the members of the Task Force are unaware of its centrality to the success of the law school. There were efforts to bring this problem to their attention, both by me and the AAUP.)

Now a prominent former dean and university president, Harry Arthurs, has laid out a critique of the effort to enforce a new pedagogical regime on the law school environment. You can watch Dean Arthurs present his views here at a recent conference on the future of law school hosted by the University of Alberta and read the paper upon which the talk is based here.

As he makes clear the fundamental goal of the law school, which is firmly situated in an academic environment, is to pursue knowledge. It is not a substitute for “training” lawyers whether under the guise of producing “practice ready” graduates or steeping students in so-called “experiential learning.”

While it makes sense to have a certain amount of hands-on activity available for students in law school (I, for example, use mock negotiations and drafting a part of my securities law and corporate finance classes) it is impossible to replicate in the law school setting the process of skills building needed in daily practice of law.

Law schools, fundamentally “knowledge communities” as explained by Dean Arthurs, are not cut out for this task and should not be forced cookie cutter-like into a mold shaped by external market forces. The tension this effort creates is brought home sharply in the final moments of the talk when Dean Arthurs has an interesting exchange with an individual who it appears is the new dean of another Canadian law school.

In Dean Arthur’s words, “law schools should play a leading role in the creation and transformation of legal knowledge, legal practice, and the legal system — a role that requires them to provide their students with a large and liberal understanding of law that will prepare them for a variety of legal and non-legal careers.”

Although Dean Arthurs is Canadian and was dean of Osgoode Hall, one of Canada’s leading law schools, and later president of York University where Osgoode resides, it is clear that the pressure from Canadian law societies on law schools is identical to the pressure being exerted by the ABA to cut the cost of law school at the expense of its academic mission.

It becomes equally clear after listening to this elegant and thoughtful presentation how utterly incoherent the reform agenda is. Thus, his views, echoed in part recently by the faculty at Yale Law School, are well worth considering.