The economic value of a law degree

by on January 24, 2014 at 6:16 am in Economics, Education, Law | Permalink

Michael Simkovic and Frank McIntyre have a new paper on this topic:

Legal academics and journalists have marshaled statistics purporting to show that enrolling in law school is irrational. We investigate the economic value of a law degree and find the opposite: given current tuition levels, the median and even 25th percentile annual earnings premiums justify enrollment. For most law school graduates, the present value of a law degree typically exceeds its cost by hundreds of thousands of dollars. We improve upon previous studies by tracking 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 also include unemployment and disability risk rather than assume continuous full time employment. After controlling for observable ability sorting, we find that a law degree is associated with a 73 percent median increase in monthly earnings and 60 percent increase in median hourly wages. The mean annual earnings premium of a law degree is approximately $57,200 in 2013 dollars. The law degree earnings premium is cyclical and recent years are within historical norms. We estimate the mean pre-tax lifetime value of a law degree as approximately $1,000,000.

For the pointer I thank the excellent Andres Marroquin.

prior_approval January 24, 2014 at 6:30 am

And the economic cost of having so many lawyers in the U.S.?

dan1111 January 24, 2014 at 6:35 am

+1

Kuros January 24, 2014 at 9:49 am

Please distinguish from consumer advocate attorneys and big law minions next time you so derp on the subject.

dan1111 January 24, 2014 at 10:43 am

Is “consumer advocacy” always good and “big law” always bad? Can you never have too much “consumer advocacy”?

Finch January 24, 2014 at 10:56 am

I thought he meant it the other way around. John Edwards is bad, but the guys working on some big merger are doing good…

I’ve said here before that there are obviously problems with our system, but any rational system is going to spend a lot of money figuring things out when two large, complex firms have a dispute or negotiation with a lot at stake. Biglaw, or something like it, would be an important part of a good system.

dan1111 January 24, 2014 at 11:57 am

You have a point, but “minions” makes me doubt Kuros agrees.

Tim January 24, 2014 at 12:04 pm

I’m always amused by libertarian types who are anti-lawyer. The entire basis of libertarian thought is based upon replacing standard government regulation with lawyers…

Finch January 24, 2014 at 12:10 pm

dan111, you’re probably right.

In my view, the economics of biglaw and all other law are so different as to be incomparable. They’re hardly the same profession. For example, the bar is a significant barrier to entry for people who do real estate closings and wills, but it’s completely irrelevant for people going to work for Paul, Weiss.

Turkey Vulture January 24, 2014 at 10:48 am

Big firms can represent consumers in antitrust class actions. Also, even in a competitor v. competitor antitrust action, they must show harm to consumers. So they’re all consumer advocates.

Willitts January 24, 2014 at 10:38 am

Lawyers are great. Everyone should have one, and they should make $50 an hour.

Everyone hate lawyers until the criminal or tortfeasor is on your doorstep.

I value my experience although I ultimately decided the career wasn’t for me. The adversarial system creates zealots who advance theories they don’t really believe (or worse, they convince themselves it is true). Combined with the motive of profit and power, lawyers their self interest is aligned with perverse ethical choices. My hope is that in the absence of large pots of gold, the profession would become more clean, but the rules and practices having been written by lawyers, for lawyers, I am pessimistic about positive change. If you want to find the worst abusers of the system, follow the money. This is a situation where it is appropriate to slap all of the smiling faces.

Silas Barta January 24, 2014 at 2:19 pm

“Everyone hates warlords until it’s their own village being plundered …”

Marie January 26, 2014 at 12:51 pm

By the warlord?

prior_approval January 24, 2014 at 6:39 am

And I should note, there is a fine discussion at the Conspiracy about this – from July 2013. http://www.volokh.com/2013/07/18/debating-the-value-of-a-law-degree/

With multiple perspectives, links, responses – sort of a model of what makes the Volokh Conspiracy a pleasure to read, regardless of its not exactly subtle Federalist/law and economics party line.

market timer January 24, 2014 at 6:44 am

Given the bimodal distribution of lawyer incomes, and potential for massive student loan forgiveness for lawyers in the bottom half, I believe this article severely underestimates the value of a law degree. A law degree has lately become a call option, where if things pan out well, you get an upper middle class life, and if not, you are not much worse off, but the taxpayer is.

Anonzmous January 24, 2014 at 7:14 am

market timer – you are exactly right re: bimodal distribution. Mean and median are misleading. There are big winners, big losers, and few in between. For the ones that things do not pan out well, I’m not so sure they are not much worse off. I don’t disagree that student loan default => taxpayer on the hook. But don’t forget their opportunity cost. These are folks that might have been happy and productive having acquired a completely different skill set, but instead are emotionally beaten down and working for $15/hour as contract attorneys.

dead serious January 24, 2014 at 10:58 am

Unless I am mistaken, there is no such thing as loan forgiveness. Student loan debt is non-dischargeable unless you can prove extreme hardship (e.g. medical-based incapacitation).

market timer January 24, 2014 at 11:23 am

Google “Income Based Repayment,” “Pay as you Earn,” “Public Service Loan Forgiveness,” or “Loan Repayment Assistance Program.”

dead serious January 24, 2014 at 11:45 am

OK, so in lieu of a higher salary you get a lower salary plus a portion of your loans are paid off for you.

Now your comment makes sense: the loans could be subsidized if you end up working for the government or some other relatively low-wage legal position that participates.

Nick January 24, 2014 at 12:08 pm

Government is hardly “low-wage” compared to the private sector in this day and age. If I went go back to work for the state of CA, I get a defined benefit pension, lifetime health care, stable/essentially lifetime employment and base wage as competitive with the private sector. Good luck find that anywhere else in this day and age.

Ryan January 24, 2014 at 1:09 pm

I think the official criteria is the firm must have “non-profit” status in the USG’s eyes in order for your loan to be forgiven. Please keep this confidential. :)

rayward January 24, 2014 at 12:59 pm

Some refer to it as a two-humped distribution because it looks like the two humps on a camel. I’m a practicing lawyer (for almost 40 years) and love what I do and my best friend’s a non-practicing lawyer (he’s in academia). I’m fortunate that I work with some excellent lawyers. But I’m keenly aware they are the exception. I like the joke about the small town with only one lawyer who didn’t have enough to do. Another lawyer moved to town and they couldn’t handle all the work. All those unemployed and underemployed lawyers serve a function that is the source of much that is wrong in America, which Francis Fukuyama recently chronicled in a long essay titled The Decay of American Political Institutions. Qui tam (or whistleblower) lawsuits, especially in health care, are the ticket to success for all those lawyers.

Ignacio Concha January 24, 2014 at 7:21 am

Does anyone know if the study accounts for opportunity costs? I do not mean of the lost income while studying, but the lost opportunity of studying something else, like an MBA or becoming a CPA?

Anonzmous January 24, 2014 at 7:28 am

Follow the above commenter’s link to the volokh article, there’s a link to a powerpoint discussing the study. BTW, they do try to capture the bimodal distribution by looking at different percentiles, but I didn’t spend any time figuring out how they got their data.

Macky January 25, 2014 at 2:25 am

Good thought! I need to read the article discussed below. I love the legal field and the only time I have enjoyed school since Kindergarten is during law school.

ant1900 January 24, 2014 at 7:28 am

If you get into a top 20 school, finish in the top 50% of your class, and get a job at a ‘biglaw’ firm, you will probably break even on your investment (even accounting for the opportunity cost of leaving a non-legal job) in 3-5 years. Stick it out longer than that, and it becomes very valuable over a career. But there are a lot of “ifs” in there. You have to get in a good school, be prepared to do well, be able to interview well, want to take a ‘biglaw’ job, and be able to hang in there for a few years. The only real exceptions to this are if (1) you or your family is wealthy and you just want to spend the money for the degree, or (2) a close family member runs a law firm and has explicitly guaranteed you a job upon graduation.

As others have pointed out, this comes from the bimodal distribution of salaries. You can only get the six figure starting salary if you get into a good school, do well enough, and interview well enough. If you don’t get the high starting salary at the beginning, you aren’t going to jump to the next tier.

For anyone thinking of going to law school, put some serious time into studying for the LSAT. Put some serious time into your applications, and apply to the top 20-25 schools. If you can’t get into any of those, walk away.

Dan Weber January 24, 2014 at 8:30 am

The study says that even the 25th percentile is better off going to law school.

Which I’m skeptical of, for the reasons you say, but one needs a slightly better response than “no it isn’t” to the study.

what do i know January 24, 2014 at 9:40 am

@ant1900
I find your comments much too pessimistic. I assume your reference to 6 figure salaries applies to starting salaries for first year lawyers. But even with that generous assumption, your comments don’t hold true for several reasons.

For one, I know many (and I mean quite a few) lawyers who went to mid tier schools (50ish+) who were hired out of school by biglaw, which, as you say, is accompanied by a starting 6 figure salary. And although most had good grades, they were not limited to the cream of the crop in their classes. So you don’t have to get into a top school, though that would certainly make getting these jobs easier. Second, it is also true that starting 6 figure salaries are not limited to biglaw, but can be enjoyed at firms with ~ 100 attorneys or fewer in my experience. And third, it is less common but certainly far from unheard of for alternative career paths to lead to lucrative salaries at biglaw or other firms. Graduates who learn the regulatory ropes, for example, by starting in a government position can often leverage that into a biglaw lateral opportunity. Granted, the third point doesn’t result in 6 figure starting salary, but it does contradict the assertion that unless you start out with a 6 figure salary you can’t catch up to those who do.

As an alternative to your take away, I would suggest that prospective law students also consider applying to schools that are outside the top tier, but well enough regarded in the local legal community in which the applicant wants to work. University of Houston and University of Denver are two examples that come to mind. If it happens to be a public school with in-state tuition, all the better. But the best advice I can think of is to do whatever it takes to maximize grades during the first year. So much depends on first year grades that an excellent performance can render grades during the remaining years practically irrelevant.

Tummler January 24, 2014 at 12:11 pm

Everything in your post was true for the class of 2008 and earlier, but not so much thereafter.

chuck martel January 24, 2014 at 10:00 am

“If you get into a top 20 school”

What’s the basis of a law school ranking, or that of any other kind of school, for that matter? Is there a golden glow of exclusive legal knowledge emanating from the hallowed halls of Harvard that doesn’t exist at the gloomy University of Nebraska? Or is the owner of a Harvard Law degree driving an educational Mercedes while his Cornhusker counterpart grinds down the road in a Corolla?

zbicyclist January 24, 2014 at 10:25 am

There is definitely a pecking order. Consider these stats from Wikipedia:

of the 112 Justices appointed to the Court, 46 have had law degrees (and all appointed since 1941).
Of these 46:
Harvard: 15
Yale: 8
Columbia: 4
Michigan: 3
Four schools, 30 out of the 46.
http://en.wikipedia.org/wiki/List_of_law_schools_attended_by_United_States_Supreme_Court_Justices

If you look at recent US presidents, you also get a preponderance of Harvard and Yale.
Obama, W Bush, Clinton, Bush

Turkey Vulture January 24, 2014 at 10:42 am

A Harvard Law degree is now a prerequisite for running for the U.S. Presidency, which gives it significant additional value.

Willitts January 24, 2014 at 11:03 am

So we are back to the signalling vs human capital argument.

Through selection, the top schools get the brightest students. They also recruit top professors. Combining these two groups gives you a fast pace and high level learning environment. There are fewer laggards slowing things down.

Aside from the brand name is the social capital of professional connections.

I had good grades at a top 5 school, and I disappointed a lot of people by choosing the JAG corps followed by public service.

I think law gets unfair scrutiny. I’m sure there are a lot of PhDs with massive debt teaching at podunk colleges or barely using their degrees. Untold numbers of Masters degrees are wasted. And think of all the BAs from private, liberal arts colleges who get little return from their six figure debt.

The reason people concern themselves with lawyers is because they are expected to make a lot of money, and when they don’t, I wonder who is more disappointed – the lawyer or everyone else? Would we feel the same way about a doctor who chose to work on an Indian reservation?

I don’t regret my choice to go to law school or to practice law in government service despite the fact that I ultimately decided the career wasn’t for me. Just having the degree raises my street cred in financial services, and there are intersections of law and finance.

chuck martel January 24, 2014 at 11:26 am

“Through selection, the top schools get the brightest students. They also recruit top professors. Combining these two groups gives you a fast pace and high level learning environment.”

Once again, there’s a measurement issue. In the beginning, high school grades and activities are used. Nobody gives much credence to that any longer. Maybe attending a highly rated and expensive private school would help. After the selected one is in the top 20 school, how are things different than they might be in any other? The law in any particular jurisdiction is available for all to see on those bookshelves in the professors’ offices. Wouldn’t the verdict on the quality of those professors be a pretty subjective one, based mostly on how engaging and charismatic they are in class? In fact, the whole thing is a self-reinforcing merry-go-round that has helped, through “the social capital of professional connections”, create the perceived east coast elite that the rest of the country despises but refuses to reject out of hand. Does any one really believe that John Kerry, for instance, would have been a lesser individual if he’d have received his BA from Florida State rather than Yale and his JD from Oklahoma instead of Boston College?

Willitts January 24, 2014 at 12:58 pm

I don’t know any law school that doesn’t look at college grades, and I don’t know any that looks at high school grades.

If you are saying that Ivy League schools are an exclusive club of inherited snobishness, that’s mostly true but it ignores that most of those snobs had a first class education prior to college, ie they earned their way in.

I went to Columbia and I didn’t have blue blood. Of course I had a high GPA, high LSAT, and good letters of recommendations. I got accepted to every law school to which I applied which is not bragging because I really don’t think I was exceptional. I didn’t want to go to Harvard or Yale, and applied mostly around NYC where I lived.

John Kerry is unimpressive no matter what degrees he has. :)

wait January 24, 2014 at 2:41 pm

Being an environment with smarter fellow students makes for a better learning experience–this has been shown in studies. We are at least partially shaped by our experiences. John Kerry would have had a much different experience at FSU and OU vs. Yale and BC, and it would have made him a different person. Whether it would have made him “lesser”, whatever that means, is unknown.

Ricardo January 24, 2014 at 3:33 pm

“Does any one really believe that John Kerry, for instance, would have been a lesser individual if he’d have received his BA from Florida State rather than Yale and his JD from Oklahoma instead of Boston College?”

Oh yes, many people do believe this. Partly for the reasons to which you responded, and partly because they would conclude that he attended ["lesser" school] because he couldn’t get into ["better" school].

Bob January 24, 2014 at 1:15 pm

Yes, there are thousands of PhDs who spent 5, 15 years on research, and got no academic position or private sector remuneration to show for it. It’s pretty common in the sciences. The big difference is that few people pay for their own Ph.D in science. Most people get a full ride in exchange for research assistant work. Therefore, their main loss is mostly one of time: Instead of entering the full blown workforce at 22 or so, they do so from 28 to 35. That’s pretty expensive in the long run, but it feels very different than piling up tons of debt.

law January 24, 2014 at 1:11 pm

The firms that pay a lot recruit almost exclusively from top ranked schools.

dead serious January 24, 2014 at 11:02 am

Dumb question, but does Big Law pay even as much as working in Legal for say, an IB?

Willitts January 24, 2014 at 11:05 am

Great question. The answer in the early years is no.

Finch January 24, 2014 at 12:22 pm

Do you mean working as a lawyer within an ibank? I.e., being inside counsel?

Or getting a regular ibanking job, say in corporate finance, and just having a law degree?

Clearly being an actual ibanker pays more initially than being an actual lawyer, but there is a lifestyle tradeoff, and ibanking requires basic numeracy.

I’d argue that evaluating either career by the first year salary is a mistake.

Willitts January 24, 2014 at 1:00 pm

I meant working as an associate in an IB as opposed to going to law school. Im sure there were people in my class who went into finance, but off the top of my head I can’t recall – that was decades ago.

Finch January 24, 2014 at 1:41 pm

That makes sense.

Turkey Vulture January 24, 2014 at 11:52 am

Standard Big Law starting salary (in NY, DC, LA, Chicago, maybe some firms in a few others) is currently $160k, plus some relatively small bonus.

Finch January 24, 2014 at 12:19 pm

Do IBs hire many newly-minted JDs as inside counsel? I had the impression they were mostly populated by people who did their first few years at a biglaw firm.

Urso January 24, 2014 at 1:37 pm

This is correct.

guest January 24, 2014 at 9:43 pm

Base salary for associates in IB is lower but historically their bonuses were large enough to make an associate in an IB worth 2-3x as much as a lawyer for the exact same work. But to become an associate — at least in the 2000s onward — you usually had to slog through business school.

JJ January 24, 2014 at 7:41 am

…I think we just discovered the economic price of a human soul.

Willitts January 24, 2014 at 11:05 am

+1

Rahul January 24, 2014 at 7:55 am

Conflict of interest much? How would it look for a Law School Professor to conclude that “enrolling in law school is irrational”.

Never bite the hand that feeds…..

Steven January 24, 2014 at 8:59 am

Michael Simkovic is a young and untenured professor at a low ranked law school. At a time when the value of a law degree is being hotly debated and when decreasing enrollment will likely hit low ranked law schools the hardest, he is hardly a disinterested party.

This study made the rounds in the varous “scamblogs” last summer, with law professors generally defending it and various skeptics (also including some law professors) attacking it. The methodology is complicated and I hope that the study is subjected to close scrutiny by intelligent people.

MD2 January 24, 2014 at 7:58 am

Current salaries are not future salaries.

dan1111 January 24, 2014 at 9:44 am

Yeah, but history is the only thing we have to predict from.

MD2 January 24, 2014 at 10:48 am

History is full of entire professions turning into low-median-pay jobs because of technology and too many people entering because it pays well instead of actually thinking about whether it’s a good career track.

That’s not lawyer-bashing, just saying the future is probably bleaker than the past, just like for professorships in many fields.

Z January 24, 2014 at 8:38 am

As the custodial state metastasizes. the demand for attorneys will grow, but not at the same rate in all categories. The evolving caste system will have winners and losers. Lawyers in elite fields like finance and government will do well. Lawyers at the retail end of the custodial state will probably fare worse as automation and supply keep wages down.

Dan S January 24, 2014 at 8:58 am

This is a gross oversimplification, but my general feeling is that a lawyer is an investment banker who can’t do math.

If you’re thinking of going to law school to make the big bucks, I’d probably recommend foregoing it and making the effort to get comfortable with numbers instead.

Norman Pfyster January 24, 2014 at 9:15 am

I leave the math to others who are much better at it.

I will agree that an understanding of accounting and finance goes a long way as a lawyer.

Willitts January 24, 2014 at 11:19 am

Tax alpha is the greatest value I give my clients, and as you say law and accounting are pretty important for that.

Urso January 24, 2014 at 11:40 am

“This is a gross oversimplification, but my general feeling is that a lawyer is an investment banker who can’t do math.”

This reflects a Manhattan-centric view of the world. For a certain subset of folks, this is probably right. But that subset is fairly small (although outsized in terms of visibility, wealth, etc).

Dan S January 24, 2014 at 12:51 pm

My comment above was admittedly a little snarky, and you are right that I am a Manhattanite, so here is what I mean to say without the snark.

Working as an I-banker and working at a top hot-shot law firm are in many ways similar jobs. You generally have to come from an elite institution, then you put in crazy long hours doing work that most people find mindnumbingly boring, and in exchange you make pretty good money given your age and experience, but more importantly if things go well you stand to make money hand over fist by becoming a VP/Director/MD or going into PE or VC or whatever (IB), or becoming a partner (law). In my view the major differences between the two paths are that one involves much more quantitative skills than the other, and one requires an extra three years of expensive school vs the other.

You’re right in saying this only applies to a subset of law school graduates (obviously environmental lawyers don’t need to make this comparison), but I think this is an important consideration for a lot of people thinking about law school. Many young people who don’t feel they’re on a good career path think of law school as a way to break into one, but there are other paths out there that don’t require all that school and are probably better financially. Fear of math holds back a lot of otherwise very intelligent liberal arts types from even looking at the accounting, finance, or consulting worlds.

wait January 24, 2014 at 2:45 pm

Please explain then why so many of my classmates at Harvard Law School had quit their jobs in I-Banking to go there and are now working in law firms rather than at banks.

Finch January 24, 2014 at 3:13 pm

1) Most of the people who quit their ibanking jobs to go to school went to get an MBA, so you are looking at a biased sample.

2) The math demands in ibanking are higher than in law, but outside of some circles they aren’t very high by normal human standards. Your friends need not have been physicists and might just not have liked that part of the job.

3) The biglaw work-life balance isn’t great, but it’s better than ibanking.

4) Ibanking favors ambition and basic numeracy in the early years. Biglaw favors fastidiousness and tact in the early years. Everything favors salesmanship in the later years. Most people have some idea of their own skill set and what careers would make a good match.

wait January 24, 2014 at 3:26 pm

My point simply is that many lawyers can do math just fine. Many of us earned degrees in econ or business and worked in consulting or banking before going to law school.

Finch January 24, 2014 at 3:51 pm

There’s math and then there’s math.

Here’s some unsolicited advice for your law career: Try to quickly figure out when you are out of your depth and hire someone who isn’t to help you. In my professional experience, good lawyers are usually a lot better at doing this than ibankers.

Dan S January 24, 2014 at 4:21 pm

I don’t mean to suggest what I’m saying is true for everyone, but by and large I think it’s right.

I don’t have data to back this up, but in my experience it’s rare for people to leave finance to pursue law unless the finance gig is going poorly. Much more common is going into the tech/startup world, or consulting, business, or an MBA. I think this is because people realize there isn’t much to be gained by making that jump if you’re already doing well in finance.

wait January 24, 2014 at 5:36 pm

Dan S–I think that’s mostly right. I know a few who were told they were on their way up the ladder at the top banks but found the idea of practicing law more interesting and went to law school anyway. Admittedly, (1) it’s probably rare and (2) there’s a chance they’re regretting it.

Finch–most law students can’t do math. Those of us who came from consulting and banking backgrounds can do either math you’re talking about. It’s really not that hard to create and understand advanced models in Excel when you come from a quant background in college.

guest January 24, 2014 at 9:46 pm

stupidity is the only explanation if they circle back to being big law corporate lawyers. Well, that and the fear of mass unemployment that was going around at the time they took the LSAT. In 08 lawyers still thought they’d be okay, banking analysts knew otherwise.

Really? January 24, 2014 at 9:00 am

This is so ridiculous. First there is the lie, then there is the big lie, then there are statistics. The opportunity cost to earn $57,000 salary for pre-tax earnings of $1 million is preposterous. It doesn’t add up. Any good salesperson or web-designer will earn well over that without incurring the disproportionate and crippling debt for the privilege of the education or the right to call themselves lawyer. There was a time when this income you are describing would have provided a very lovely middle to upper middle class lifestyle. Those numbers don’t work today. It represents poverty in the strictest sense – the debt is so lopsided to the earnings that the ability to create a reasonable life is thrown out the door. If someone is committed to being a lawyer no matter the cost, they accept what they will be giving up. But don’t sell the value of the degree purely as a good economic investment. It’s not. There are policemen earning well over $100,000 a year that don’t incur this ‘opportunity cost’.

Norman Pfyster January 24, 2014 at 9:17 am

It wasn’t a $57K salary; it was a $57K annual premium (i.e., over what that person would otherwise have earned).

Andrew January 24, 2014 at 12:36 pm

I know that’s what the paper says, but $1 million / lifetime at $57K/year of premium implies that lawyers only work 17-18 years, which would mean no lawyers (assuming they go to law school right after college) would work past 45. Can anyone verify if this is roughly true, or clarify the numbers? I know early retirement is a thing, but only 17.5 years of work seems excessively light.

Finch January 24, 2014 at 1:46 pm

I don’t know what the paper does, but a _lot_ of people fall off the wagon of biglaw careers (and more generally any other high-comp high-stress long-hour career) after much less than a 20 year career.

It’s not a good idea to plan a career like that without using an extremely high discount rate in the analysis, because many, many people are fired/get sick of the life well before the really big pay days.

Mark January 24, 2014 at 9:23 am

All these “value of a degree” studies are misguided. The past earnings are not indicative of future earnings. In law, there were big jumps in compensation in the 80′s to retain personnel vs investment banking hires. Well that’s not going to recur anytime soon. Same in the late 90s to retain personnel vs dot com hiring. All the trends in law are deflationary. Such job growth as there is in compliance and other back office functions, not big ticket. Further, more and more skills are needed to be a big earner: fluency in a second language or strong knowledge of a field in which there is patent litigation. So the job market is not just paying for generic degrees in the same way as the past. Electronic discovery is substituting for billable hours etc. The future will be quite different for law degree bolders than the past.

derek January 24, 2014 at 9:51 am

After watching the music industry collapse under the marketing expertise of the lawyers, the lawyers hire economists.

Turkey Vulture January 24, 2014 at 10:21 am

Of course, if this study were accurate, the next question is: why does a law degree hold economic value? Law school is mostly (or entirely) self taught. After 1L year I wasn’t required to take any particular course except some BS professional ethics thing. I didn’t learn any particular skill, and I forget most of what I temporarily learned for exams. Yet my “regular job” earnings potential tripled or quadrupled.

Willitts January 24, 2014 at 11:09 am

I had no idea you were a lawyer. I knew there was something I liked about you. :)

Turkey Vulture January 24, 2014 at 12:01 pm

Well, I don’t practice – never even took the bar. I work in litigation consulting (i.e. expert witness type stuff). I’m not quite two years out of school yet, so I may change my mind eventually. At the least I’ll probably get barred wherever I think I’m going to settle down for awhile.

I insult law and law school a lot, but it has worked out well for me. I’ve already paid off my loans and saved what I consider to be a good chunk of money up. It was probably a good investment for me, even though I didn’t particularly want to be a lawyer even when I started, because all I had was a B.A. from a state school. I really needed a signal for “hey bro, I’m smart, give me money.” Law school did that for me. I don’t think it’s socially good that it has worked out well though.

Thor January 24, 2014 at 12:06 pm

Didn’t “Turkey Vulture” give it away, lol

Turkey Vulture January 24, 2014 at 12:15 pm

See, e.g., this picture of me and American social welfare:

http://en.wikipedia.org/wiki/File:Turkey_Vulture_feeding.jpg

Juris Debtor January 24, 2014 at 10:31 am

Worst post I’ve read in a while. If you’re seriously thinking about law school, read the stories on this page: http://lawlemmings.tumblr.com/research

Law school is nothing more than gambling. The market is falling apart for a variety of reasons: tort reform, off-shoring, DIY legal services like LegalZoom, the horrible economy, institutional clients pushing back on lawyer bills, the destabilization of the billable hour revenue model, the huge oversupply of law school graduates produced over the previous 25 years, the wide and free availability of legal information available on the Internet allowing people to do their own legal work, etc.

Law schools lie about jobs and salaries. Don’t go to law school. There’s a very strong chance that your life will be financially destroyed. It’s not a slim chance. It’s actually probable that you will be MUCH worse off than if you had not gone to law school. Law schools are only interested in your federal student loans, which are non-dischargeable in bankruptcy.

Lawyers snicker at those who continue to attend law school behind their backs. It’s literally insane to attend law school in 2014, unless a very select and rare set of circumstances apply to you. Those circumstances: (1) you got into Harvard, Yale, or Stanford (even then, you should demand scholarship money); (2) you got a full scholarship (if it’s GPA-contingent and you lose the scholarship, drop out immediately); or (3) you have a family member or close friend who can 100% guarantee that you will be high-paid legal employment as an attorney upon graduation (this can’t be left to chance or a hunch, you must get this in writing).

For the most part, law school is a racket and you’d be extremely foolish to fork over $200,000+ for a degree that is not demanded by employers or the marketplace.

wait January 24, 2014 at 2:53 pm

This advice is only somewhat correct. First of all, HYS don’t give anyone scholarship money. They provide only need-based aid. Second of all, law degrees from top schools are in high demand right now. I don’t know a single person at HLS who didn’t have several big law offers to choose from. The top law firms in NYC are understaffed and many are making off-cycle hires of people who graduated law school without a big law offer to fill in the gaps.

guest January 24, 2014 at 9:53 pm

1. yes, HYS gives out merit based scholarships, you just have to have miert
2. Wrong. harvard law graduates can be just as unemployable as anyone else, but being a HLS graduate also comes with a doze of pride so chances are they arent running around announcing how they dont have a job. But the fact is and if you graduate unemployed you dont get hired ‘off cycle,’ big law will just poach someone from somewhere else. The only practices that are booming are the same practices big law killed in on 09, securitization guys. Everyone else is at the same level, which is why places like Weil keep mass firing junior attorneys every couple of years and the rest do stealth lay offs. Its also why so many mid-range top 100 firms are desperately jumping around looking for merger partners. Overall there is less demand and general counsel everywhere is much more vigilant on the billings.

Matthew January 24, 2014 at 10:49 am

How about personal utility of time and quality of work? Going into law seems to be a signal to future employers that you will be willing to working a lot more than 40 hours a week, and that you will be content with doing work that isn’t very fulfilling. In life, the marginal value of an additional 10 hours of work per week is very much increasing.

If enhanced salary were all that people cared about in life, why do I see the vast majority of my friends leave behind biglaw’s 90hr weeks + $200k annual take to go work 50 hour weeks at slightly above $100k?

Finch January 24, 2014 at 2:22 pm

> why do I see the vast majority of my friends leave behind biglaw’s 90hr weeks + $200k annual take to go work 50 hour weeks at slightly above $100k?

Honestly, it’s probably because they were fired, even if it was a friendly sort of firing and they say things about how they never want to work that kind of job again. It certainly happens that people leave that kind of job for personal reasons, because your wife threatens divorce or you’d like to see your kids occasionally, for example, but being told you aren’t going to advance and maybe you should look for something else is more common. To your point, the hourly rate for that next 40 is not very high for young people, especially considering taxes and the lack of incremental benefits. The reason to gut it out is the pay when you are more senior. Oddly, leaving for family and tax reasons also gets more common as people get more senior.

I’d guess the reason-for-leaving ratio is 80:20 firing:quality-of-life for the first three years at top employers.

Matthew January 24, 2014 at 5:34 pm

It’s really weird that they would spend the previous months before they got fired searching for a job. Then they’d get an offer for that job, they’d get fired the next day, then go straight to that other job.

It’s also funny that they get fired after a few years, which is around the time their student loan debt is not as burdensome a number relative to their savings, and that they spent every conversation with me in the previous years complaining about how shitty big law was, and that they would quit the moment they didn’t feel suffocated by student debt.

Finch January 24, 2014 at 5:50 pm

This is exactly how it works. They were fired three months before they left, and the possibility of firing them was discussed at the firm for at least a year before that. People know it’s coming way in advance, and it’s almost friendly. Everyone knows most people aren’t going to make partner. Unless someone is a serious hiring error, it takes a couple of years of trying before the senior people admit failure and let them go.

This isn’t unique to law. Some firms have reputations built around how nice they are to people they fire. McKinsey is well known for placing people who couldn’t cut it in great jobs, for example. They turn it into one of their draws.

Matthew January 24, 2014 at 6:17 pm

I never new biglaw firms had a PR department.

You can think this, and it may be statistically true, but you don’t know the people I’m talking about. And this analysis of yours can really be flipped to them quitting just as easily. A year before discussions about this person getting fired start being had amongst partners, the Associate decides he hates the job so much that he’ll slack off, collect a paycheck and wait to be fired.

Finch January 25, 2014 at 12:08 am

Look, it’s true I don’t know your friends, and maybe they’re just really odd. But the kind of people with the brains and dedication to get the experience and schooling it takes to get a top-level consulting, ibanking, or biglaw job don’t just give it up because they are surprised to find it takes a lot of effort. That would be gob-smackingly stupid.

It does seem to be the case that older people quit for personal reasons, particularly people with kids.

Matthew January 25, 2014 at 11:54 am

>> don’t just give it up because they are surprised to find it takes a lot of effort

No, they leave because it’s degrading to work for partners who don’t know a thing about management, and whose success has somehow deluded them into thinking they’re above treating their associates with an ounce of dignity or respect. They leave because they have dreams of making a difference, then learn that their job is to represent financial organizations in either protecting them against (wholly justified) litigation, or in trying to discover what legal loophole will allow some shitty company to save an extra billion in taxes. They leave because, standing in the moment of making $200k while they do shitty things for shitty people while sacrificing health and happiness outside of work, actually makes them feel more desperate and helpless than they had ever felt before. It depresses them so much thinking about how their 22 year-old self made such a bad decision taking out $250k in loans to go to HYS that they develop a pretty serious case of ‘high functioning’ alcoholism.

And having a conversation with you, who I assume is one of these partners, it’s completely obvious that my friends are right. I would fucking shoot myself after six months of working for some arrogant prick who thinks, because he makes a million a year and got a professional graduate degree, that he knows everything about everything, even what my own close, personal group of friends ‘actually’ had happen in their lives. I’d preach something to you about empathy and learning more about other people, but I’m sure that, because the immediate dollar signs aren’t there, it would fall on dead ears.

Finch January 24, 2014 at 2:22 pm

> why do I see the vast majority of my friends leave behind biglaw’s 90hr weeks + $200k annual take to go work 50 hour weeks at slightly above $100k?

Honestly, it’s probably because they were fired, even if it was a friendly sort of firing and they say things about how they never want to work that kind of job again. It certainly happens that people leave that kind of job for personal reasons, because your wife threatens divorce or you’d like to see your kids occasionally, for example, but being told you aren’t going to advance and maybe you should look for something else is more common. To your point, the hourly rate for that next 40 is not very high for young people, especially considering taxes and the lack of incremental benefits. The reason to gut it out is the pay when you are more senior. Oddly, leaving for family and tax reasons also gets more common as people get more senior.

I’d guess the reason-for-leaving ratio is 80:20 firing:quality-of-life for the first three years at top employers.

Finch January 24, 2014 at 2:22 pm

I don’t know why that double posted.

mark January 24, 2014 at 6:55 pm

I spent 30 great years in “Big Law” in New York and I don’t think I ever worked a 90 hour week. Doubt I ever worked an 80 hour week. People who claim to are probably overbilling or mischaracterizing how they spent their time. I can count on one hand the number of people I encountered who could genuinely claim to have averaged an 80 hour week over more than a month.

guest January 24, 2014 at 9:55 pm

sounds like you are an old man who has no idea how modern big law works. Top law firms explicitly or stealth billing requirements that make it clear that 80 hour work weeks are required for their junior lawyers.

what do i know January 25, 2014 at 8:51 am

“Top law firms” obviously is a subjective term, and I suspect you are using it in the narrowest reputational context. There are a lot of firms paying $160k out of the gate that don’t require anything close to this. Given the tenor of your comment, perhaps you should consider changing your definition of “top law firms” to those in which a challenging and well-paying career can be fashioned without an implicit or explicit requirement to work 80 hour weeks.

Matthew January 24, 2014 at 11:14 pm

Surprise, surprise. A 50 y/o partner who dumps 5 hours worth of work on his associates as he walks out the door at 6:00 each day doesn’t think the job is that tough.

guest January 25, 2014 at 2:11 am
Urso January 24, 2014 at 10:56 am

The paper’s primary conceit is that a “law degree” is an essentially fungible asset. It’s stunningly misleading; maybe even fraudulent. No one doubts that going to law school at Harvard, or Michigan, or Stanford, is a good economic choice. On the other end of the spectrum, going to respectable flagship state schools, with low costs and good regional (if not national) reputations, is a good economic choice. However, going to a school that is relatively lowly ranked, expensive, and maybe the 5th or 6th best law school in their market (like, say, Seton Hall?) is a terribly risky decision. By conflating all those schools together, the professors are doing a terrible disservice to the students thinking of applying to schools in this third category.

Yet I am sure they are acting in the utmost of good faith, of course .

Willitts January 24, 2014 at 11:16 am

Definitely agree. The flagship state schools have their own pipelines into the profession. While they might not be earning enormous salaries compared to the average, they earn well above median income for the area in which they live and practice. $80-90k per year is rich in most areas of the country where “mansions” cost only $200K.

There is also the assortive mating – most lawyers marry high income spouses, so their family income is deeply into the top quintile for the local area.

I, on the other hand, married a stay at home bombshell who doesn’t like shopping and cleans her own house. :)

Urso January 24, 2014 at 11:55 am

Whenever I am asked for advice regarding law school I encourage people to take the best scholarship offer within the state where they want to live. (I’d probably say something different if they were admitted at a top ten school, but then they wouldn’t need to ask me for advice.) I once heard a very wise man say that you can’t control results, but you can control costs.

Turkey Vulture January 24, 2014 at 12:05 pm

Sounds right to me. If you’re going to pay full freight or something close to it, you’d better be going to a top school with a really good shot at Big Law.

Willitts January 24, 2014 at 1:07 pm

I give the exact same advice.

I didn’t necessarily want to live in NYC after law school, but I knew I wanted to live there during law school because it was cheaper for me to live at home. That reduces costs a lot. I also had a part time job that was conducive to studying. My other reason for staying in NYC decided to break up with me during law school, but I traded up afterward.

John January 24, 2014 at 11:17 am

Egregiously unsubtle Michigan trolling.

Very subtle Yale bashing.

Matthew January 24, 2014 at 12:13 pm

Egregious XO trolling.

Tummler January 24, 2014 at 12:26 pm

I can confirm that Michigal Law is a TTT in decline.

Anon7438527304 January 24, 2014 at 12:41 pm

(,,…,,.,.,,.,.,.,.,,,.,.,.,.,.)

Behemot January 24, 2014 at 1:02 pm

True. Interestingly enough, the US seems to be placed somewhere between the UK and France in respect of the importance of Prestige. UK: until very recently almost Total Oxbridge dominance for the creme de la creme positions (barristers, academics, judges). France: preference for top schools (Paris universities) but much more open to candidates from “weaker” schools. A different matter altogether is how much more expensive, in terms of Money and Time, obtaining a law qualification is in the US compared to Europe.

byomtov January 24, 2014 at 11:30 am

I think the study looks at the arnings of lawyers and compares that to the earnings of non-lawyers who hold degrees in the same majors as law school graduates. That is, if 30% of lawyers have undergard degrees in history, say, they compare to a population that is 30% history majors.

That strikes me as a major flaw.

First, some students who go to law school might have chosen different majors otherwise, so the comparison is not quite right.

Second, some of those other history majors may have planned to go to law school but failed to get in. They rate to be relatively low earners.

Also, there is a difference between “enrolling in law school,” which is the investment supposedly being evaluated, and “being a lawyer,” which is where the return comes from. Anyone ever drop out of law school?

ohwilleke January 28, 2014 at 12:41 am

The important thing that their method does capture, however, is that lots of lawyers have undergraduate degrees in non-STEM/non-quant fields in the liberal arts that make lots of the most lucrative non-law jobs unavailable to them. Med school is not an option. B-school may be a stretch.

If you are an undergraduate major in English or art history or anthropology, earning a PhD isn’t that lucrative and is an incredible gamble (most who try never finish and never get a professor job), and few private sector jobs make direct use of your skill set. There are a few good alternatives (e.g. management consulting and investment banking), and a lot of bad alternatives (e.g. retail). In contrast, the graduate rate for people admitted to law school is very high at all but a handful of schools, the percentage who ultimately become lawyers is quite decent, and the unemployment rate for lawyers in negligible compared to most of the alternatives even though underemployment is a problem. Nobody languishes for eight years in law school the way that the average student does in a humanities PhD program. There are not 100 applicants for every full time entry level job as a lawyer, even though there are many applicants for the best paying positions. Lawyers have a very high capacity for self-employment relative to most other professions that a person with a BA in the liberal arts.

ElamBend January 24, 2014 at 11:53 am

So, what kind of discount rate should I apply to this degree and this lifetime earnings? If I use a 12% discount rate, over 30 years, I get a present value of $33k, less than the cost of law school. (I can get $108k if I do it over 20 years). I can’t account for the discount rate I chose, it’s arbitrary, but I’d argue against any discount rate in single digits.

Charlie January 24, 2014 at 12:27 pm

I hold a degree from a top-tier (back then, anyway) school, and the classmates I keep in touch with are largely high-earners…the sort that would seem to justify the investment. Two points:

1) The most successful of them have become so due to an entrepreneurial/creative drive that renders the law degree almost moot.

2) Those without that creative drive have massive resentment and fatigue, but commute in nice vehicles.

Juris Debtor accurately nails the salient points above. Willits, no disrespect but your various points border on incoherent.

Willitts January 24, 2014 at 1:19 pm

I my experience, the word ‘incoherent’ is used to dismiss an argument that one is too lazy to discuss.

I’m not offended, but I am interested why you would throw that out there. If my statements lack some logical progression, it is partly because I’m tapping away on a phone between work projects. It is also partly based on the meandering route I took to get where I am.

Is it illogical to say that I am dissatisfied with a career in law but I’m content to have made the choices I did? Law school was worth every penny to me and most people I know. That value, though, is an unstable parameter.

I finished law school during an attorney glut, and many people were forced to work as paralegals or go into the military. I wanted to go into the JAG Corps as soon as I learned about it. I don’t know any law firms that ask you to jump out of an airplane at night with a division of soldiers.

Maybe you miss the idea that for me, law school wasn’t about costs, benefits, or job prospects. It was a passion, and when that passion disappeared, I changed careers. I won’t live my life without passion.

Carl The Econguy January 24, 2014 at 12:30 pm

I don’t buy the estimates, I think they overstate the value of a law degree. The reason is that they chose as a control group all others in the SIPP data with a college degree. This includes those who went to work after college, as well as those who went to other graduate education, outside of law. I believe a more correct comparison group would have been only those who go to other graduate education. The choice for the overwhelming proportion of people who consider law school is whether to go to b-school, med school, engineering, or — God forbid — a PhD in economics. I’d constrain the comparison sample to graduate degrees with some professional knowledge, i.e., excluding humanities, divinity, and — of course! — sociology and psychology. With that comparison group, the rate of return to law school will not look as high, and may even become negative for the lower portion of law school grads.

Turkey Vulture January 24, 2014 at 2:05 pm

Yeah the relevant ideal comparison is the same person with a JD vs. without, and their method doesn’t seem like a good way to get at that. The study’s comparison is akin to the statistics about the value of a college degree that compare it to just having a high school degree – completely ignoring the variation in ability between the typical person doing each.

Similarly, it’s absurd to conduct the analysis without any regard for variation within the JD-degrees themselves, and the JD-degree holders. Getting a JD is likely to be a good economic decision for some, and a bad decision for others. A study like this is useless in determining that.

Gary S January 24, 2014 at 12:57 pm
Urso January 24, 2014 at 1:17 pm

For years now the Economist has had this bizarre fixation with the idea that law firms should be able to make stock offerings to the general public, and that if they were some wonderful efficiency gains would be achieved, somehow. It’s crazy. Law firms are some of the least capital intensive businesses in existence. I can see literally no benefits to opening up equity shares in law firms to non-lawyers; and the economist has never really been able to describe any either, except to hand-wave and say “but think of the efficiency gains!” But what the writers at the Economist lack in expertise, they always seem to make up for with self-assuredness.

Their point about overeducation is more well taken. Time was, you could become a lawyer by getting an LLB, which meant that you could go law school after finishing 2 or 3 years of undergrad studies. You’d skip the BA/BS entirely, and your law degree would be considered your bachelor degree. The ABA put the clamps on this probably 60-70 years ago in some misguided attempt to chase prestige by ensuring that all lawyers had a “doctorate.”

Willitts January 24, 2014 at 9:19 pm

Are there other publicly traded firms that are not capital intensive? How about accounting firms?

Whenever there are profits, owners will have an interest in selling part of their share of the cash flows for income today. I can’t guarantee or even be assured that it will work out well, but I see no reason why it cannot be permitted.

I was only half joking when I said that everyone ought to have a lawyer. Firms that run legal cases more like an assembly line could well lower the costs to clients with a lot of work done by paralegals.

I think that is the best alternative to caps on legal fees. As much as people whine for tort reform, Ive heard precious few feasible suggestions. Reforming medical malpractice claims sounds great until it is you that suffers.

Frankly, it is difficult to get attorneys to take worthy cases that are not economically worthwhile. I have often pondered either making pro se litigation far less intimidating and/or judges assigning unrepresented cases to lawyers at capped fees and punishing incompetent representation with fines.

mark January 24, 2014 at 6:58 pm

The whole competition meme is bogus as to elite lawyers in the US. The only competition for elite US lawyers is other elite US lawyers. You could take the most highly regarded lawyer on Continental Europe or Japan and they would provide zero competition for elite US lawyers in the US. You could eliminate bar exams completely and allow anyone to advise on the law and it would not make a basis point worth of a dent in elite US law firm revenue.

Gary S January 24, 2014 at 9:17 pm

No, it isn’t bogus otherwise US lawyers would be embracing globalization, which they are not.

The law systems of other countries (like England and India) share the same legal tradition as the US. Law firms seek highly intelligent people and to my understanding don’t make great use of the more specialized law classes (like securities law, as I recall from a speech by Paul Campos here – http://www.cato.org/events/failing-law-schools). Foreign law candidates would eagerly study American law if they had a reasonable chance of having their educations ABA-approved with some chance of practicing in the US (especially if it was tied to obtaining a green card, as it is with engineers).

My impression from your comment is that Americans (and American firms, even elite ones) are somehow special and the rest of the world is incapable of competing. I used to hear the same thing about how only American engineers (my field) were ‘creative’ enough to be the best. Over the years, I have met many Indian engineers who are just as capable as their American counterparts and doing difficult work. Likewise, yes they may have a mild accent, but they have a strong command of the English language and are very intelligent.

In reference to Urso’s comment, engineering and IT consulting firms are also not very ‘capital intensive’ but they are frequently managed by people from other fields of study. In medicine, the current CEO of Kaiser (http://share.kaiserpermanente.org/bio/bernard-j-tyson/) isn’t a doctor.

The law profession is a coddled 20th century cartel in American society. For the last few decades, some industries (like retail, manufacturing, technology) have been fighting the good fight of globalization (imports, immigration, low legal barriers to entry). Their workers have generally experienced stagnant or falling incomes. Other protected industries have siphoned the gains from globalization and their workers have done better (like law, health care, and government).

Richard Besserer January 24, 2014 at 4:05 pm

It would be nice to see if the results are robust across developed economies. Forwarded this to a family friend stuck in law school hell (outside US) by way of encouragement.

RR January 24, 2014 at 10:06 pm

Who said “The law is an a$$ “?

John S January 25, 2014 at 1:15 am

Anyone know of a study like this for MBA degrees?

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