In the debate over whether
law schools are worth what they cost students, sober analysis often seems to
give way to angry rhetoric.
The heated response to the recently released paper
titled “The Economic Value of a
Law Degree,” which found that a law degree on average had $1 million in value,
thus was no surprise. The indomitable Elie Mystal at the Above the Law blog, called the study
“garbage,” stating
that it was an “advertising piece for law schools still hoping that they can
trick prospective law students into making bad choices.”
What does this study do
that it can inspire such anger? The paper looks at what a law school graduate
can expect to earn from a law degree. The authors, Michael Simkovic, a law
professor, and Frank McIntyre, a labor economist, find that the “mean annual
earnings premium of a law degree is approximately $53,300” a year, and that the
average pretax value of a law degree over a lifetime was $1 million. In other
words, the average law school graduate can expect to earn about one million
dollars more than if they had not gone to law school.
Averages, though, are only
part of the story, as they can be biased upward by a small number of high
earners while many others make nothing. Mr. Mystal’s critique strongly focused
on this point.
But the authors also found
that median additional lifetime earnings for those with a law degree were
$610,000. That means half of law school graduates made more and half less than
this amount over their lifetime. So even at the 25th percentile, lifetime
additional earnings were $350,000.
Thus, the earnings for 75
percent of law school graduates easily exceeded the amount of tuition paid,
even with tuition at about $50,000 a year. The authors also found that the
median law degree holder earned 60 percent more than the median college
graduate.
This data refutes some of
the arguments made by those who say law school is a “scam.” It is no surprise
that this study would be attacked by many of the same people. After all, the
law school scam industry has been bountiful for some, just like being a
Kardashian.
To be fair, this criticism
is also well intentioned. These commentators are springing to the defense of
real law students who cannot find jobs. But it is simply that, and when the
rhetoric dies down, perhaps this paper will turn to a more serious and needed
study of what is going on in the law market and what the true value of a law
degree really is. (And yes, in fair disclosure, my bias is that of a tenured
professor at a major law school.)
In particular, even beyond
its salary points, the paper by Professors Simkovic and McIntyre makes a number
of new points that should inform the debate. Bureau of Labor Statistics data on
lawyer salaries is often cited to justify the assertion that law school is not
economically justified based on current lawyer salaries.
The study’s first major
point is that these Bureau of Labor Statistics figures are probably biased
downward. The reason is that the numbers do not include the salaries of
self-employed lawyer, who are not only sole practitioners but also mostly law
firm partners.
Among the AmLaw 100, the
top 100 grossing law firms in the country, the average partner earned $1.47
million in 2012. This study corrects this downward bias by using broader-based
data compiled by the Census Bureau.
Projections by the
statistics bureau are often cited as supporting a shortage of jobs for law
school graduates. But to my knowledge no one has actually looked back at prior
years to see how accurate these forecasts have been. It may well be that the
statistical projections are unreliable or it may not, but no one has even
looked.
The study’s second major
point is that loan default rates for law graduates are much lower than for
college graduates. The Department of Education only reports default rates for
independent law schools.
Using these figures, which
go through the recession into 2011, the authors project that the average
default rate for law school students who graduated in 2009 was roughly 3
percent. By contrast, the default rate for students with an undergraduate
education or less was 19.2 percent.
The default rate among law
schools varies significantly, and some, like Vermont Law School, had a 0
percent default rate. The authors cite this finding as justifying the
conclusion that most law school graduates are earning enough to cover their
debt, refuting a common claim made by commentators.
Because this data is based
on numbers provided by independent law schools, which tend to rank in lower
tiers, default rates at more highly ranked schools may be even lower.
The study’s third major
point is that about 40 percent of lawyers currently do not practice law. Much
has been said about the number of law school graduates who are not finding law
jobs, and surely there are many who do want law jobs but cannot find one.
The full-time employment
rate for law graduates who obtained legal jobs was only at 56.2 percent last
year, according to the American Bar Association. But given these figures, it
appears this has always been the case, and it is hard not to conclude that many
lawyers do not go to law school to be lawyers (again, no one has really looked
to see if this is true or not, though). Indeed, according to the
Simkovic-McIntyre study, 50 percent of senators and 10 percent of chief
executives at large companies are lawyers.
While the attacks on the
article will probably continue, it would be more beneficial to everyone if the
paper instead inspires a deeper look at the data. To my knowledge, this is the
first study performed by a professional labor economist to look at this issue
since the financial crisis.
Much of the previous
research has been akin to forecasting the weather during a hurricane. The
biggest critics of law schools have looked at the current data and simply
assumed it would always be the case.
To be sure, the job market
for lawyers has historically been a cyclical, and it is currently at a low. Law
jobs are harder to find, and law school graduates have too often been left
struggling. This is one thing that has always been the case, but it is more so
now.
Still, no graduate program
promises its graduates a job. Just look at those offering doctorates in
English. But even if 75 percent of students have an economic justification for
law school, not everyone does. In this light, every potential student should do
a real cost-benefit assessment in light of the law school tuition he or she
will be paying.
This study steps outside
the current tempest to look at data over a period of decades. Since only 2 percent
of a law school graduate’s lifetime earnings come in the first year after
graduation, the longer term is arguably a better measure; looking at current
employment rates is only one part of that picture.
Ultimately, that is what
the debate over law school boils down to these days. Will the recent turbulence
persist, or will the historical data win out? If the current figures represent
the new normal, something about law has changed and there will be fewer jobs
going forward.
But that may not be the
case. The market may recover, as markets tend to do and as the population
grows. There may even be more legal jobs if, for example, the Dodd-Frank Act
becomes a full-employment act for lawyers.
As for the argument that
technology has changed everything in the law market, I was struck by a quote in
a study from the Harvard Law Review in 1901, decrying modern technology by
stating, “[t]he stenographer and the typewriter have monopolized what was his
work … and he sits outside of the business tide.”
This quote from a hundred
years ago shows that claiming change is afoot – bringing obsolescence and
wholesale disruption in the law market – is a century-old phenomenon. The
question is whether this time is different.
Steven M. Davidoff, a
professor at the Michael E. Moritz College of Law at Ohio State University, is
the author of “Gods at War: Shotgun
Takeovers, Government by Deal and the Private Equity Implosion.” E-mail: dealprof@nytimes.com
| Twitter: @StevenDavidoff
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