While I’ve been finishing some work and riding on airplanes the debate over Michael Simkovic and Frank McIntyre’s paper The Economic Value of a Law Degree has been raging in the blogosphere. There is an element by which the parties are talking past each other but I think there is light as well as heat.
Here are links to the counterpunching highlights, more or less in order:
- Michael Simkovic, Brian Tamanaha Says We Should Look at the Below Average Outcomes (And We Did)
- Brian Tamanaha, , Brian Tamanaha, How “The Million Dollar Law Degree” Study Systematically Overstates Value: Three Choices that Skewed the Results
- Michael Simkovic, Brian Tamanaha’s Straw Men (Overview)
- Brian Tamanaha, , How the “Million Dollar Law Degree” Study Understates Risk (Part I)
- Michael Simkovic, Brian Tamanaha’s Straw Men (Part 1): Why we used SIPP data from 1996 to 2011
- Brian Tamanaha, Why the “Million Dollar Law Degree” Study Fails (Final Post)
- Frank Pasquale, Why Tamanaha’s “This Time is Different” Critique Fails
[Update (7/25/13): Add Brian Tamanaha’s Straw Men (Part 2): Who’s Cherry Picking? to the list.]
Below I want to correct an error in one of my earlier posts. In my next posting on this topic I plan to offer a few relatively timid thoughts describing what I’ve taken away from the debate so far.
Here’s the correction: In Simkovic and McIntyre Respond to Critics (Updated), I wrote, regarding people who don’t enjoy law school, that,
In some cases the cost of three years of hell may not justify a lifetime increase in net income of, say, $350K. After all, over a 40-year career, that’s an average of just $8,740/year…and indeed most of it comes in the out years, not early when you are struggling to repay debt.
This was a mistake because it confused present discounted dollars (the currency of the Simkovic & McIntyre paper) with nominal dollars. In nominal dollars the actual premiums predicted by their paper would be much higher, particularly in the later years since lawyers typically make more when they are senior and the out years are more heavily deflated in a NPV calculation.
On the other hand, I should also have emphasized that the study compares a JD to a no-JD, ie BA-only, world. It doesn’t compare a JD to an MBA or other advanced degree. Even taking all the study’s assumptions on board, the premium for alternate degrees might be higher than a JD, or in any case not as big as the JD/BA.
Mr. Tamanaha’s post (the second link in the list above) was a great read. It was thoughtful and dealt with the S&M study piece by piece. Really a pretty devastating exposure of S&M, I thought. There are a lot of highlights in there about major problems with the study’s assumptions, but there are also some specific times where he drags them across the coals for their ludicrous assertions and omissions. I thought the best example was this:
Providing no support whatsoever, S&B assert that law students earn $24,000 while in law school (1st year $5,000; 2nd year $7,000; 3rd year $12,000)—this is an implausibly high figure at a time when many law students work in unpaid externships during the summer and wait tables on the side. (S&B reduce opportunity cost by $24,000.) They do not include living expenses in the cost of a law degree because, they reason, students must pay this even if do not attend law school (ignoring the higher cost urban areas many law schools are located in); we can let that pass, but that does not explain why they take no account of the interest on loans taken out to pay for living expenses (borrowing in the $50,000-plus range for living alone), which working people cover with current income. Making adjustments for these fudges would bring the net earnings premium down even more.
Still, one might think, a net lifetime premium of $125,000 is pretty good. Keep in mind, however, this is earned over 42 years. Three years of law school at this earnings premium gets you an additional $250 a month (over a bachelor’s degree), and hopefully a rewarding career. Nothing to sniff at, to be sure, but this is hardly a generous “surplus value” redounding to the benefit of law grads that S&M so proudly mention. (Tellingly, Figure 1 shows that lawyer earnings have remained flat in real terms since 1998, while law school tuition has risen far above the rate of inflation, so we have been absorbing an ever greater share of this surplus value over time.)
Just so we’re all on the same page here: that $125K, which I agree is not a huge premium, does have three characteristics not fully fleshed out in your comment:
1. It is a net present value, so it would be greater in nominal terms especially in the later part of the income stream;
2. It is what people pretty far down the income distribution get;
3. It is a positive number.
Given that so many people have been running around claiming that law school is a bad economic bet as a general matter, even If this modest version of the paper is correct, we can still expect it to apply to some circa 90% of JDs, with many doing somewhat better. Given the terms of the recent debate over the economic value of a JD, that is not a nothingburger of a result.
Right now overall 40-odd percent of law school grads don’t have a real lawyer job at 9 months (at which time recruiters have a fresh crop of new grads to choose from). Firms are shedding people like crazy, so anybody looking to hire has no good reason to consider the already-passed over grads. Those who do graduate are doing far, far worse than those who graduated in 2012 (Campos has covered this). The student debt carried now dwarfs what was incurred by the subjects of the study, in real terms, and in ratio to salaries. Discounting those salaries by the miserable job prospects makes it far worse.
For 40-odd percent to have a positive NPV from Law School, they not only have to make up for a far worse start than most of the subjects of the survey had, but make it up enough to pay off far larger costs of attendance.
You might be right. But in order for you to be right, it would have to be the case that in that 40-year period their earnings (on average) didn’t sufficiently exceed what they would have made (on average) as a (possibly unemployed?) BA-holder in the same period.
That could be true, but the argument that it is not true seems to me to be quite plausible — probably not for everyone, but at least half of that 40%. If so, that still means law school is a good bet for a healthy majority of law students — but not all, which is my point in the next two posts. See You Can Drown In a River That Is An Average of Six Inches Deep (Part 1) for the next installment.
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