Debate Continues About the Value of a Law Degree

As you know, I have followed the debate between the authors of the report -- The Economic Value of a Law Degree -- and the author of a book -- Failing Law Schools (FLS).

I thought we were about done with the back and forth, but now it seems the author of FLS, the Law Professor at Washington University School of Law, Brian Tamanaha, has gotten help from a member of his faculty.  The story appears here.

Tamanaha has targeted a group of expensive ($40,000+/per year), mostly California law schools, that also have low employment stats when you look only at the category of  full-time jobs requiring bar passage.  I've discussed how to understand the reported employment numbers here.

In the end, I agree that prospective students should carefully consider the decision to go to law school.  They should carefully adopt a strategy that gets them the best education possible at a reasonable cost.  I discuss one possible strategy here.  And yes, they should consider whether they want jobs in BigLaw (assuming they exist) -- which associates rank as soul-sucking experiences. And yes, law school is no longer a cheap default option if you don't know what else you want to do with your life.

So here are my disclosures:  I have not read FLS yet (although I bought it months ago).  I teach at a mission-driven fourth-tier law school.  After teaching for 12 years, I still do not make what I made the year I left private practice.  I also serve on our school's Admissions Committee.

I started my career working in BigLaw.  I did not find the work soul-sucking.  Yes, I worked mostly on document productions and due diligence projects.  I loved my associate and para-legal colleagues. They were funny, smart, mischievous, talented, diligent, and dedicated.  They opened a world to me that I did not know existed.  I came away from the experience absolutely fearless.  I became a much better attorney than the folks who did not have that experience (at least that's my perspective).

Because of my BigLaw experience, I am a better writer, can produce highly professional-looking work product, have deep research skills, became an early-adopter of law firm marketing practices, take all-nighters in stride (because this, too, will pass), and made life-long friends.

A career in BigLaw is not for everyone.  My best friend stayed, later managed a D.C. firm, and now manages a practice group.  She has the temperament for it and makes a shit-load of money because of that.

A law degree offers so many ways to find a satisfying career path -- in and outside a traditional legal practice.  I've been bloggging on this topic all summer, first looking at careers as a solo practitioner, then considering the opportunities that could arise as Baby Boomer lawyers increasingly retire, then summarizing employment trends for new grads, then considering jobs outside traditional law firm practice, and then summarizing employment trends over the last 25 years.

I believe deeply in informed decision-making.  I just hope that all the negative talk about law school, educational debt, and BigLaw practice does not continue to distort (as I see it) the decision-making process for college graduates.  I am glad to see additional perspectives coming into the discussion, whether I agree with them or not.

Dec. 26, 2013 Update:  For more about the value of a law degree, see here.

February 23, 2014 Update:  For an update based on 2013 data, see here.

25-Year Law Practice Employment Trends: Solo, Small Firm, BigLaw, or Someplace in Between?

I graduated from law school in 1982.  At that time,

• 7.6 percent of new law graduates became solo practitioners; 
• 40.3 percent entered small law practices (2-10 lawyers); 
• about 11 percent entered firms 51 to 100 lawyers in size;  
• only 15. 6 percent of new law grads entered large firms of 101 plus lawyers, and more women did that than men; and 
• NALP, the Association of Legal Career Professionals, did not keep a separate category for firms with more than 500 lawyers. See trend report here. 

According to an earlier trend report, in 1982, about 10 percent of new law grads entered business and industry.

About 23,000 students graduated from law school in 1982.

Fast forward to 2007, the year of record employment among lawyers, NALP reports that:

• 3 percent of new law grads became solo practitioners (a 4 percent drop);
• about 33 percent entered small law practices (2-10 lawyers) (a 13 percent drop); 
• about 6 percent entered firms 51 to 100 lawyers in size (a 5 percent drop); and
• a whopping 42.3 percent of new law grads entered large firms of 101 plus lawyers (a 26.7 percent increase).

According to yet another report available from NALP, in 2007, about 14 percent of new law grads entered business and industry (a 4 percent increase).

About 43,500 students graduated from law school in 2007, an increase of 20,500 grads compared to 1982.

The data varies on each of these reports, but I have tried to use the most recent iteration of the data, which I assume reflects more complete information for each year.

What does this shift from smaller firm practice to larger-firm practice say about new law grads over this 25-year period?  Over time, did they shun more risk-taking jobs in smaller or solo practices.  Did they seek the perceived security and guaranteed higher salary of the BigLaw?   Were more jobs simply available in the larger firms?

What does it say about law practice, the legal client market, and access to justice for people who would more likely retain a small firm practitioner?

Now let's take it forward through the years of the last economic recession.  NALP reported that BigLaw (500 plus) hired 3,600 new associates in 2012, down from 5,100 in 2009, but up from hirings in 2011. Employment opportunities at BigLaw rose 27 percent over the last two years.

But what about employment in small and solo practices.  This data relies on NALP reports for each year available here.  You can see that the data for 2007 varies a bit from the later-reported data shown above.

In pre-recession 2007:

• 576 (2.8%) grads opened solo practices;
• 6,461 (31.3%) found jobs in firms of 2-10 lawyers;
• 4,745 (23%) joined BigLaw (501+).

In 2008, 

• 685 (3.3%) grads opened solo practices;
• 6,479 (31.6%) found jobs in firms of 2-10 lawyers;
• 5,193 (25.3%) joined BigLaw (501+).

In 2009:

• 1,058 (5.3%) grads opened solo practices;
• 6.749 (33.5%) found jobs in firms of 2-10 lawyers;
• 5,156 (25.6%) joined BigLaw (501+).

In 2010:

• 1,039 (5.7%) grads opened solo practices;
• 7,160 (39.1%) found jobs in firms of 2-10 lawyers.;
• 3,750 (20%) joined BigLaw (501+). 

In 2011:

• 1,059 (6%) grads opened solo practices;
• 7,570 (42.9%) found jobs in firms of 2-10 lawyers;
• 2,856 (16.2%) joined BigLaw (501+). 

In 2012 (based on preliminary data):

• 8,200 (about 42.9%) found jobs in firms of 2-10 lawyers.
• 3,600 (19.1%) joined BigLaw (501+).  

The numbers indicate that the recession has forced (or encouraged) more graduates to find jobs in smaller firms or as solo practitioners.  

More recent grads may look at the news coverage of BigLaw layoffs and decide that the opportunities for new associates, over a lifetime, in those firms have become increasingly more limited and full of peril. 

In the interest of full disclosure, I worked at the largest law firm in Oklahoma straight out of law school.  I recall it had over 100 attorneys, but maybe it had about 80 attorneys.  I then moved to what was then the third-largest firm in the world for another three years.   As my career progressed, I moved to a 50 lawyer firm and then a 20 lawyer firm.  Each firm offered stimulating legal work and a very different work environment, culture, management structure, compensation system, hourly billing expectations, client base, and support staffing model.  I enjoyed all but one of those experiences.

Dec. 16, 2013 Update:  A new study shows graphically the shift in the staffing model in BigLaw over the last 25 years.  It shows a dramatic loss of associate positions.  

BigLaw "New Normal" Stories

Mayer, Brown (July 2013): http://www.newrepublic.com/article/113941/big-law-firms-trouble-when-money-dries#

Weil, Gotshall & Manges  (June 2013):  http://dealbook.nytimes.com/2013/06/24/big-law-firm-to-cut-lawyers-and-some-partner-pay/?_r=0  (60 associates or 7 percent laid-off).

1,000 lawyers and staff laid off on one day in February 2009: http://www.nytimes.com/2013/06/25/opinion/big-laws-troubling-trajectory.html  (with 2,000 losing their jobs over that month).

Firms shuttering satellite offices:  http://blogs.findlaw.com/greedy_associates/2013/07/mixed-news-in-biglaw-overall-hiring-up-but-layoffs-happening.html

AmLaw 200 layoff list as of 2009: http://www.americanlawyer.com/PubArticleTAL.jsp?id=1202425647706&THE_LAYOFF_LIST&slreturn=20130624105612#wilm

Attending Law School, Even in this Tough Market, is a Very Good Life-Time Investment

This past week, a number of news outlets and bloggers reported on a new economic analysis of the value of a law degree.  The authors make a persuasive, well-researched argument that a law degree confers measurable life-time advantages on law graduates compared to persons who get only a bachelor’s degree.

The report:  Micahel Simkovic and Frank McIntyre, The Economic Value of a Law Degree (unpublished manuscript 2013) is found here.    

Simkovic, an Associate Professor of Law at Seton Hall University School of Law, and McIntyre, an Associate Professor of Finance and Economic at Rutgers Business School answered the following questions: 

• Does a law degree typically increase the earnings of law graduates compared to what such individuals would likely have earned with only a bachelor’s degree?
• How does the law school earnings premium vary by gender and at different points in the distribution of outcomes?
• How much of the increase in earnings is higher hourly wages, and how much is longer work hours?
• Have declines in recent law graduate earnings eroded the law degree earnings premium?
• Or, have parallel declines in earnings for similar bachelor’s degrees left the relative advantage of a law degree intact?
• Is the increase in lifetime earnings enough to justify the cost of attending law school for most law students?

The authors conclude: “[A]ttending law school is generally a better financial decision than terminating one’s education with a bachelor’s degree . . . . [E]ven for relatively low earners, a law degree will typically more than pay for itself over the course of a lifetime.”

The authors use multiple sources of publicly available data through 2011, run advanced statistical analyses, make appropriate adjustments, disclose their underlying assumptions, and make the following conclusions:

• The mean pre-tax lifetime value of a law degree is approximately $1,000,000 (actually $990,000).  In other words, if someone who has earned a bachelor’s degree goes on to earn a law degree, he or she will earn $1,000,000 more in lifetime earnings because of that decision.    Lifetime earnings are based on historical data from 1996 to 2011. 
• The law degree “earnings premium” for 25^th percentile earners is $350,000.
• The law degree “earnings premium” for 75^th percentile earners is $1.1 million.
• The mean value of nearly $1 million translates into an 80 percent earnings premium for law graduates compared to the general population of bachelor’s degree holders.  
• Lifetime medianvalue of the earnings premium is $610,000 (with half of law grads earning above that amount and half earning below that amount).
• The law degree “is associated with dramatically higher monthly earnings” – an increase in median monthly earnings of 60 percent over a bachelor’s degree.
• The law degree increases median hourly wages by 50 percent over a bachelor’s degree.  This number reflects the greater number of hours law graduates work at higher hourly rates.  Law degree holders work 3.9 hours more per week or about 45 minutes more per day than less educated peers. 
• Women law grads work 4.2 hours more per week than women with bachelor’s degrees. 
• Men law grads work about 3.3 hours more than men without law degrees.  
• But men law graduates work longer hours than women law graduates.  More about that later. 
• The mean annual earnings premium of a law degree (over a bachelor’s degree) is about $53,300 in 2012 dollars. 
• Men get a larger premium of $56,800 because they work longer hours. 
• Women law grads see a smaller earnings premium of $43,300 per year (compared to women without a law degree). 
• Full-time workers see a premium of $57,600 more than full-time persons with a bachelor’s degree.
• The median annual earnings premium for all law degree holders is $32,300 per year.   
• Thus, less capable students, graduating from less prestigious schools (25^thpercentile earners) still earn the premium.
• Women with a law degree see a much smaller life-time earnings premium of $820,000 vs. $1.03 million for men.  Interestingly, the premium is higher for women in the first two decades of their careers, but higher for men in the last two decades of their careers.  Table 8 to the report shows these differences, and it is fascinating. 
• The authors found that married women work fewer hours, while married men work more hours. 
• Even at the 25^th percentile, women will see a life-time earnings premium of $350,00, which makes a law degree a good investment for most women. 
• After-tax mean earnings premium is $720,000 for men and $570,000 for women. 
• Of roughly 800 occupations tracked by the U.S. Department of Labor Statistics, only doctors, dentists, podiatrists, and chief executives routinely have higher mean earnings than lawyers.  Lawyers earn more than teachers, accountants, auditors, managers, nurses, and clergy.
• In a less robust 2009 study, one of the authors found that law outperformed business degrees by $10,000 per year; liberal arts degrees by $35,000; and social science degrees by $40,000 per year. 
• Students who choose to attend law school are disproportionately drawn from college majors – humanities and social sciences -- associated with relatively low earnings and a low likelihood of obtaining employment at college graduation.   
• Law degree holders start at higher earnings levels and tend to see their earnings increase at a much faster rate over a longer period of time than do holders of bachelor degrees.  Figure 4 to the report illustrates this reality in a dramatic way. 
• “[E]ducation has become more valuable after controlling for work experience.”
• Data suggests that even law graduates who work in non-lawyer occupations do substantially better than bachelor degree holders. 
• The law degree pays for itself several times over during the course of the graduate’s career.
• Yes, starting salaries declined 20 percent between 2009 and 2012.
• Yes, the percent of graduates employed 9 months after graduation declined 4 percent in that same period.
• Law degree holders are not immune to economic downturns.  But, relative to graduates with a bachelor’s degree, law graduates did better in this recessionary economy.  
• In fact, the law degree earnings premium “may have increased as law graduates weathered the recession better than most” laborers.
• In a recession, entry-level wages, employment opportunities, and law school enrollments are more variable than in the legal occupation as a whole.  “[I]t is easier for employers to refrain from hiring new employees or to offer lower starting salaries than to terminate or reduced pay of experienced workers.
• The legal occupation has seen cyclical peaks in 2011 and 2007 and troughs in 1999 and 2002.
•  “Although the earnings premium has declined from its 2007 peak in recent years, the earnings premium remains close to (and slightly above) the long-term historic average.  Indeed, the premium was lower in the late 1990s and early 2000s than in the last three years, and the premium today is about the same as it was in 1996.” 
• From 2008 to 2012, employment for lawyers was more robust than for the overall economy.  Gross revenue and profits per partner increased at the largest 200 firms every year from 2010 to 2012. 
• First year earnings of new law graduates represent a small fraction of lifetime earnings – only 2 to 3 percent. 
• The earnings premium was not significantly influenced by test scores, grades, internal motivation, college quality, and parental socio-economic status.  These factors may account for 5 percent of the earnings premium for law grads.
• The law degree also apparently confers other benefits: higher participation in the workforce; more full-time employment; less unemployment; less unemployment related to disability; and higher life expectancies.
• The authors assumed an annual net-tuition (tuition net scholarships and grants) of $30,000, or a total three-year cost of $90,000.  The assumption reflects ABA data on typical law school costs.   They also assumed the costs of living during law school were similar to the costs of living while working full-time.
• Government coffers benefit significantly from those people who earn law degrees.  Tax revenue is approximately $370,000 on average over a law grad’s lifetime.  Government backed educational loans earn higher rates of interest, but law grads default on student loans at a rate of no more than 3.3 percent.
• In comparison, people with master’s, doctor’s, or other professional degrees default on loans at a rate of 10.4 percent and the overall default rate across educational institutions is 13.4 percent.
• Accordingly, the U.S. government could encourage more students to attend law school by offering Income Based Repayment plans with debt forgiveness, reducing tax rates on labor, directly subsidizing higher education, or making educational expenditures more fully tax deductible.  “[T]he government is therefore well situated to absorb and spread risks of investment in higher education.” 

I have quoted many parts of the report without using quotations.  

I said just about the same thing without relying on this data in the blog postings found here and here.

Nov. 29, 2013 Update:  Associate Professor Daniel Katz of Michigan State University College of Law called this study "wrong" without elaboration in his interview posted here. He teaches several innovative law courses, including Legal Information Technology, Economics of the Legal Profession, Legal Project Management, Entrepreneurial Lawyering, Legal Analytics, Quantitative Methods for Lawyers, Law as a Complex Adaptive System, Legal Process Engineering, and Artificial Intelligence & Law.