Thursday, July 18, 2013

Simkovic and McIntyre on Law School Outcomes

Frank Pasquale

Brian Tamanaha has often argued that "getting a law degree outside of top law school – and especially at bottom law schools –is a risky proposition." Fortunately, my former colleague Mike Simkovic and Frank McIntyre have now helped quantify the risk in a useful way. Here are their findings:
Roughly the top 15 to 20 percent of law school graduates obtain a lifetime earnings premium worth more than $1.1 million as of the start of law school. Roughly the next 30 to 35 percent obtain an earnings premium between $1.1 million and $600,000. In the lower half of the distribution, roughly the first 30 to 35 percent obtain an earnings premium between $350,000 and $600,000. Roughly the bottom 15 to 20 percent obtain an earnings premium below $350,000.
These numbers are pre-tax and pre-tuition. Even toward the bottom of the distribution, even after taxes, and even after tuition, a law degree is a profitable investment. And that is before income based repayment, which can substantially reduce the risk at the bottom of the distribution.
This paper should fundamentally change the conversation on the value of a legal education. As noted on page 56, one of the most widely cited studies critiquing the value of a legal education "applies real discount rates of between 8 and 27 percent (i.e., nominal rates of 11 to 30 percent) [and] effectively suggests that law graduates see their real incomes decline every year of their working lives and peak in their first year after law school—--an implication that several economists have explicitly rejected as unlikely." Predicting the future is always difficult, but labor economics can at least suggest some basic ground rules for analysis. Following those rules, Simkovic and McIntyre have come to conclusions starkly different than those in the extant literature.