A NEW YORK TIMES COLUMN MISFIRES

My unwelcome diagnosis and resulting detour into our dysfunctional medical system diverted my attention from scrutinizing commentators who make dubious assertions about the current state of the legal profession.

Well, I’m back for this one. At first, I thought that Professor Steven Davidoff Solomon’s article in the April 1 edition of the New York Times, “Despite Forecasts of Doom, Signs of Life in the Legal Industry,” was an April Fool’s joke. But the expected punch line at the end of his essay never appeared.

To keep this post a manageable length, here’s a list of points that Solomon got wrong in his enthusiastic account of why the legal industry is on the rise. As a professor of law at Berkeley, he should know better.

  1. “The top global law firms ranked in the annual AmLaw 100 survey experienced a 4.3 percent increase in revenue in 2013 and a 5.4 percent increase in profit.”

That’s true. But it doesn’t support his argument that new law graduates will face a rosy job market. Increased revenue and profits do not translate into increased hiring of new associates. In most big firms, profit increases are the result of headcount reductions at the equity partner level – which have been accelerating for years.

  1. “Bigger firms are hiring.”

Sure, but nowhere near the numbers prior to Great Recession levels. More importantly, big firms comprise only about 15 percent of the profession and hire almost exclusively from the very top law schools. Meanwhile, overall employment in the legal services sector is still tens of thousands of jobs below its 2007 high. Even as recently December 2014, the number of legal services jobs had fallen from the end of 2013.

  1. “Above the Law, a website for lawyers, recently reported a rising trend for lateral moves for lawyers in New York.”

Apples and oranges. The lateral partner hiring market — another big law firm phenomenon that has nothing to do with most lawyers — is completely irrelevant to job prospects for new entry-level law school graduates. Even during the depths of the Great Recession, the former was hot. The latter continues to languish.

  1. “Last year, 93.2 percent of the 645 students of the Georgetown Law class of 2013 were employed.”

That number includes: 83 law school-funded positions, 12 part-time and/or short-term jobs, and 51 jobs not requiring a JD. Georgetown’s full-time, long-term, non-law school-funded JD-required employment rate for 2013 graduates was 72.4 percent – and Georgetown is a top law school. The overall average for all law schools was 56 percent.

  1. “[Michael Simkovic and Frank McIntyre found that a JD degree] results in a premium of $1 million for lawyers over their lifetime compared with those who did not go to law school.”

Simkovic acknowledges that their calculated median after-tax, after-tuition lifetime JD premium is $330,000. More fundamentally, the flaws in this study are well known to anyone who has followed that debate over the past two years. See, e.g., Matt Leichter’s two-part post beginning at https://lawschooltuitionbubble.wordpress.com/2013/09/09/economic-value-paper-a-mistrial-at-best/, or the summary of my reservations about the study here: https://thelawyerbubble.com/2013/09/03/once-more-on-the-million-dollar-jd-degree/. Most significantly, it ignores the fact that the market for law school graduates is really two markets — not unitary. Graduates from top schools have far better prospects than others. But the study admittedly takes no account of such differences.

  1. “[The American Bar Foundation’s After the JD] study found that as of 2012, lawyers had high levels of job satisfaction and employment as well as high salaries.”

It also found that by 2012, 24 percent of the 3,000 graduates still responding to the study questionnaire are no longer practicing law. The study’s single class of 2013 originally included more than 5,000 — so no one knows what the non-respondents are doing.

“These are the golden age graduates,” said American Bar Foundation faculty fellow Ronit Dinovitzer [one of the study’s authors], “and even among the golden age graduates, 24 percent are not practicing law.”

7.  “Law schools have tremendous survival tendencies. I have a bet with Jordan Weissmann at Slate that not a single law school will close.”

Yes. Those “survival tendencies” are called unlimited federal student loans for which law schools have no accountability with respect to their students employment outcomes. If Solomon wins that bet, it will be because a dysfunctional market keeps alive schools that should have closed long ago.

Whatever happened to the News York Times fact-checker?

THE DANGEROUS MILLION-DOLLAR DISTRACTION

A new study, renamed “The Economic Value of a Law Degree,” is the latest effort to defend a troubled model of legal education. It’s especially disheartening because, before joining Seton Hall University School of Law in 2010, co-author Michael Simkovic was an associate at Davis, Polk & Wardwell in 2009-2010. At some level, he must be aware of the difficulties confronting so many young law graduates.

Nevertheless, Simkovic and co-author Frank McIntyre (Rutgers Business School) “reject the claim that law degrees are priced above their value” (p. 41) and “estimate the mean pre-tax lifetime value of a law degree as approximately $1,000,000 (p. 1).”

As the academic debate over data and methodology continues, some professors are already relying on the study to resist necessary change. That’s bad enough. But my concern is for the most vulnerable potential victims caught in the crosshairs of the “Million Dollar Law Degree” media headlines taken from the article’s original title: today’s prelaw students. If they rely on an incomplete understanding of the study’s limitations to reinforce their own confirmation bias in favor of pursuing a legal career primarily for financial reasons, they make a serious mistake.

The naysayers are wrong?

The study targets respected academics (including Professors Herwig Schlunk, Bill Henderson, Jim Chen, Brian Tamanaha, and Paul Campos), along with “scambloggers” and anyone else arguing that legal education has become too expensive while failing to respond to a transformation of the profession that is reducing the value of young lawyers in particular. Professors Campos and Tamanaha have begun responses that are continuing. [UPDATE: Tamanaha’s latest is here.] Professor Brian Leiter’s blog has become the vehicle for Simkovic’s answers.

One obvious problem with touting the $1 million average is that, for the bimodal distribution of lawyer incomes, any average is meaningless. Professor Stephen Diamond offered a rebuttal to Campos that Simkovic endorsed, calculating the net lifetime premium at the median (midpoint) to be $330,000 over a 40-year career. That might be closer to reality. But a degree that returns, at most, a lifetime average of $687 a month in added value for half of the people who get it isn’t much of an attention-getter. As noted below, even that number depends on some questionable assumptions and, at the 25th percentile, the economic prospects are far bleaker.

Causation

In the haze of statistical jargon and the illusory objectivity of numbers, it’s tempting to forget a fundamental point: statisticians investigate correlations. Even sophisticated regression analysis can’t prove causation. Every morning, the rooster crows when the sun rises. After isolating all observable variables, that correlation may be nearly perfect, but the crowing of the rooster still doesn’t cause the sun to rise.

Statistical inference can be a useful tool. But it can’t bridge the many leaps of faith involved in taking a non-random sample of 1,382 JD-degree holders — the most recent of whom graduated in 2008 (before the Great Recession) and 40 percent of whom have jobs that don’t require a JD — and concluding that it should guide the future of legal education in a 1.5 million-member profession. (p. 13 and n. 31)

Caveats

Simkovic and McIntyre provide necessary caveats throughout their analysis, but potential prelaw students (and their parents) aren’t likely to focus on them. For example, with respect to JD-degree holders with jobs that don’t require a JD, they “suggest” causation between the degree and lifetime income premiums, but admit they can’t prove it. (p. 25)

Likewise, they use recessions in the late 1990s and early 2000s as proxies for the impact of the Great Recession on current law graduates (compared to bachelor’s degree holders) (p. 32), minimizing the importance of recent seismic shifts in the legal profession and the impact on students graduating after 2008. (Simkovic graduated in 2007.)

This brings to mind the joke about a law professor who offers his rescue plan to others stranded on a deserted island: “First, assume we have a boat…” The study finesses that issue with this qualification: “[P]ast performance does not guarantee future returns. The return to a law degree in 2020 can only be known in 2020.” (p. 38)

Similarly, the results assume: 1) total tuition expense of $90,000 (presumably including the present value cost of law school loan interest repayments; otherwise, that number is too low and the resulting calculated premium too high); 2) student earnings during law school of $24,000; 3) graduation from law school at age 25 (no break after college); and 4) employment that continues to age 65. (pp. 39-41) More pessimistic assumptions would reduce the study’s calculated premiums at all income levels. At some point below even the Simkovic-McIntyre 25th percentile, there’s no lifetime premium for a JD.

Conclusions

After a long list of their study’s “important limitations” — including my personal favorite, the inability to “determine the earnings premium associated with attending any specific law school” — the authors conclude: “In sum, a law degree is often a good investment.” (p. 50) I agree. The more important inquiry is: When isn’t it?

In his Simkovic-endorsed defense of the study, Professor Diamond offers a basic management principle: any positive net present value means the project should be a go. But attending law school isn’t an aggregate “project.” It’s an individual undertaking for each student. After they graduate, half of them will remain below the median income level — some of them far below it.

The authors dismiss Bureau of Labor Statistics employment projections (pp. 6-7), but it’s difficult to ignore current reality. In 2012 alone, law schools graduated 46,000 new attorneys. For that class, nine months out only 10 percent of law schools (20 out of 200) had long-term full-time JD-required job placement rates exceeding 75 percent. The overall JD-job placement average for all law schools was 56 percent.

Some of the remaining 44 percent will do other things because they have no realistic opportunity for legal careers. Financially, it could even turn out okay for a lot of them. (In that respect, you have to admire the boldness of the authors’ footnote 8, citing the percentage of Senators and CEOs with JDs.)

But with better information about their actual prospects as practicing attorneys, how many would have skipped their three-year investments in a JD and taken the alternative path at the outset? That’s the question that the Simkovic/McIntyre study doesn’t pose and that every prospective law student should consider.

More elephants in the room 

Notwithstanding the economic benefits of a JD that many graduates certainly enjoy, attorney career dissatisfaction remains pervasive, even among the “winners” who land the most lucrative big firm jobs. That leads to the most important point of all. Anyone desiring to become an attorney shouldn’t do it for the money. Even the Simkovic/Mcntyre study with its many questionable assumptions proves that for thousands of graduates every year the money will never be there.

But the authors are undoubtedly correct about one thing: “The data suggests [sic] that law school loans are profitable for the federal government.” (p. 46) Law schools like them, too.

It doesn’t take a multiple regression analysis to see the problems confronting the legal profession — but it can be used to obscure them.