Monday, July 22, 2013
Elie Mystal and Joe Patrice at Above the Law misrepresented the contents of The Economic Value of a Law Degree. Mr. Mystal and Mr. Patrice are entitled to disagree with us but it would help if they would first carefully read what we wrote. I realize the paper is long, but a lot of the problems below appear to come from jumping to conclusions without reading.
Here are six of ATL’s inaccurate claims, with the facts listed below:
(1) ATL Claim: The article doesn’t present any earnings data after 2008 and ignores changes since the financial crisis
Facts: We present earnings data from 1996 to 2011. We also check for trends. As shown in the figure below, the earnings premiums in recent years are within historical norms.
Earnings declined for both law degree holder and bachelor degree holders, and law degree holders maintained their relative advantage.
We note in the article that the most recent college and law graduates in our sample graduated in 2008. This is because the Census Bureau reports educational attainment at the start of each Panel and the most recent panel started in 2008. Each panel tracks earnings for several years.
We separately analyze earnings premiums for young law degree holders and bachelor's degree holders, and do not find evidence that the earnings premium has compressed.
(2) ATL Claim: The article relies on averages (or means) and doesn’t provide any information relevant to students who attended lower ranked law schools
(3) ATL Claim: The article doesn’t present after-tax earnings
Facts: We present both pre-tax and after-tax present value figures, and discuss both the private benefit of the law degree to the student and the public benefit to the federal government in the form of higher tax revenue.
The discussion of taxes appears on pages 42 to 44 of the article, but we will relieve the suspense: the Federal government takes about a third of the extra earnings.
(4) ATL Claim: The article doesn’t consider the cost of tuition
Facts: The article presents both benefits (higher earnings) and costs (such as tuition). We include a range of annual tuition values between 0 and $60,000 in our Internal Rate of Return calculation in Table 10 on page 68 of the article. The Internal Rate of Return is typically between 10 and 25 percent (in real terms, net inflation), depending on tuition and the point in the distribution where the law degree holder falls.
We list present value figures prior to deducting tuition in the article so that the cost of the degree—tuition and fees less grants and scholarships—can readily be subtracted from the value of the degree—the earnings premium. We also cite to ABA data about law school tuition, both before and after scholarships and grants.
Mr. Mystal is correct that the $1 million figure is pre-tax and pre-tuition—the article says as much. However, after deducting taxes, and tuition, and even close to the bottom of the distribution, it appears that a law degree is very often a profitable investment.
How profitable varies from person to person. There are surely a few individuals who do not benefit at all or even do worse. If we had a way to identify these unlucky people before law school we would encourage them to avoid law school. Judging from student loan default rates, this is a relatively rare outcome. Further, income based repayment of loans should substantially mitigate this downside, even as it makes it difficult for us to nail down exactly how much a given person pays for law school.
(5) ATL Claim: The article simply “assumes” that law degree holders who don’t practice law benefit from a law degree
Facts: We don’t assume. We measure earnings for all law degree holders in sample, regardless of eventual occupation. The data suggests that the earnings premium is significant, even including those who do not practice law.
(6) ATL Claim: The article compares apples to oranges and fails to control for differences between bachelor’s and law degree holders
Facts: We control for many demographic, academic, and socio-economic characteristics other than law school attendance that predict earnings. In a supplemental analysis using data from the National Education Longitudinal Study, we incorporate additional control variables and tests for ability sorting and selection.
Our controls for ability sorting and selection are described at length in Part II and Appendix A of The Economic Value of a Law Degree.
Bottom line: read the paper.