Tuesday, February 2, 2016

Smaller or Larger Law Class Sizes Don’t Predict Changes in Financial Benefits of Law School (Michael Simkovic)

One of the most surprising and controversial findings from Timing Law School was that changes in law school graduating class size do not predict changes in the boost to earnings from a law degree.* Many law professors, administrators, and critics believe that shrinking the supply of law graduates must surely improve their outcomes, because if supply goes down, then price—that is, earnings of law graduates—should go up.

In a new version of Timing Law School, Frank McIntyre and I explore our counterintuitive results more thoroughly. (The new analysis and discussion appear primarily in Part III.C. “Interpreting zero correlation for cohort size and earnings premium” on page 18-22 of the Feb. 1, 2016 draft and in Table 10 on the final page).

Our results of no relationship between class size and earnings premiums were robust to many alternative definitions of cohort size that incorporated changes in the number of law graduates over several years. This raises questions about whether our findings are merely predictive, or should be given a causal interpretation.

We considered several interpretations that could reconcile our results with a supply and demand model and with the data. The most plausible interpretation seemed to be that when law class sizes change, law graduates switch between practicing law and other employment opportunities that are equally financially rewarding. While changes in the number of law graduates might have an impact on the market for entry-level lawyers, such changes are much less likely to have a discernible impact on the much larger market for highly educated labor.

Although law graduates who practice law on average earn more than those who do not, at the margin, those who switch between practicing law and other options seem to have law and non-law opportunities that are similarly lucrative. We found that the proportion of recent law graduates who practice law does decline as class size increases, but earnings premiums remain stable. This is consistent with the broader literature on underemployment, and supports the view of law school as a flexible degree that provides benefits that extend to many occupations. (See here and here).

A related explanation is that relatively recent law school graduates may be reasonably good substitutes for each other for several years, blunting the impact of changes in class size on earnings.

Interpretations that depend on law students and law schools perfectly adjusting class size in anticipation of demand for law graduates or future unemployment seem implausible given the unrealistic degree of foresight this would require. Offsetting changes in the quality of students entering law school—an explanation we proposed in an earlier version of the paper—seems able to explain at most a very small supply effect. Although credentials of entering classes appear to decline with class sizes, these changes in credentials are relatively small even amid dramatic changes in class size, and probably do not predict very large changes in earnings. Imprecision in our estimates is another possibility, although for graduates with more than a few years of experience, our estimates are fairly precise.

Even if there are effects of law class size on law earnings premiums, they are probably not very large and not very long lasting.

 * The finding is consistent with mixed results for cohort size in other econometric studies of cohort effects, but nevertheless was contrary to many readers’ intuitions.

Previous press coverage of Timing Law School:

  1. Steven Davidoff Solomon, Law Schools and Industry Show Signs of Life, Despite Forecasts of Doom, N.Y. Times Dealbook, March 31, 2015
  2. Valerie Strauss, Is There a “Right Time” to Go to Law School — and If so, What Is It?, The Washington Post, August 28, 2015
  3. Debra Cassens Weiss, A Turning Point for Law Schools? As Studies Are Cited, Law Prof Bets Not One Will Close, ABA Journal, April 1, 2015 
  4. Karen Sloan, Study: Law Grads’ Earning Advantage Seems Recession-Proof, National Law Journal, March 10, 2015 
  5. Debra Cassens Weiss, Why Time Law School? Value of Law Degree Drops Only $30k in Bad Vs. Good Economy, Study Says, ABA Journal, March 10, 2015 
  6. Gavin Broady, Market Woes Have Limited Impact On Value Of JD, Study Says, Law360, 2015 
  7. Noelle Price, Glimmer of Hope for Law Schools and the Legal Industry, JD Journal, 2015 

Blog coverage:

http://leiterlawschool.typepad.com/leiter/2016/02/smaller-or-larger-law-class-sizes-dont-predict-changes-in-financial-benefits-of-law-school-michael-s.html

Guest Blogger: Michael Simkovic, Legal Profession, Of Academic Interest, Professional Advice, Science, Student Advice | Permalink