March 26, 2015

The Problem of Short-Termism (Michael Simkovic)

Law schools and prospective law students may be paying more attention to employment outcomes shortly after graduation than this short-term data deserves.  One potential use of the aggregate data about entry level employment and salaries is to assess whether now is a good or bad time to apply to law school.  But fluctuations in employment outcomes for recent graduates do not predict fluctuations in employment outcomes 3 or 4 years in the future when those currently deciding whether to enroll would graduate.

Nevertheless, law students and the press pay close attention to the short-term outcome data.  Starting salary data from the National Association for Law Placement (NALP) is covered by the press and is a good predictor of the number of law school applicants two years later (We assume one year lag for data collection and dissemination; one year lag to apply to law school). 

Why are students responding to this data even though it does not predict their own short-term outcomes?  And does the responsiveness of enrollment to short-term outcomes mean that law students care only about the short term?

Law students likely think more long term.  If law students were so impatient that they only cared about one or a few years of earnings, it is doubtful that law students would have completed college, since college also makes sense only as a long-term investment.  Indeed, students who were so focused on the short term might not even have finished high school.  While temporal preferences can change over time, education appears to shift people toward thinking more long term. Aging from adolescence through the age of 30 is also associated with becoming more oriented toward the future.

Perhaps students are focused on the short term because they mistakenly believe that swings in short term outcomes predict more than they do.  Students would not be alone in this error. 

Some widely read back-of-the-envelope analyses started with initial salaries, assumed unrealistically low earnings growth along with high discount rates or an arbitrary payback period (lack of concern for the future) and reached the erroneous conclusion that going to law school does not make sense financially.  (For a discussion see here; for examples of erroneous studies, see here and here

Students may be focused on the short term because they mistakenly believe it predicts more than it does.  Or they may focus on the short term because it is the only information that is readily available to them.

Legal educators and the press can and should make greater efforts to inform students of the long term as opposed to the short-term consequences of legal education.  We should also shift the discussion away from raw outcomes and toward estimates of causation and value-added relative to the next best option.

This will be a challenge.  Short-term raw outcome data is embedded in American Bar Association-required disclosures, in NALP’s data collection efforts and in the U.S. News rankings.  Thinking in value-added terms requires us all to understand basic principles of causal inference and labor economics.  But shifting toward long-term value added is ultimately the right thing to do if we are serious about providing students with meaningful disclosure and facilitating informed decision making.

This is not meant to justify indifference to the plight of young people who have suffered the misfortune of graduating into an unfavorable economic climate over the last several years.  To help alleviate youth unemployment, we must understand that the cause of this misfortune is the macro-economy, not higher education.  Education is an important part of the solution.  Among those who are young and inexperienced, those with more education continue to do better in the labor market than those with less, and this difference appears to be largely caused by the differences in level of education. 

Insurance programs like income-based repayment of student loans and flexible and extended repayment plans can help young people manage the unpredictable and uncontrollable risk that they might happen to graduate into a bad economy.  If this insurance leads to more people pursuing higher education, earning higher incomes, and paying more taxes, it will benefit not only students and educators, but also the federal government and the broader economy.

Posted by Michael Simkovic on March 26, 2015 in Guest Blogger: Michael Simkovic, Legal Profession, Of Academic Interest, Professional Advice, Rankings, Science, Student Advice | Permalink

March 25, 2015

Number of Law Graduates Does Not Predict Law Graduate Outcomes (Michael Simkovic)

Many legal educators believe that shrinking class sizes will help the students they do admit find higher paid work more easily and boost the value of legal education.  They reason that if the supply of law graduates shrinks, then the market price law graduates can command should increase. 

According to another hypothesis, now popular in the press, a decline in the number of law school applicants reflects the wisdom of the crowds.   Students now realize that a law degree simply isn’t worth it, and smaller class sizes reflect a consensus prediction of worse outcomes for law graduates in the future. 

Frank McIntyre and I investigated whether changes in law cohort size predict earnings premiums.  Historically, they have not.  Not for recent graduates, and not for law graduates overall.  Nor have changes in cohort size predicted much of anything about the entry-level measures used by the National Association for Law Placement (NALP)—starting salary, initial employment, initial law firm employment.

How can both of these theories be wrong?  One possibility is that they are both right, but the two effects offset each other.  This seems unlikely however.  If neither macroeconomic data  nor Bureau of Labor Statistics (BLS) employment projections can predict law employment conditions at graduation, then how likely is it that recent college graduates with less information and less expertise could make a better prediction?

A more likely possibility is that there are other factors at play that prevent any strong predictions about the relationship between cohort size and outcomes / value added.  For example, law schools may become less selective as cohort size shrinks and more selective as it increases.   In addition, the resources available to law schools, and therefore the quality of education and training they are able to provide, may also change with cohort size.  Since physical facilities expenses are not particularly variable in the ordinary course, most budgetary adjustments at law schools presumably take place with respect to personnel.

Anecdotally, many law schools appear to be managing the recent decline in enrollments by shrinking their faculties and administrations and using remaining personnel to teach classes and perform functions outside of their areas of expertise.  Reduced specialization and a lack of economies of scale could affect the quality of service provided to students, offsetting any benefits to students from less competition at graduation.

Previous research in labor economics has found that resources per student are an important predictor of value added by college education, and that the use of adjuncts can lead to worse outcomes for students. (See here for a review)

Much of this is speculative—we do not yet understand why changes in cohort size do not predict law graduate outcomes, only that they do not predict outcomes.  Given the historical data, it is probably not advisable to read too much into what the decline in law school enrollment means for students who will graduate over the next few years.

Instead, we should focus on the long-term historical data and the value of a law degree across economic cycles and enrollment levels.

Posted by Michael Simkovic on March 25, 2015 in Advice for Academic Job Seekers, Guest Blogger: Michael Simkovic, Legal Profession, Of Academic Interest, Professional Advice, Science, Student Advice, Weblogs | Permalink

March 23, 2015

BLS Employment Projections Are Unreliable (Michael Simkovic)

Labor economists have long cautioned against the misuse of Bureau of Labor Statistics (BLS) employment projections.

In 2004, Michael Horrigan at the BLS explained that the BLS projections should not be used to value education or to attempt to predict shortages or surpluses of educated labor.  Instead, the value of education should be measured based on earnings premiums—the measure used in The Economic Value of a Law Degree and Timing Law School

Horrigan wrote:

The general problem with addressing the question whether the U.S. labor market will have a shortage of workers in specific occupations over the next 10 years is the difficulty of projecting, for each detailed occupation, the dynamic labor market responses to shortage conditions. . . .  Since the late 1970s, average premiums paid by the labor markets to those with higher levels of education have increased.

 

It is the growing distance, on average, between those with more education, compared with those with less, that speaks to a general preference on the part of employers to hire those with skills associated with higher levels of education.

The BLS takes the same position in its FAQ.  The BLS does not project labor shortages or surpluses.

In 2006, Richard Freeman back-tested the BLS projections and found that “the projections of future demands for skills lack the reliability to guide policies on skill development.”

The BLS employment projections are not only unreliable.  Comparing occupation-specific employment projections to number of graduates in related fields systematically underestimates the value of higher education.

In 2011 David Neumark, Hans Johnson, & Marisol Cuellar Mejia wrote:

If there are positive returns to education levels above those indicated as the skill requirement for an occupation in the BLS data – and especially if these wage premia are similar to those in other occupations – then relying on the BLS skill requirements likely substantially understates projected skill demands.

 

For nearly every occupational grouping, wage returns are higher for more highly-educated workers even if the BLS says such high levels of education are not necessary. For example . . . for management occupations, the estimated coefficients for Master’s, professional, and doctoral degrees are all above the estimated coefficient for a Bachelor’s degree, which is the BLS required level. . . ..

 

If the BLS numbers are correct, we might expect to see higher unemployment and greater underemployment of more highly-educated workers in the United States.  As noted earlier, we do not find evidence of this kind of underemployment based on earnings data. Similarly, labor force participation rates are higher and unemployment rates are lower for more highly educated workers.

(note—above I link to and quote the 2013 published article; Neumark et al. said much the same thing in their 2011 working paper).

Neumark et. al. also noted that recent BLS projections appeared to be much too low for managerial and legal services occupations.

Starting around 2012 many law professors and pundits argued that the number of job openings for lawyers projected by the BLS relative to the number of expected law graduates suggested that too many students were attending law school and that they would not get much value out of their degrees.

In 2012, Deborah Merritt wrote:

The Bureau [of Labor Statistic]’s occupational employment projections . . . answer the very question that many law school applicants want to know: How many new lawyers will the economy be able to absorb this decade?

 

The Bureau currently estimates that the economy will create 218,800 job openings for lawyers and judicial law clerks during the decade stretching from 2010 through 2020. That number, unfortunately, falls far short of the number of aspiring lawyers that law schools are graduating.

 

The oversupply of entry-level lawyers deprives many graduates of any opportunity to practice law. At the same time, the lawyer surplus constrains entry-level salaries.

Merritt notes the possibility that law might be a versatile degree with value outside of legal practice.

In 2012, Paul Campos wrote:

Further evidence that law degrees are unlikely to become more valuable going forward can be found in the projections of the Bureau for Labor Statistics (BLS) . . . [which suggest many more law graduates than job openings].”

 In 2013, Brian Tamanaha wrote:

The U.S. Bureau of Labor Statistics estimates about 22,000 lawyer openings annually through 2020 (counting departures and newly created jobs). Yet law schools yearly turn out more than 40,000 graduates. This bleak job market coexists with astronomically high tuition.

Several pundits and journalists also started comparing BLS projections and job openings to make much the same argument.

In 2013, unaware of the problems with job openings projections, I (Simkovic) suggested that projections might be used to make adjustments to more objective historical baselines for risk-based student loan pricing

On the chance that BLS projections that perform poorly in other contexts perform well in the legal education context, Frank McIntyre and I analyzed the extent to which BLS projections predict law graduate outcomes (earnings premiums).  The answer is: no better than random chance.  

As in other areas, BLS employment projections are not reliable or meaningful for predicting earnings premiums and are therefore not useful for valuing legal education.

But what about the number of job openings for lawyers?  Can BLS projections at least predict that reasonably well?

The answer appears to be “no.”  Recent analysis by the BLS suggests that their projection methods—the ones we analyze in Timing Law School—have systematically under-predicted job openings for lawyers.  

The BLS is considering changing its methodology to one that it believes will be more accurate.   Ted Seto has discussed this issue extensively. 

It is unclear at this point if the new job opening projections method will predict earnings premiums better than the old ones.  In any case, that was never their intended purpose, and it would be safer to predict earnings premiums and value education based on historical earnings premiums.

It remains likely that many law school graduates will not practice law.  Such has been the case in the past, and such is the case in other fields.   Many engineering, math and science graduates do not work as engineers, mathematicians or scientists in their fields of study.  Most fields of study do not have a one-to-one correspondence with a particular occupation, but are more broadly useful in the labor market, and law is no exception.  In spite of many individuals working outside their degree fields, higher education typically has been, and likely will remain, an investment with positive returns.

To best way to tell whether there is too much or too little investment in education is to consider relative returns that take into account risks and variability in employment.  Are the returns to education higher or lower than returns that can be had elsewhere with similar levels of risk?  The returns to education are generally much higher, and risk does not appear to explain this difference adequately.  The high relative returns to education suggest underinvestment in education.  

(A word of caution—BLS employment projections should not be confused with the BLS Occupational Employment Statistics (OES); the OES remains a useful and important, albeit imperfect, source of data). 

Posted by Michael Simkovic on March 23, 2015 in Guest Blogger: Michael Simkovic, Legal Profession, Of Academic Interest, Professional Advice, Science, Student Advice, Television, Weblogs | Permalink

February 09, 2015

Experiential learning does *not* improve employment outcomes

Jason Yackee (Wisconsin) takes an empirical look.

UPDATE:  Brian Galle (Boston College) suggests some alternative interpretations of the findings.

Posted by Brian Leiter on February 9, 2015 in Legal Profession, Of Academic Interest, Student Advice | Permalink

November 21, 2014

More new lawyer jobs than grads in 2016?

Ted Seto (Loyola/LA) looks at the new BLS projections.

Posted by Brian Leiter on November 21, 2014 in Legal Profession, Student Advice | Permalink

November 03, 2014

Simkovic & McIntyre's "The Economic Value of a Law Degree"...

...appears in print in the Journal of Legal Studies.  Despite being derided and dismissed last year by intellectual heavyweights like Paul Campos, Matt Leichter, and Elie Mystal, it somehow survived peer review.  Imagine that.  (You can read Prof. Simkovic's response to some of the Dunning-Kruger Effect crowd here.)

Posted by Brian Leiter on November 3, 2014 in Guest Blogger: Michael Simkovic, Legal Profession, Of Academic Interest, Student Advice | Permalink

June 30, 2014

Slate business columnist: now's the time to go to law school

A plausible analysis, consistent with other forecasts.

Posted by Brian Leiter on June 30, 2014 in Legal Profession, Of Academic Interest, Student Advice | Permalink

May 21, 2014

LSAC settles ADA lawsuits

Good news for students with disabilities considering law school.

Posted by Brian Leiter on May 21, 2014 in Legal Profession, Of Academic Interest, Student Advice | Permalink

May 15, 2014

Federal clerkship placement rankings by school, 2011-2013

The ranking.

Posted by Brian Leiter on May 15, 2014 in Rankings, Student Advice | Permalink

April 10, 2014

Lots of students are applying to law school late in the season

Anyone following Al Brophy's reports on the LSAC data will notice that, while applications are still down from last year, they are down a bit less with each subsequent report.  That's consistent with anecdotal reports from colleagues who teach undergraduates who report being asked to write letters of recommendation later and later in the season than just a few years ago.  One surmises that at least part of what is happening is that (1) students waivering about going to law school are realizing that they don't have other tangible professional plans, (2) students are realizing their chances of getting good admissions offers--either in terms of the caliber of the school and/or the cost--are much better this year than just a few years ago.  Along with this indicator, I suspect the decline in applications is about to bottom out.  It will still take a couple more years, though, for most law schools to begin hiring new faculty again given the dramatic decline in applications and enrollments of the last few years.

Posted by Brian Leiter on April 10, 2014 in Advice for Academic Job Seekers, Legal Profession, Professional Advice, Student Advice | Permalink