Tuesday, August 3, 2021

Wall Street Journal blames law schools for COVID economy (Michael Simkovic)

In 2010 to 2013, the Wall Street Journal effectively blamed law schools for the economic fallout of the financial crisis and the Great Recession.  In particular, the recession caused a large reduction in employment which hit young and inexperienced workers across the economy. 

During this time period, law graduates continued to perform relatively well compared to their same-age cohorts facing the same economy. Law graduates were less likely to be unemployed, were more likely to be employed, earned significantly more money, and had lower student loan default rates. 

See:

  1. Michael Simkovic & Frank McIntyre, The Economic Value of a Law Degree, 43 J. Legal Stud. 249–289 (2014).
  2. Frank McIntyre & Michael Simkovic, Timing Law School, 14 J. Empirical Legal Stud. 258–300 (2017).

 

But the WSJ's misleading, out-of-context reporting falsely suggested that the subset of law graduates who were struggling were hurt by law school rather than by the recession and generally weak labor market. 

This made some WSJ readers worse off economically by tens or even hundreds of thousands of dollars.  Those who took the WSJ's reporting at face value were less likely to pursue employment-boosting, earnings-boosting education.  Moreover, they declined to pursue education at the most advantageous time, when they were relatively young--with more years of work ahead of them--and when the opportunity costs were relatively low because of a temporarily weak economy.

The WSJ is resuming its less-than-stellar economic reporting, with another out-of-context broadside against higher education, and law schools in particular. 

Like the 2007 to 2009 recession before it, COVID triggered a large decline in employment. And younger, less experienced workers were again hit hard.

The federal government responded by offering 0% interest forbearance on student loans.  Governments also limited collections of other debts, such as rent and mortgage payments, through eviction and foreclosure moratoriums, to alleviate the broad-based economic pain from the pandemic-induced recession.

During this period, law graduates and other highly educated workers have fared relatively well, at least judging from the imperfect data that is currently available (see also here and here). Lawyers continue to earn high salaries, their employment numbers have not appreciably declined, and unemployment rates in legal occupations, at 3 percent, are lower than in most fields.   Higher quality and more precise data regarding law graduates--which would facilitate apples-to-apples comparisons between recent law graduates and other similar young workers--will only be available with a few years of delay.  In particular, I am referring to data from SIPP and ACS.

Unemployment rates and earnings by educational attainment, 2017

The WSJ's article notes a decline in law student debt repayments, and is peppered with anecdotes about recent graduates' struggles, without so much as mentioning COVID or the related national forbearance of federal student loans or declines in employment.  Nor does the WSJ compare law student borrowers' repayments to other student loan borrowers.  Nor does it compare law graduates' employment and earnings to employment and earnings of those with only a bachelor's degree in similar fields.

Data from After the JD III suggests that within 12 years of graduation, graduates of schools ranked below 100 (i.e., in the bottom half of law schools) who passed the bar exam typically achieved median full time salaries in the six figures.  This was measured in 2012, nearly a decade ago.  At least in nominal terms, attorney earnings and earnings of professional degree holders have increased substantially since then according to both the U.S. Bureau of Labor Statistics and the U.S. Census Bureau.

The WSJ does not refer to this data.  The WSJ instead quotes a legal ethics and civil rights professor for the proposition that six figure salaries are rare for graduates of Miami University School of Law.  The professor may have been commenting on starting salaries rather than long term earnings.  Or he may have been focused on pay for the relatively small number of graduates who initially work as public defenders or legal aid lawyers.  According to his faculty web page, the professor runs programs and clinics on historic black churches and environmental justice, and so may be more cognizant of salaries for graduates heading into low-paid public interest fields.   For highly-educated workers pay in the public sector is generally much lower than pay in the private sector, and not just at the elite law firms.  In other words, social contacts with recent graduates may provide professors, especially those specializing in public sector fields, with a non-representative, downward-biased estimate of typical long term earnings.  This problem is why researchers try to use representative, long-term data.

The WSJ's a-contextual critique of law schools might lead readers to wonder whether the WSJ has an axe to grind against law schools or is uncritically sympathetic towards private student lenders' commercial interests. Lenders have repeatedly acknowledged that graduate students such as law students are among their most profitable customers.  Private lenders have been eager to pry these customers away from federal lending programs by lobbying to make those programs less generous and by subsidizing think tanks that generate misleading analysis about the supposed fiscal dangers of these programs.

Leaving this aside, there are significant advantages to enabling professional degree students to repay their loans more slowly, or not at all in early years.  This is because earnings typically rise over a career, and for professionals generally peak in the mid 50s.  Early earnings are, on average, among the lowest law graduates will ever experience in their lives.  Allowing them to repay less of their loans earlier, and more later, enables them to smooth consumption over their lives without resorting to high cost credit card debt or other more expensive forms of credit. It also enables them to start investing earlier for their retirement and to take advantage of limited annual tax-advantaged contributions.  Extended repayment facilitates greater levels of investment in education, which is desirable amid rising healthy life expectancies, lengthier careers, and increased global competition.

There's no need to rush student loan repayment.  A career will last decades.  Law graduates--on average and at most points in the distribution--are good for the money.

Continue to Part II:

Wall Street Journal law school analysis overlooks increased diversity and lower interest rates

Previous Related Coverage:

 

 

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