September 22, 2020
A popular narrative is that business school is not worth the time and money, especially outside of a handful of elite programs. This narrative closely echoes earlier critiques of legal education that have since been thoroughly debunked. (See here, here, here, here, here, here, here, here, here, here). As was the case with legal education, the anti-business school narrative has been followed by multi-year declines in applications to business school and a shift toward more online programs.
As with legal education, the anti-business school narrative does not appear to be supported by the data. A careful study by Peter Arcidiacono at Duke tracked the incomes of GMAT test takers who attended business school, before and after business school. The study compared the income trajectory of business school students to the income trajectory of similar test takers who did not attend business school.
Arcidiacono et al. found evidence of negative selection into non-elite business schools. That is, the sorts of people who attend non-elite business schools had lower incomes before business school than one would expect given their test scores, academic performance, demographics, and other observable characteristics. The areas in which they likely had lower (but difficult to observe) earning potential included less developed social skills and more limited social connections.
This means that non-elite business schools actually boosted their students' earnings by more than has been previously assumed. Moreover, the fact that Arcidiacono et al. focused on earnings within a few years of graduation means that they very likely understated the benefits of business education. Those with graduate degrees typically see the annual boost to earnings from their degrees rise until they reach peak earnings, usually in their 50s.
One key takeaway is that social connections are an important part of the value of education. Even non-elite graduate programs can help their students improve social skills and forge valuable connections. This may not bode well for the value of online education relative to traditional brick & mortar education.
Arcidiacono's study came out in 2008, but discussion of it has been remarkably absent from press coverage regarding the value of business education. My next post will delve into some of the possible reasons for low quality and overly negative education news coverage.
September 19, 2020
In the NY Review of Books (recently republished online):
Nazism was so horrifying and so barbaric that for many people in nations where authoritarianism is now achieving a foothold, it is hard to see parallels between Hitler’s regime and their own governments. Many accounts of the Nazi period depict a barely imaginable series of events, a nation gone mad. That makes it easy to take comfort in the thought that it can’t happen again. . . .
Milton Mayer’s 1955 classic They Thought They Were Free, recently republished with an afterword by the Cambridge historian Richard J. Evans, was one of the first accounts of ordinary life under Nazism. [H]is subjects were working as a janitor, a soldier, a cabinetmaker, an office manager, a baker, a bill collector, an inspector, a high school teacher, and a police officer. All of them referred to themselves as "we little people.”
Nazism took over Germany not “by subversion from within, but with a whoop and a holler.” ... Mayer’s subjects “did not know before 1933 that Nazism was evil. They did not know between 1933 and 1945 that it was evil. And they do not know it now [in 1952].” Seven years after the war, they looked back on the period from 1933 to 1939 as the best time of their lives.
Even in retrospect Mayer’s subjects liked and admired Hitler. They saw him as someone who had “a feeling for masses of people” and spoke directly in opposition to the Versailles Treaty, to unemployment—to all aspects of the existing order. They applauded Hitler for his rejection of “the whole pack”—“all the parliamentary politicians and all the parliamentary parties”—and for his “cleanup of moral degenerates.” The bank clerk described Hitler as “a spellbinder, a natural orator. I think he was carried away from truth, even from truth, by his passion. Even so, he always believed what he said.”...
September 18, 2020
With the passing of Justice Ruth Bader Ginsburg and Republican control of the White House and Senate, the Supreme Court will likely soon become more conservative. Given Republicans' penchant for increasing the value of appointments by choosing relatively young appointees, the court's conservative shift is likely to persist for decades unless Democrats achieve sufficient electoral success to expand the number of seats on the court.
Note: In an amusing omission of a hyphen, the NY Times discussed Justice Ginsburg's "prejudicial career as a litigator and strategist." Hat tip Alex Capron.
July 30, 2020
Large U.S. law firms are scrambling to address a ballooning need for bankruptcy and corporate restructuring expertise.
The Covid-19 pandemic has unleashed an unprecedented severity and speed of corporate distress, as Chapter 11 filings pile up and fire-sale assets garner interest. Law firms are scouring the field to hire experienced restructuring attorneys, counter to what has otherwise been a declining attorney job market.
Bankruptcy is a niche area where many law schools have few full time faculty and instead rely on adjuncts (Chicago, NYU, Columbia, and USC are exceptions in terms of having a reasonably deep bench in this area). With bankruptcy practitioners and judges overwhelmed with work, it may be difficult for schools that do not have full time bankruptcy faculty in place to meet student demand.
Update: Additional schools with relatively deep benches in bankruptcy include UCLA, Illinois, Texas, Georgetown, and Penn. Apologies for any omissions.
July 24, 2020
May 30, 2020
A recent article argues that legal clinics funded in the 1960s to help the poor obtain access to legal services helped reduce civil unrest and thereby increased property values in minority communities. The article argues that the timing and location of grants to fund the establishment of these clinics was close enough to random (or at least unrelated to riot propensities) to facilitate causal inference, and attempts to control for differences between areas that received grants and those that did not. In particular, the article instruments by whether or not the community had an established law school, which was a necessary precondition for receipt of a grant to fund a legal clinic.
The debate about law school clinics has tended to focus on the extent to which clinics provide pedagogical benefits and short term employment advantages to law students. But if the authors of the article above are right, clinics may also be a way for law schools and universities to contribute to stability in their local communities.
May 18, 2020
International efforts to slow the spread of coronavirus have come at heavy economic cost. According to figures recently released by the Department of Labor, Bureau of Labor Statistics, U.S. national unemployment rates have spiked from less than 5 percent to more than 14 percent as of April 2020, reaching the highest level since the Great Depression.
Unemployment has increased the most for those working in food preparation and personal care occupations, where working remotely is less feasible. For such workers, unemployment rates are now close to 40 percent. In contrast, those in professional and related occupations have fared relatively well, with unemployment averaging below 9 percent.
Legal occupations have proved remarkably resilient and currently have the lowest unemployment rate of any category tracked by the BLS. Unemployment for legal occupations reached only 3.7 percent in April of 2020. Unemployment rates for lawyers are likely even lower because legal occupations include lawyers as well as occupations that typically have significantly higher unemployment rates than lawyers, such as paralegals and other legal support workers. In the first quarter of 2020, these non-lawyer legal occupations had unemployment rates around 2.3 to 2.5 percent, compared to 1.1. percent for lawyers. To be clear, unemployment has increased in legal occupations—just not by as much as it has increased everywhere else.
Law may be resilient in part because electronic filing, electronic legal research resources, home computers, and telecommunications technology make it is easy for lawyers to work remotely, and in part because the COVID shutdowns are leading to additional work for lawyers in areas like restructuring, secured lending, and employment law. Legal services may also be helpful for navigating recent relief legislation that seeks to provide federal assistance to businesses and other institutions.
In the 2008 to 2009 recession, law was also relatively resilient, but healthcare was the most stable sector. The current downturn, however, is having a devastating effect on the finances of the healthcare sector.
April 06, 2020
Unemployment increased from 3.5 percent in February to 4.4 percent in March, according to the U.S. Bureau of Labor Statistics. Jobless claims have spiked by millions. While unemployment rates are currently moderate by historical standards, the rapid rate of increase raises concerns that the U.S. is entering into a recession, if it is not in one already. Thus far, credit spreads on corporate bonds suggest that investors are concerned, though not quite as concerned as they were during the height of the financial crisis in 2009. Law firms are reportedly delaying the start of summer programs and discussing reducing hiring. A few firms are furloughing or cutting pay for existing workers, at this point disproportionately support staff.
Workers who are highly educated (across age groups) are less likely to become unemployed and, if they do become unemployed, find work again sooner. But even those with graduate degrees are not immune from recessions. Within each level of education, those who are young and inexperienced are more vulnerable in a down economy because they are less strongly attached to jobs and integrated with employers and have not developed specialized skills that come with work experience. There's evidence that graduating into an economy with high unemployment can lead to a decline in earnings for the first 4 years or so after graduation for law graduates. College graduates and high school graduates are even more vulnerable. Law graduates typically catch up in terms of annual earnings later in their careers.
This raises the question--what can law students do now to maximize their chances of finding gainful employment? A warning before proceeding--the advice that follows may be anecdotal unless it includes a link to supporting research. Although the advice is primarily intended for those interested in work in the private sector, and who are more interested in practicing law than in other opportunities, the underlying data in Timing Law School and After the JD is broader. These studies include those who were not practicing law or who worked outside law firms. The AJD sample is restricted to the 90+ percent or so of graduates who eventually passed the bar exam, while Timing Law School and SIPP include those who did not pass the bar.
April 03, 2020
Independent Law schools and small to mid-sized law firms can apply for low interest, partly forgiveable SBA loans (Michael Simkovic)
As part of the CARE Act passed in March, the Small Business Administration (SBA) is working with private banks to make several hundred billion dollars available to businesses with fewer than 500 employees. Non-profits are eligible. Law schools that are separate legal entities from their universities (or are independent and unaffiliated) may qualify, as may small law firms. The loans carry a 1% interest rate and are partly forgivable, based mainly on a firm's payroll expenses and in part on its mortgage or rent.
The funds are being distributed on a first-come, first-served basis and are expected to be quickly used up.
Details are available here.
Bank of America is processing applications today. Chase will begin processing applications next week.
March 31, 2020
New "Emergency Relief Fund" for law students, funded by Access Lex, administered by law schools (Michael Simkovic)
The Access Lex Institute is providing $5 million in total to fund an emergency relief fund for students at each of 200 law schools. Each law school will receive $25,000. Law schools will be responsible for administering the funds to assist students in need.
The press release describes the purpose of the funds as follows:
"Beyond the concerns around adapting to online learning, completion of hands-on legal clinics, and the potential for delays in the bar exam, this crisis has exacerbated financial pressures on law students . . . It is imperative that we act on our mission to positively impact the lives of law students in a tangible way when they need the support most"
Access Lex will provide more details about the program later this week.
The funds should be particularly helpful to law schools with small class sizes and limited resources. JD class sizes at law schools range from more than 500 students per year to less than 50.