What Is A JD Worth? Study Suggests Lifetime Value Of $1 Million, On Average

For some reason, this article eluded me until now.  Michael Simkovic and Frank McIntyre conducted a study assessing the long term value of a law degree.  Their conclusion: the mean pre-tax lifetime value of a JD is a million dollars.  Even at the 25th percentile, they calculate the value of a JD at $350,000 over a lifetime.  They conclude the present value of a law degree is greater that its cost for most students.

This study doesn't view the JD in isolation, but rather attempts to study a law degree in comparison to the alternative paths a potential law student might pursue.

I haven't had time to review this study in depth, though I'm confident that readers will do so.   It cannot and does not account for changes in the legal market going forward.  These changes could radically alter the value proposition of a JD.  And as Kyle McAfee has pointed out, this study in no way addresses questions of transparency.  But an empirical contribution to these ongoing debates seems quite worthwhile.

H/T Inside Higher Ed

Update:  Unfortunately, I have felt it necessary to unpublish certain comments to reduce the number of personal attacks.  Sometimes it's hard to tell the difference between a fair (if generally unfriendly) request for a response from genuinely unsportsman-like conduct, but I've tried.  Mea culpa if others don't share my judgment.  I hope I speak for many readers when I say that I don't find this sort of debate either useful or uplifting.

Comments

[terry malloy]

Past performance does not guarantee future results.

Pet.com, real estate in arizona, et. al. were great buys . . . until they weren't.

[Jimbino]

I have a physics and a law degree. The latter I pursued for fun back when it tuition was almost free.

With a physics degree, I can find work, and have, throughout the world. A person with a law degree will have trouble practicing in another state, never mind a foreign country.

The world will look very different in 45 years and there is no guarantee a person will want to keep on living in the state where he got his license.

[John Thompson]

Even the people at the 25th percentile are making an extra $350,000 over the course of a lifetime! Wow! That's almost what they will owe if they make the minimum payment in IBR over 25 years on an obligation of $150,000 at 6.8% interest!

Also, I'm not sure 1,382 voluntary JD participants of the years 1996-2011 gives us enough of a data set to say anything of real importance about the value of a JD today (versus, say, the number of the last five years' graduates on IBR and how much of their debt burden the federal government is assuming in the meanwhile).

[Doug Richmond]

Not all law degrees are created equal (say, Yale versus Thomas Cooley) and, as others have noted, law's future may be very different than its past. I hope that no one in legal education relies on this study in any fashion.

[MacK]

I read the paper (well skimmed) the second slide 4 seeks to show earnings over an age range 23-65 showing that earnings skew higher with seniority. The problem is that the data is based on historic earnings - it shows relatively high earnings for practicing lawyers aged from their mid-30s to mid-50s and still in the profession. That is important because this is a group that graduated between 1985 and 2002 or thereabouts - made it though the dangerous years and were still practicing 10-11 years out - i.e., people like me. It does not include those who effectively washed out of the profession - the "missing lawyers."

[BoredJD]

"I hope that no one making the decision to invest six-figures in a legal education relies on this study in any fashion."

FTFY.

[Steve Diamond]

Thank you for bringing this study to the community's attention, Dan. There are a number of important findings.

A key point is the focus on the premium that comes with a JD as opposed to absolute earnings - in other words, the study helps demonstrate why college graduates are being rational when they pursue a JD. It adds significant value to their income over a lifetime relative to a BA.

The study also notes the need to consider earnings over a longer period. The focus on the first 9 months or year out of school can lead to misperceptions.

The study should also cause Universities to be very very cautious about doing long term damage to their law schools in response to the recent, and now ending, economic downturn. If they do that, they risk missing significant long term opportunities for the future students.

Now, let me duck the spitballs about to rain down on me.

[Steve]

Thanks for posting this! I'm glad to have found your blog!!

Steve

Common Cents

http://www.commoncts.blogspot.com

[BoredJD]

"in other words, the study helps demonstrate why college graduates are being rational when they pursue a JD"

This again? The study only argues that it is rational to pursue a JD based on one metric. It does not demonstrate that students pursuing a JD are indeed acting rationally, only that they are acting in a way consistent with a rational actor. It does not demonstrate that students attending low-ranked law schools, including the author's, are being rational (there's that segmentation problem again, too bad you guys can't ride Stanford's coattails!). It also does not demonstrate that a student who is risk-averse to large amounts of debt will still consider law school even if the authors can show that the expected value of a JD is $100 or $100,000 or $1 million after 20 years.

In fact, the downturn in applications when the "rational" student should attend law school signifies that students are not acting rationally.

[Stan]

Bored - I am not sure that Mr. Diamond will have time to answer you, as he appears to be on vacation.

http://stephen-diamond.com/?page_id=4930

I wonder how many Santa Clara grads make enough to Go Fishing through Labor Day?

[Steve Diamond]

LOL. There are three reasons to become an academic: June, July and August.

Re: rationality - a downturn in applications makes perfect sense although it is likely overdone. Look at the cyclicality described in the study - which confirms my very first post in this entire debate right here at FL some months ago. As the economy picks up there are now opportunities for BA's that did not exist when those same BAs looked to law school as a way to hideout from the recession. Now fewer are choosing to make the investment in law school. Same waves up and down hit after the real estate and dotcom bubble burst.

[Steve Diamond]

When you can't deal with the message, attack the messenger. Old story.

[terry malloy]

The study appears to overcount unemployed and not seeking. That seems like a grievous Error.

Any thoughts on that Mr. Diamond?

[BL1Y]

This return on investment analysis is a breath of fresh air! I'm tired of students and recent grads beating that tired drum of asking "What do you want to do after graduation?" And then telling prospective students they should only go to a law school that will give them a fair shot at obtaining that career path, and at a reasonable price.

[CBR]

This strikes me as an important (and under-discussed) finding: "Our analysis of SIPP data suggests that about three out of five law graduates work as lawyers." (from p.6, n.7). We really need more data about what happens to the 2 out of 5 who do not work as lawyers.

[BoredJD]

Steve- I am still waiting for the data and information that you failed to present some months ago showing that the market for entry-level BAs has jumped back in a way that explains the significant drop in law school enrollment. I suppose I'll be waiting for a bit longer, but that's okay.

Nothing in the study confirms anything you said back then. In fact, nothing in the study provides much of a basis for any change in the debate. Deans and professors have long argued, based on common wisdom, that there is a significant earnings premium for JD holders generally (with all kinds of numbers cited), and that you can't measure the value of a JD based on the nine-month employment stats. And reformers have long argued that you can't generalize to JD holders from all schools, especially using average salaries, and that the enormous amounts of student loan debt should make naturally risk-averse students wary of attending law school especially when the future of the profession is uncertain.

"When you can't deal with the message, attack the messenger. Old story."

Yeah, I knew a guy once who said some people running a nonprofit to encourage law schools to be more transparent in their employment disclosures were actually "really interested in making money not in any serious change." Old story.

[Bobalou]

I'm pleased that someone is actually trying to properly evaluate a law degree: it is a trade degree and thus an asset. It should have a determinable value, and not some rainbows, and kittens, and kumbaya nonsense equating it to an advanced liberal arts degree. Dollars matter. Sounds like we all now agree on that.

Now, when the next study shows that the NPV of a law degree is negative, I'm sure we all will still agree on the methodology and will close the factories.

[Paul Campos]

I notice Steve Diamond still hasn't addressed several pointed questions regarding what appear to be egregiously fake employment stats published by his employer, specifically the placing of enormous number of unemployed graduates in the "unemployed not seeking" category.

Again, in 2010 Santa Clara classified 55 of 61 grads who were unemployed nine months after graduation as not seeking employment, thus allowing the school to report a nearly 98% "employment" rate to US News (better than Harvard's no less), even though one in every five SCU grads was unemployed nine months after graduation. By the way, the modal number of law graduates reported by law schools that year as being in the unemployed not seeking category nine months after graduation was zero.

[CBR]

Bobalou, this isn't the first paper to analyze the ROI of law school: Schlunk and Chen did it first, and did in fact conclude that it is negative for many. The authors here cite the earlier studies at note 20: See Herwig J. Schlunk, Mamas Don’t Let Your Babies Grow Up to Be . . . Lawyers,
Vanderbilt Law and Economics Working Paper No. 09-29, Oct. 30, 2009, available at
http://ssrn.com/abstract=1497044 [hereinafter Schlunk I];. Herwig J. Schlunk, Mamas 2011: Is a Law Degree a Good Investment Today? Vanderbilt Law and Economics
Research Paper No. 11-42, Dec. 16, 2011, available at http://ssrn.com/abstract=1957139,
published as Herwig J. Schlunk, Mamas 2011: Is a Law Degree a Good Investment Today?
36 J. LEGAL PROF. 301 (2012) [hereinafter Schlunk II]; Jim Chen, A Degree of Practical Wisdom: The Ratio of Educational Debt to Income as a Basic Measurement of Law School Graduates’ Economic Viability, 38 WM. MITCHELL L. REV. 1185 (2012).

It is interesting to compare the assumptions and methodology of the three articles. I would like for this one to be correct--a million dollars in added value would be great--but I think that the authors do make some assumptions that I'm not sure are fully warranted. Between the three articles, though, there is a lot of fodder for a good discussion, and it's one that people in the legal academy should be having.

[casual observer]

I'm just a casual observer of all the scam blog/anti-scam blog posts that have been shooting around the blogosphere during the last year.

I will say that as a legal practitioner, I've never seen it so tough for young lawyers. Even real grey hairs (men in their late 70s and 80s) say they've never seen it so bad and so saturated as it has been in the last decade. I know plenty of lawyers who are happy to clear $50,000, and really bust their humps to do so. Assistant prosecutor positions now get close to a thousand applicants. The bar journals post only a handful of jobs, down from what used to be columns worth. There just doesn't seem to be evidence that young lawyers are wanted, or are wanted in the numbers that are needed to soak up the supply.

This may be anecdotal, and I confess I'm not an academic like you all, and frankly don't really care to be. But is there anyone who really believes that the return on educational investment on law school is net positive these days? Especially given a $200,000 plus price tag?