A legal education is a poor investment.
Monday, December 14, 2009 at 12:03PM It isn't just that recent law school graduates have had trouble finding jobs because of The Great Recession, law schools have become so expensive that a law degree is now a poor investment economically, according to this National Law Journal article. "A J.D. used to mean a first-class seat on the gravy train. Now? Not so much."
In fact, law school is always a bad choice from an investment perspective, according to a research paper titled "Mamas Don't Let Your Babies Grow Up To Be…Lawyers."
Herwig Schlunk, a professor at Vanderbilt University Law School, performed an investment analysis of the value of a law degree, taking into account the cost of legal education, the opportunity cost of not going directly into the work force and earning potential. He developed hypothetical scenarios for three student types: one who attends a second- or third-tier school with a 10% chance of landing a job at a major law firm, another who attends a low-first- or high-second-tier school and has 50% chance at a major law firm job, and a student with good grades at a top law school with a 90% change of landing a job at a big firm. He calculated that the net law school investment for those students ranges from $201,000 to $280,000, between tuition and lost wages.
Using what he termed a somewhat conservative calculation, Schlunk determined that the second- or third-tier student would need to earn a starting salary of just below $80,000 to justify the expense of law school. The middle of the road student would need about $113,000, while the top student would need to earn $150,000 out of law school. Schlunk calculated that the students actually can expect to earn starting salaries of $65,000, $105,000 and $145,000, respectively — a poor investment in all three cases.
Schlunk noted that his calculations were based on data gathered before the economic downturn, meaning that law school likely is a worse investment for his hypothetical students than he initially concluded.
I'm surprised that the financial analysis produces such a bleak result, but it supports my general thesis that we should be thinking much more critically about the economic effects of education than is typical in public discourse. The conventional wisdom seems to be that every dollar spent on education builds "human capital" that automatically creates well-paying domestic jobs and cannot result in so many educated people that their wages are bid down. This is wrong in so many ways.
A lack of educational achievement in America has not been one of the reasons for the economic stagnation that began in 1973. We have many, many college graduates working in jobs for which no college is required. Having a broadly well-educated population has not been a substantial cause of economic boom times when we have had them; rather education becomes more affordable during boom times, and much of education is a luxury consumer good instead of "capital" in an economic sense. Certain kinds of education seem to contribute greatly to innovation that drives economic growth, and other kinds of education are totally useless in that regard; so, to the extent we are using education as a growth strategy, we need to be specific about that. There is no level of education or professional degree that is immune from the forces of supply and demand; if we have too many lawyers, civil engineers, or teachers, their incomes will get bid down by market forces, and some of them will have to take work for which they are over qualified. Projections of the kinds of jobs that will exist in the future America do not require a dramatic increase in the general educational level (or a lot more lawyers). We need a good education system, just as we need a good transportation system, a good telecommunications system, a good justice system, etc., in order to have a good environment for private enterprise. But that's all those things do—create a good environment—and robust growth will still elude us so long as it is more profitable to invest and create jobs offshore than here. The naive expectation that education will automatically solve our jobs and growth problems keeps us from focusing on policy changes that actually could solve those problems. For other posts on education go here.
Skeptic
The president of the State Bar of California sees a trend toward diminishing incomes for big-firm lawyers because of client revolt at costs divorced from value and because of foreign competion.
For the legal profession, change is everywhere. The “Big Law” model of the graduates of the best law schools being hired at $160,000 a year and staying on an escalator of success is broken. Thousands of our best-educated, highest-performing lawyers who have relied on that model have been laid off and are looking for but can’t find work.
It is not just the economy. Clients are in rebellion at the billable hour business model. They have almost unanimously concluded that they want to buy value, not hours. Clients and firms of all sizes are now wrestling with alternative billing structures. Some may still be in denial that whatever the alternative, fees will be lower.
The cost of legal education has skyrocketed, not just at private schools. At Berkeley Law and UCLA, tuition alone is now around $38,000 a year. With many fewer jobs available, students are graduating with combined undergraduate and law school debt of well over $150,000.
International outsourcing, technology and the Internet are dramatically increasing the way clients can obtain legal advice. (See legalzoom.com as one example) In the United Kingdom clients of the large “magic circle” firms are sending significant amounts of legal work to India, to be worked on by qualified solicitors and barristers, at less than 20 percent of the cost of sending it to the London firms. In Beijing, there is an English language-only law school, headed by Jeffrey Lehman, former dean of the University of Michigan Law School and former president of Cornell University, that intends to award J.D. degrees and apply for accreditation as an ABA law school, permitting its graduates to take the bar exam in any U.S. jurisdiction. You can bet that, as from India, the services of its graduates will be offered from Beijing at significantly lower cost than those of highly educated lawyers in California. The days of clients paying $500 an hour for fifth- year graduates of leading law schools appear to be drawing to a permanent end. That is structural change.
In addition, in a way we are being insulated — for a while — from even more fundamental change. In England and Wales, legal services will soon be able to be offered by Alternative Business Structures (ABS) — companies wholly owned by non-lawyers. Solicitors and barristers are up in arms at the prospect of competing with “Tesco law” (Tesco being the rough equivalent of Walmart).
Skeptic
NYT phrases it as a question, Is Law School a Losing Game?, but the answer is emphatically the same as mine. The way in which law schools exaggerate the employment status of recent graduates embarrases even some law school professors and administrators and has them worrying about liability for fraud.
Reader Comments (1)
Years ago, no one would have thought that investing in a legal education would be a waste of money. But things have drastically changed. Luckily, there are college scholarships available for many different areas of study.