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Are we producing more or fewer JDs? Arkansas law prof's answer is sleight of time.

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From the "Leave law school alone!" crowd comes this Bloomberg Law interview with Stephen Sheppard, Associate Dean for Research and Faculty Development at the University of Arkansas School of Law, and a man who may be the inspiration for the character naming conventions used in the Harry Potter series.

We wanted to write about the ridiculous idea he puts forth that if law schools cared more about getting jobs for their students, only BigLaw and the government would exist. But, as we tried to suss out the logic behind that theory, we felt our heads getting too close to 'sploding and just gave up. Instead, we're going to analyze this gem:

As a percentage of either Americans or of university students or of college graduates, the number of people who enter law school has in fact fallen as a percentage whether you look at this from a window of 30 years or 20 years.

Let's first toss out the red herrings. Percentage of university students or college graduates entering law school is completely irrelevant. The comparisons that make sense are number of law school graduates compared to demand for legal services, legal industry jobs, and yes, the first comparison Sheppard made, the national population.

When trying to figure out if we're making too many or too few lawyers, comparison to the total population makes sense, though it doesn't give a final answer. As the federal government passes more laws of greater complexity, the need for lawyers per capita may go up. Policies such as the war on drugs may also increase the need for lawyers per capita. So might something such as growing wealth and home ownership among the middle class, which creates a greater need for lawyers to write wills, or a growing divorce rate and child custody suits. On the other hand there are variables that could decrease the needed lawyers per capita, such as electronic research tools making individual lawyers more effective at their jobs, or increased education among the population and access to online research and DIY guides allowing ordinary folks to handle many routine legal matters on their own. So, lawyers per capita only tells a part of the story, but it's still an important part.

Currently there is one law school grad for every 169 people. In 2010, the ratio was 1:174. [Flustercucked] Remember, Sheppard's claim is that the percentage of people is going down compared to previous decades. In 1993 the ratio was 1:163, and in 1983 it was 1:161. So, how do we rate Sheppard's claim? True.

And damned misleading. Let's take another look at his exact wording:

the number of people who enter law school has in fact fallen as a percentage whether you look at this from a window of 30 years or 20 years.

When we first heard this, it sounded to us like he meant "pick whatever time frame you want, doesn't matter, percentages are going down." The truth is that he means "the percentage is going down only if you make a 20 or 30 year comparison." If you pick any other time frame, the percentage has gone up.

In 2003 the ratio was 1:187. In 1973 the ratio was 1:190. And in 1963 it was an amazing 1:490. But wait, the "window of 30 years or 20 years" comment is even more misleading than that. From 1987-1990, we produced fewer lawyers than we do now, with ratios ranging from 1:171.1 to 1:174.1.

For Sheppard's statement to be true and not misleading, it would need to read something a bit more like this:

As a percentage of Americans, the number of people who enter law school has in fact fallen as a percentage whether you look at this from a window of 30 years or 20 years, but not 10 years, and not 40 years, and also not 23 to 26 years, or 15 years, or 28 years.

Impressed with Sheppard's bit of sleight of hand, we decided to give it a go ourselves. How did we do?

Whether you're talking about Pam Bondi or Megyn Kelly, women with JDs are total babes.

Study Shows Law School Is A Losing Bet For A Whole Lot Of Folks

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We investigate the economic value of a law degree and find the opposite: given current tuition levels, the median and even 25th percentile annual earnings premiums justify enrollment.

Bold claim by Simkovic and McIntyre in their Economic Value of a Law Degree article that has been making the rounds. At the 25th percentile, JD holders still have an earning premium of $350,000 over someone who just holds a bachelors degree. And, with law school only costing $30,000 a year (sticker minus scholarship), that looks like quite a nice payout.

If only that's what law school really costs. At 11 schools sticker price is above $50,000. Though to be fair, at the three most expensive schools the majority of students receive a scholarship, with UC-Davis giving 97% of students a break. But, at the fourth most expensive school, Cornell, the majority of students pay sticker. The majority are also paying sticker at Columbia, Penn and Northwestern (where only 34% get a scholarship). There are another 27 schools charging at least $45,000, and another 36 charging more than $40,000. Only 29 schools charged $30,000 or less. These are the rates for 2011-12, so the numbers are undoubtedly already worse, and we all know what direction the numbers are trending in.

Anyone still paying off their student loans also knows that tuition is not the end of the story, there's that nasty beast called interest. And with legislation working its way through Congress, interest rates are about to get considerably higher. It's theoretically possible for the rates to go down since they're tied to 10 year T-bill rate, but for Grad PLUS loans to hit the statutory cap, the T-bill rate needs to only be 4.1%, and in the last 20 years it spent more time over 6% than it did below 4%, so for this analysis, we'll be using the cap.

And remember, the number we're aiming at is the 25th percentile earnings premium: $350,000.

A student paying $150,000 in tuition will take out $61,500 in graduate stafford loans at 9.5% interest and $88,500 at 10.5%. Assuming a 20 year repayment period, and discounting for a 3% rate of inflation, our student will pay $48,546 in interest on the stafford loans, and $82,608 on the PLUS loans.

Our student also needs to pay for room and board. Counting cost of living as a cost of law school is a bit controversial, so we're not going to do that. What we will do though is count the interest paid on debt-financed living expenses. You need a place to live whether you go to law school or not, but if you didn't go you'd presumably be paying out of pocket and not incurring a mountain of debt. If our student takes out $20,000 a year, he'll end up paying $56,000 in interest on that debt.

But wait! There's more! There's also university fees and books. We'll use the average of Harvard and Seton Hall, Simkovic's alma mater and his current employer, respectively. Fees come out to $899 per year, and books are $1313. Assuming no increase over 3 years (har!), that's another $6,636, and an additional $6,194 in interest payments.

We're also assuming that our law student went to undergrad first (Simkovic compares the JD to stopping with a bachelors, so we think this is a pretty fair assumption). That's not a cost of attending law school, but the interest accrued while in law school certainly is. The national average tuition at a private four-year university is $25,000 per year. A student with $100,000 in undergraduate debt at 8.25% will accrue another $15,750 while in law school (again, deducting 3% inflation). That's not the number we'll use though. The average undergrad debt is about $27,000, and with that amount, our law student just accrues $4,253.

Now let's get out our adding machines and do some adding!

$150,000 - Tuition

$48,546 - Grad stafford interest

$82,608 - Grad PLUS interest

$56,000 - Cost of living interest

$6,636 - Books and fees

$6,194 - Books and fees interest

$4,253 - Undergrad interest

354,237 - Total

Let's remember the initial claim Simkovic and McIntyre made:

We investigate the economic value of a law degree and find the opposite: given current tuition levels, the median and even 25th percentile annual earnings premiums justify enrollment.

The 25th percentile premium is $350,000, so for someone paying sticker at a school that costs $50,000 a year or more, the 25th percentile earnings premium does not justify enrollment.

Fortunately, most of the schools charging that much tend to have employment outcomes that are far above average. Most, not all. Cardozo only has an LST Employment Score of 53.2%, below the national average, and a tuition rate of $51,200 for the 2013-14 school year. Brooklyn has an ES of $48.5% and a 2013-14 tuition of $50,800. New York Law School had an AS of 39.4% and 2012-13 tuition of $49,600 (new tuition has not yet been announced). Chapman has an ES of 33.7% and 2013-14 tuition at $44,400. St. John's has an ES of 49.1%, and a 2013-14 tuition rate of $49,700. Catholic is at 36.6% and $44,000; Loyola Marymount 41.1% and $44,000; Southwestern is 42.6% and $45,200; Hoffstra is 51.2% and $47,000; Pepperdine is 45.5% and $47,000. You get the idea.

 

But wait! It gets worse! There's this little thing called taxes. According to Simkovic and McIntyre:

For low earners, such as those in the 25th percentile, values should be multiplied by 0.75.

That is, assume a marginal federal income tax rate of 25%, so the earnings premium is really only $262,500. For someone paying the high-end price of $354,000, the 25th percentile outcome represents not a positive return, but a loss of $90,000. Ouch!

In fact, taxes take such a big bite out of the earnings premium that law school starts to be a losing proposition for the 25th percentile not at a tuition rate of $50,000, but at $35,000. So... rah rah law school!

 

PS: We left out some significant costs associated with law school, such as the $700-1500 students pay for LSAT prep, $165 to take the LSAT, $165 to take the LSAT again, $2,000-4,000 in bar exam prep courses, the $14,000 in interest you have to pay back on your bar loans, $250 to take the bar exam, and $73 to take the MPRE. You probably also need a nicer suit that you'd have used for interviewing with just a bachelors degree. All these little extras can very easily make law school cost an addition $20,000, chipping away at the percentage of students who will see a positive return on their investment.

Follow @JudgeDillard On Twitter

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Privacy, social media, and legal ethics have been all the rage for the past couple years, with their being a bit of a cottage industry now dedicated to telling lawyers how to keep e-mails private and what not to say on their blogs and Facebook posts. But that's all kinda dull. Of course, most of the fun territory has already been explored so much that it's became passe. An angry e-mail accidentally gets the Reply All treatment? tl;dr. Lawyer has skanky pictures on Facebook? Plz, we were there when those were taken.

We want to explore new territory, and thankfully social media provides a nice way to do it. One of the key features of social media is that it has a sort of currency. On Facebook getting people to click Like or post comments shows your other friends where you stand in the social pecking order. Reddit has upvotes. Twitter has followers and retweets.

We all know that lawyers (and non-lawyers) giving money to judges is a big no-no and can have all sorts of consequences. But what if we strayed from real currency and just used ethereal social currency?

...Dunno. But let's find out!

 

If you have a Twitter account, we want you to follow Judge Stephen Dillard (@JudgeDillard) of the Georgia Court of Appeals. Retweet his tweets, and recommend that your followers follow him.

Phase Two will involve getting into some sort of legal trouble in Georgia. No plans for that yet, but we got our eyes on Uga.

Million Dollar JD Debate: If You Don't Like Their Argument, Ignore Their Facts

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Michael Simkovic is back for round 2 of defending his paper on the $1 million law degree against law school critic Brian Tamanaha. [Question for the people who describe Tamanaha, Campos, et al as "critics" (Simkovic doesn't use the term in his post, but others have in this debate and others): What's the alternative? Someone who does not question the status quo or who believes law schools have reached the Platonic Form and no improvements are possible?]

Here's the point-counterpoint of Simkovic's second post on the topic on Brian Leiter's web blog:

BT Claim 2: Using more years of data would reduce the earnings premium

BT Quote: There is no doubt that including 1992 to 1995 in their study would measurabley reduce the 'earnings premium.'"

Response: Using more years of historical data is as likely to increase the earnings premium as to reduce it

First things first, the "claim" Simkovic says Tamanaha is making is not supported by the quote provided. Put on your LSAT hats and work your way through the logic. The supposed BT claim is More Years = Reduced Premium. But, the quotes says "1992-95 = Reduced Premium." Tamanaha is not claiming that more years will always (or even generally) reduce the earnings premium. He points to 1992-95 specifically because they were bad years.

We'll put that point aside though, and look at the question of whether extending the study to 1992-95 would decrease the earnings premium. Tamanaha argues that lawyers were earning less in 1992-95, and therefor there would be a lower earning premium. Simkovic, quite rightly, points out that law grad salaries are not the only thing at issue here -- we must also look at what other degree holders are earning:

The issue is not simply the state of the legal market or entry level legal hiring—we must also consider how our control group of bachelor’s degree holders (who appear to be similar to the law degree holders but for the law degree) were doing. To measure the value of a law degree, we must measure earnings premiums, not absolute earnings levels.

That makes perfect sense. If the median JD salary drops from $75,000 to $65,000, but the median BA salary drops from $45,000 to $35,000, then the JD has maintained its premium. You're earning less than you would have gotten during a boom year, but in either case you're earning $30,000 than you would have without the JD. We completely agree with this line of reasoning.

The problem is that Simkovic has ignored one premise of Tamanaha's argument:

Had S&M extended their study by just four years—to 1992, covering twenty years in all—they would have found reduced “earnings premium” for law grads. This is because the legal job market suffered a severe recession from 1992 to 1998, while the general economic recession had ended in early 1992. [Emphasis added]

Simkovic is right that the earnings premium can be maintained when salaries go down across the board. And, he'd be right if he said that if you just picked an extra year at random to add to the study, you'd be as likely to increase the premium as to decrease it. Neither of those points address Tamanaha's criticism, which is that in three years, specifically the ones preceding the data used by Simkovic, lawyer salaries were depressed while salaries at large were on the rise.

Finally, in all the talk about what years are the right data to use, one thing has to be kept in mind: As the author of the study Simkovic and his co-author McIntyre bear the burden of proof. It's up to them to argue why their 16-year historical span is a reliable predictor of future economic trends.

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