The Economic Value of a Law Degree (part 1 of about 5)
In the classic film It’s a Wonderful Life, George Bailey suffers financial hardship, becomes depressed, and wishes he had never been born. As Bailey attempts suicide, a Guardian Angel, Clarence, intervenes. Clarence magically shows Bailey an alternate universe in which Bailey never existed. Clarence helps Bailey realize that although his life may be hard, a world without Bailey would be far worse for those Bailey cares about.
In an ideal world, we could do for law students what Clarence does for Bailey: run the universe twice. In the first version, the law student attends law school. In the second version, he or she follows another path. With perfect knowledge of long-term outcomes, the student could decide which choice leads to the better life.
In the real world, the closest we can come to this ideal is to compare past outcomes for two groups of individuals who are similar to our prospective law student and were substantially similar to each other, until one group obtained law degrees while the other group did not.
This is the approach that Frank McIntyre and I take in The Economic Value of a Law Degree. Using large samples and detailed earnings data from the U.S. Census Bureau’s Survey of Income and Program Participation, we measure differences in annual earnings, hourly wages, and work hours between those with law degrees and those who end their education with a bachelor’s degree. Because we include those who are unemployed or disabled, our analysis incorporates differences in risk of unemployment.
Our focus on law degree holders’ lifetime earnings premiums is a major advance over previous studies. Previous studies have generally either focused on “lawyers” (which excludes many law degree holders), on generic professional degree holders (which includes many individuals who did not attend law school), or on starting salaries, which typically represent less than 3 percent of lifetime earnings.
We control for many demographic, academic, and socio-economic characteristics other than law school attendance that predict earnings. In a supplemental analysis using data from the National Education Longitudinal Study, we incorporate additional control variables and tests for ability sorting and selection.
We find that after controlling for observable differences, law graduates earn much more than similar bachelor degree holders across the distribution of outcomes.
The figure below shows law degree earnings and wage premiums in percentage terms at different points in the distribution. At the mean, law degree holders typically earn 70 percent more than similar bachelor degree holders, at the median, the difference is 60 percent, and at the 25th percentile, it is 55 percent.
Most of the increase in earnings is from higher wages per hour, not longer hours. In dollar terms, the annual earnings differences are substantial—more than $53,000 at the mean, $32,000 at the median, and $17,000 at the 25th percentile.
For those who would like to quickly flip through our results, a PowerPoint presentation is available here.
Part 2 of this series of blog posts will discuss the timing of increased earnings and the implications of financing costs for the lifetime value of the law degree.
Part 3 will discuss the use of historic data to project future earnings, and whether trends suggest that a “structural shift” has eroded the earnings advantage of a law degree in recent years.
Part 4 will discuss the contributions of legal education to the federal budget, and the implications for programs like Income Based Repayment that help spread the risks associated with investment in higher education.
Intermittent posts and subsequent posts will address remaining substantive questions and comments about data and methods.