Paper Calling Law School A Good Investment

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sublime
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Paper Calling Law School A Good Investment

Postby sublime » Fri Jan 24, 2014 12:27 pm

..

TigerDude
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Re: Paper Calling Law School A Good Investment

Postby TigerDude » Fri Jan 24, 2014 12:53 pm

The danger is: 1) the study ignores debt and the opportunity cost of attending law school, easily a $200k to $400k delta.

2) it's a dice game - roll well & you're golden, roll poorly & you are screwed.

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midwest17
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Re: Paper Calling Law School A Good Investment

Postby midwest17 » Fri Jan 24, 2014 3:52 pm

It's on SSRN, so it's free.

sublime wrote:Initial concerns: if it is long term, is it pre-recession?


They claim that post-recession years are within cyclical historical norms in terms of salary outcomes for graduates.

sublime wrote:Does it analyze all entering law school or just those entering legal employment?


They're looking at all graduates.

TigerDude wrote:The danger is: 1) the study ignores debt and the opportunity cost of attending law school, easily a $200k to $400k delta.


Nope, they take into account opportunity cost and tuition (and they're doing everything at present value to account for interest, etc).

Taking into account the opportunity cost of three years of law school (so three years of lost earnings) they put the 25th percentile value of the degree at $430,000 -- so you should be willing to spend that much to get the degree (in present dollars), which is more than for any school.

TigerDude wrote:2) it's a dice game - roll well & you're golden, roll poorly & you are screwed.


I think this is pretty much right. This study definitely isn't evidence that Cooley is worth it, but it does suggest that most people will see a net positive value from doing the law degree. Of course, you have to figure out your own personal risk-aversion on your own (especially since this is non-dischargeable debt).

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A. Nony Mouse
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Re: Paper Calling Law School A Good Investment

Postby A. Nony Mouse » Fri Jan 24, 2014 4:00 pm

I guess my question is whether there's any way to control for what else the LS grad might have done besides law school. I suspect a lot of people who end up in law school were considering other potential grad degrees, and I guess I wonder whether the people who go to LS have radically different outcomes than they would have had in another field, as opposed to different outcomes from your average BA. That is, does LS cause the improved outcome, or is going to LS just evidence of a particular kind background/education/ability/mindset/drive that would have led that individual to succeed anyway?

(I realize this very vague hypothesis makes less sense when you're looking at really unselective schools like Cooley, but I kinda wonder if Cooley grads bring down the overall numbers....)

TheZoid
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Re: Paper Calling Law School A Good Investment

Postby TheZoid » Fri Jan 24, 2014 4:08 pm

When they say 'the median and 25th percentile salaries' I wonder if they're referring to the numbers put out by the school, which we know at this point are grossly misleading.

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rpupkin
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Re: Paper Calling Law School A Good Investment

Postby rpupkin » Fri Jan 24, 2014 4:36 pm

TheZoid wrote:When they say 'the median and 25th percentile salaries I wonder if they're referring to the numbers put out by the school

They're not. You could, you know, download and read the paper.

I'm sure the authors' methodology is susceptible to criticism, but I wish that everyone on TLS would consider the data. I've become increasingly uncomfortable of late with the "you should dropout" echo chamber effect that has taken hold around here. It seems like every day someone posts something like: "I just finished my first semester at a T20 with median grades and I'm thinking of dropping out." This is usually followed by posters who commend the OP for his or her clear (or even "brave") thinking, along with the suggestion to go ahead and drop out before the debt piles up.

There are, obviously, some horrible law schools out there with largely horrible outcomes for the majority of their graduates. And "don't go to law school" or "drop out of law schools" is doubtlessly the correct answer for some folks. But it seems like the conventional wisdom on TLS is starting to push people away from careers in the law even though many of those people will be better off--financially, at least--if they stick with it.

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guano
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Re: Paper Calling Law School A Good Investment

Postby guano » Fri Jan 24, 2014 4:45 pm

Let's start with saying that it's possible to manipulate data any way you wish.
They note that the mean and median earnings of lawyers are $130k and $115k.
we all know that only roughly half of all law grads end up working as lawyers. it is true that of those who don't, many have successful careers outside of law. The question that is not so easily answered, however, is what proportion of those would have been as successful without the law degree.

For example, some JDs become financial advisors / financial planners. This is a job that does not require a law degree, or any professional degree. It is a sales job, plain and simple, but having a JD can be used as a selling point to potential clients. But then, those same clients probably would have come on board with a different selling point too.

From my rather quick read I see some potential flaws.
1) if an individual has missing earnings data, they fill in the missing data based on prior and future months (footnote 16).
2) I'm not sure how they selected their sample (but what I can find shows that they've made adjustments re weight that could be manipulative), but the control group is people who only have a bachelor's. Personally, I think quite a few JDs would have chosen a different advanced degree, such as an MBA, if they had not gone to law school. I don't know how many, but probably enough to have an impact.
2B) they do note that law students mainly had crappy undergrad majors and therefore would otherwise have trouble finding employment and/or would earn low wages
3) their formula has a dummy variable Lawi for receipt of a law degree, but they don't give any further information about this variable (someone who reads the study more intensely than me, please chime in if there's an explanation)
4) they assume net tuition of $30k per year, which is a fair average. Just wanted to point that out for everyone to see
5) the discount rate they use for determining present value of a law degree is atrocious (3%; supposedly 6% nominal, but I don't know how on earth someone can make that conversion). They provide alternative discount rates of 2% and 4%. Apparently that's typical for when labor economics study earnings premiums, but seems low to me. They point out that it's conservative, in light of student loan payments. I'm gonna add that if you're taking out student loans at a higher interest rate (and who isn't) that is going to significantly reduce the value of the law degree significantly.

What I do want to add is that 2 years ago I built a financial model that analyzed the NPV of a law degree. I entered employment data* from a T14 that had very complete results, and I remember finding an NPV of roughly $850k or so (assuming no student loans)
*my assumptions for future income were probably too conservative

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jk148706
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Re: Paper Calling Law School A Good Investment

Postby jk148706 » Fri Jan 24, 2014 4:51 pm

guano wrote: The question that is not so easily answered, however, is what proportion of those would have been as successful without the law degree


Precisely. No reason to credit the JD for some ppl's success.

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midwest17
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Re: Paper Calling Law School A Good Investment

Postby midwest17 » Fri Jan 24, 2014 4:54 pm

A. Nony Mouse wrote:I guess my question is whether there's any way to control for what else the LS grad might have done besides law school. I suspect a lot of people who end up in law school were considering other potential grad degrees, and I guess I wonder whether the people who go to LS have radically different outcomes than they would have had in another field, as opposed to different outcomes from your average BA. That is, does LS cause the improved outcome, or is going to LS just evidence of a particular kind background/education/ability/mindset/drive that would have led that individual to succeed anyway?

(I realize this very vague hypothesis makes less sense when you're looking at really unselective schools like Cooley, but I kinda wonder if Cooley grads bring down the overall numbers....)


In the basic regression they're controlling for gender, race, ethnicity, age (in five-year groups), undergrad major, years it took to finish college, completing 2+ years of advanced math/science/language/english, public vs private high school, and college prep high school (p. 6).

They use another set of data (NELS) to look at whether law school is systematically getting people of higher ability. They look at a lot of things, and conclude that people who went to law school would have made 10.3% more than the typical bachelor's degree holder if they'd stopped after getting their bachelor's. But that's including some controls that were already used in the original regression (race and gender). They claim that in the end the ability sorting explains only a small portion of the law degree premium (pp. 10-15).

I don't know enough to evaluate this, but it's there in the paper if you want to read it.

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guano
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Re: Paper Calling Law School A Good Investment

Postby guano » Fri Jan 24, 2014 4:56 pm

jk148706 wrote:
guano wrote: The question that is not so easily answered, however, is what proportion of those would have been as successful without the law degree


Precisely. No reason to credit the JD for some ppl's success.

The funny thing is, that I think this is especially true for the biggest earners (that are not lawyers)

There's some gobbledygook on how they try to discredit the difference in the earnings of JDs versus people with only a Bachelor's (see page 7)
There is a nice line that I find noteworthy when explaining the increased earnings:

This could be because it increase wages (earnings per hour) or it could operate largely through increased work hours. Increased work hours may reflect reduced unemployment or underemployment, or increased hours may indicate law degree holders are routinely working much longer hours per day than they would prefer

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midwest17
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Re: Paper Calling Law School A Good Investment

Postby midwest17 » Fri Jan 24, 2014 4:59 pm

guano wrote:Let's start with saying that it's possible to manipulate data any way you wish.
They note that the mean and median earnings of lawyers are $130k and $115k.
we all know that only roughly half of all law grads end up working as lawyers. it is true that of those who don't, many have successful careers outside of law. The question that is not so easily answered, however, is what proportion of those would have been as successful without the law degree.

For example, some JDs become financial advisors / financial planners. This is a job that does not require a law degree, or any professional degree. It is a sales job, plain and simple, but having a JD can be used as a selling point to potential clients. But then, those same clients probably would have come on board with a different selling point too.


They're not differentiating based on career, I don't think. They're looking for the salary premium of the law degree, whether you use it to become a lawyer or not.

guano wrote:2) I'm not sure how they selected their sample (but what I can find shows that they've made adjustments re weight that could be manipulative), but the control group is people who only have a bachelor's. Personally, I think quite a few JDs would have chosen a different advanced degree, such as an MBA, if they had not gone to law school. I don't know how many, but probably enough to have an impact.


The question they're looking at is "is a law degree worth getting rather than stopping after my bachelor's." Whether it's a good deal compared to other professional degrees is a different question.

guano wrote:3) their formula has a dummy variable Lawi for receipt of a law degree, but they don't give any further information about this variable (someone who reads the study more intensely than me, please chime in if there's an explanation)


What further explanation are you looking for?

guano wrote:4) they assume net tuition of $30k per year, which is a fair average. Just wanted to point that out for everyone to see


I think they also ran tests on tuition up to $60k per year.

guano wrote:5) the discount rate they use for determining present value of a law degree is atrocious (3%; supposedly 6% nominal, but I don't know how on earth someone can make that conversion). They provide alternative discount rates of 2% and 4%. Apparently that's typical for when labor economics study earnings premiums, but seems low to me. They point out that it's conservative, in light of student loan payments. I'm gonna add that if you're taking out student loans at a higher interest rate (and who isn't) that is going to significantly reduce the value of the law degree significantly.


This seems fair.

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Re: Paper Calling Law School A Good Investment

Postby guano » Fri Jan 24, 2014 5:04 pm

midwest17 wrote:
guano wrote:Let's start with saying that it's possible to manipulate data any way you wish.
They note that the mean and median earnings of lawyers are $130k and $115k.
we all know that only roughly half of all law grads end up working as lawyers. it is true that of those who don't, many have successful careers outside of law. The question that is not so easily answered, however, is what proportion of those would have been as successful without the law degree.

For example, some JDs become financial advisors / financial planners. This is a job that does not require a law degree, or any professional degree. It is a sales job, plain and simple, but having a JD can be used as a selling point to potential clients. But then, those same clients probably would have come on board with a different selling point too.


They're not differentiating based on career, I don't think. They're looking for the salary premium of the law degree, whether you use it to become a lawyer or not.

I'm not advocating that they differentiate based on career (not sure how possible that would be), but that it is something to keep in mind. As an example, I know someone who got a JD, but ended up doing something else. They guy is a master salesman, the type who could sell ice cubes to eskimos and sand to saudi arabia. There is no doubt in my mind that he could have done equally well even without the JD.

Similarly, there are a number of lawyers who made the jump to IBanking or consulting, and they probably would have done just as well if they'd gone straight into that line of work, rather than start as a lawyer.

What I'm trying to say is that this kind of thing contributes noticeably to the "dramatically higher earnings" they attribute to the J.D.

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midwest17
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Re: Paper Calling Law School A Good Investment

Postby midwest17 » Fri Jan 24, 2014 5:12 pm

guano wrote:
midwest17 wrote:
guano wrote:Let's start with saying that it's possible to manipulate data any way you wish.
They note that the mean and median earnings of lawyers are $130k and $115k.
we all know that only roughly half of all law grads end up working as lawyers. it is true that of those who don't, many have successful careers outside of law. The question that is not so easily answered, however, is what proportion of those would have been as successful without the law degree.

For example, some JDs become financial advisors / financial planners. This is a job that does not require a law degree, or any professional degree. It is a sales job, plain and simple, but having a JD can be used as a selling point to potential clients. But then, those same clients probably would have come on board with a different selling point too.


They're not differentiating based on career, I don't think. They're looking for the salary premium of the law degree, whether you use it to become a lawyer or not.

I'm not advocating that they differentiate based on career (not sure how possible that would be), but that it is something to keep in mind. As an example, I know someone who got a JD, but ended up doing something else. They guy is a master salesman, the type who could sell ice cubes to eskimos and sand to saudi arabia. There is no doubt in my mind that he could have done equally well even without the JD.

Similarly, there are a number of lawyers who made the jump to IBanking or consulting, and they probably would have done just as well if they'd gone straight into that line of work, rather than start as a lawyer.

What I'm trying to say is that this kind of thing contributes noticeably to the "dramatically higher earnings" they attribute to the J.D.


No, that would cancel out. Unless people who are master salesmen are more likely to go to law school before they try to get those jobs. Which is what they (try) to control for in Section 3.

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guano
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Re: Paper Calling Law School A Good Investment

Postby guano » Fri Jan 24, 2014 5:23 pm

midwest17 wrote:
guano wrote:
midwest17 wrote:
guano wrote:Let's start with saying that it's possible to manipulate data any way you wish.
They note that the mean and median earnings of lawyers are $130k and $115k.
we all know that only roughly half of all law grads end up working as lawyers. it is true that of those who don't, many have successful careers outside of law. The question that is not so easily answered, however, is what proportion of those would have been as successful without the law degree.

For example, some JDs become financial advisors / financial planners. This is a job that does not require a law degree, or any professional degree. It is a sales job, plain and simple, but having a JD can be used as a selling point to potential clients. But then, those same clients probably would have come on board with a different selling point too.


They're not differentiating based on career, I don't think. They're looking for the salary premium of the law degree, whether you use it to become a lawyer or not.

I'm not advocating that they differentiate based on career (not sure how possible that would be), but that it is something to keep in mind. As an example, I know someone who got a JD, but ended up doing something else. They guy is a master salesman, the type who could sell ice cubes to eskimos and sand to saudi arabia. There is no doubt in my mind that he could have done equally well even without the JD.

Similarly, there are a number of lawyers who made the jump to IBanking or consulting, and they probably would have done just as well if they'd gone straight into that line of work, rather than start as a lawyer.

What I'm trying to say is that this kind of thing contributes noticeably to the "dramatically higher earnings" they attribute to the J.D.


No, that would cancel out. Unless people who are master salesmen are more likely to go to law school before they try to get those jobs. Which is what they (try) to control for in Section 3.

guano wrote:2B) they do note that law students mainly had crappy undergrad majors and therefore would otherwise have trouble finding employment and/or would earn low wages

Law students come from different majors with higher grades and tests scores and better family background and a stronger focus on career and income.

a typical law degree holder would earn 10.3 (s.e. 2.4) percent more than a typical bachelor’s degree holder, even if the law degree holder had chosen to terminate his education with a bachelor’s degree

They do try to adjust for these differences. I can't say how good their adjustments are. The skeptic in me will point out that these adjustments can easily be manipulated (whether intentional or not). But they do try

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Re: Paper Calling Law School A Good Investment

Postby TheZoid » Fri Jan 24, 2014 9:55 pm

rpupkin wrote:
TheZoid wrote:When they say 'the median and 25th percentile salaries I wonder if they're referring to the numbers put out by the school

They're not. You could, you know, download and read the paper.


You're right- I could. But I'm lazy, and I'd rather post what I did and then wait for some snarky jerk to come in and clear up the confusion, so thanks.




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