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The University of Chicago

The University of Chicago Law School

The Economic Value of a Law Degree


Author(s): Michael Simkovic and Frank McIntyre
Source: The Journal of Legal Studies, Vol. 43, No. 2 (June 2014), pp. 249-289
Published by: The University of Chicago Press for The University of Chicago Law School
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The Economic Value of a Law Degree

Michael Simkovic and Frank McIntyre

A B ST R A CT
We investigate the economic value of a law degree and find that for most law school graduates,
the present value of a law degree typically exceeds its cost by hundreds of thousands of
dollars. The median and 25th-percentile earnings premiums justify enrollment. We track life-
time earnings of a large sample of law degree holders. Previous studies focused on starting
salaries, generic professional degree holders, or the subset of law degree holders who practice
law. We incorporate unemployment and disability risk and measure earnings premiums sepa-
rately for men and for women. After controlling for observable ability sorting, we find that
a law degree is associated with median increases of 73 percent in earnings and 60 percent
in hourly wages. The mean annual earnings premium is approximately $57,200 in 2013 dollars.
Values in recent years are within historical norms. The mean pretax lifetime value of a law
degree is approximately $1 million.

1 . I N T R O D U CT I O N

Decades of economic research has established that workers with higher


levels of education earn more and are more likely to be employed. This
is likely because they become more productive—or develop human cap-
ital—through education and perhaps also because education signals pro-
ductivity to employers. Indeed, many empirical studies suggest that
higher education not only correlates with better labor market out-
comes—it causes them (Card 1999).
The purpose of this article is to estimate, as closely as observational
data permit, the causal effect on earnings of a particular type of edu-
cation, the law degree. Instead of viewing law degree holders in isolation,

MICHAEL SIMKOVIC is Associate Professor of Law, Seton Hall University School of Law.
FRANK MCINTYRE is Assistant Professor of Finance and Economics, Rutgers Business
School. Thanks go to many seminar participants for helpful comments and suggestions.
Thanks also go to Jason Angelo, Steven Rosato, and Edan Lisovicz for research assistance.
[Journal of Legal Studies, vol. 43 (June 2014)]
䉷 2014 by The University of Chicago. All rights reserved. 0047-2530/2014/4302-0009$10.00

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we can obtain better estimates of the likely causal effect of education


by comparing the earnings of individuals with law degrees to the earnings
of similar individuals with bachelor’s degrees while being mindful of the
statistical effects of selection into law school.
We ask, does a law degree typically increase the earnings of law school
graduates compared with what such individuals would likely have earned
with only a bachelor’s degree? How does the law school earnings pre-
mium vary by gender and at different points in the distribution of out-
comes? How much of the increase in earnings is higher hourly wages
and how much is longer work hours? Have recent declines in the earnings
of law school graduates eroded the law degree earnings premium? Or
have parallel declines in earnings for similar bachelor’s degrees left the
relative advantage of a law degree intact? Is the increase in lifetime
earnings enough to justify the cost of law school for most law students?
This article improves on existing research by analyzing long-term
outcome data from the U.S. Census Bureau’s Survey of Income and
Program Participation (SIPP) and the National Education Longitudinal
Study (NELS) using appropriate statistical controls. A large nationally
representative survey, SIPP reports which individuals have law degrees,
whereas most Census Bureau surveys report only generic professional
degrees or occupational status as a lawyer.
Our data sources enable us to estimate earnings premiums and in-
creased labor force participation likely attributable to a law degree, not
only for the underinclusive category of lawyers or the overinclusive cat-
egory of professional degree holders but also for the appropriate group,
law degree holders. Approximately two-fifths of the law degree holders
in our sample are not employed as lawyers.
We improve on previous research by considering lifetime earnings
rather than starting salaries. We incorporate broad distributional data.
Rather than estimate earnings premiums exclusively at the mean using
ordinary least squares (OLS) regression, we also consider outcomes at
the median and the 25th and 75th percentiles, toward the bottom and
top of the distribution, using quantile regression. We incorporate dif-
ferences in unemployment, disability, and labor force participation rather
than assume full-time work. We control for observable pretreatment
covariates, other than law school attendance, that are associated with
earning potential and that are likely also correlated with selection by
students into law school and the admissions criteria used by law schools
to screen applicants.
Our approach cannot provide as definitive a set of estimates of cau-

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VA L U E O F A L AW D E G R E E / 251

sation as a hypothetical controlled experiment with random assignment


of similar college graduates either to law school or to the workforce.
Observational studies are always limited in their ability to control for
differences that are not observable and that influence selection into treat-
ment. However, previous observational studies of the impact of edu-
cation on earnings using matched samples of identical twins and instru-
mental variable (IV) methods have produced estimates that were close
to—and usually higher than—comparable OLS regression estimates. In
other words, the literature suggests that our approach is likely to produce
reasonably good starting estimates of causation. The results suggest
that—absent catastrophic changes exceeding changes already seen from
2008 to 20131 and uniquely affecting law school graduates—law school
remains a lucrative investment that reduces the long-term risks of fi-
nancial hardship for most law school graduates.
Section 2 of this article provides background and explains how our
approach improves on previous studies. Section 3 presents annual earn-
ings premium and hourly wage premium estimates for law degrees from
SIPP. Section 4 investigates ability sorting and selection into law school
using the NELS. Section 5 considers several other challenges to the ro-
bustness of the results. Section 6 presents estimates of the lifetime value
of a law degree, including differences by gender and across points in the
distribution. Section 7 concludes.

2 . B A CK G R O U N D

2.1. High Earnings but Varied Employment

Judging from the earnings of lawyers, law degrees seem to be lucrative


investments. Lawyers have long been among the highest paid of all U.S.
workers (U.S. Department of Labor 2014). Of the roughly 800 occu-
pations tracked by the Bureau of Labor Statistics (BLS) Occupational
Employment Statistics survey, only doctors, dentists, podiatrists, and
chief executives routinely have higher mean earnings than lawyers. In
2013, earnings of lawyers (excluding law firm partners and solo prac-
titioners) were approximately $130,000 at the mean and $115,000 at
the median.
However, BLS data for lawyers do not reflect the experiences of many
law school graduates. Roughly one-third to one-half of U.S. residents

1. We consider the structural-shift hypothesis in Section 5.

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with law degrees do not work as lawyers.2 Some law school graduates
are retired or caring for dependents. Some choose employment oppor-
tunities in business or government rather than legal practice.3 Other law
school graduates settle for nonlegal or part-time work because they are
unable to find work as lawyers. For purposes of determining the law
degree earnings premium, data on lawyers’ earnings are underinclusive.
The economic value of a law degree turns not on whether law school
graduates practice law but rather on how much more readily they find
work with the law degree than they would have without and how much
more they earn with the law degree than they would have without. The
labor market benefits of education often extend to employment outside
an individual’s field of study (Tsai 2010; Neumark, Johnson, and Mejia
2013).
Recent empirical studies suggest that the lifetime value of a profes-
sional degree is probably greater than $1 million (Day and Newburger
2002; Carnevale, Rose, and Cheah 2011). However, these estimates in-
clude medical and dental degree holders who likely earn more than law
degree holders, as well as many others who likely earn less.4 For purposes
of estimating the law degree earnings premium, data on professional
degree holders are overinclusive.

2.2. Questioning the Value of a Law Degree

The mainstream view of a law degree as a sound investment has recently


been challenged by “scam blogs,” widely read stories in the popular
press, class-action lawsuits against more than a dozen law schools, and
articles and books by law professors (Schlunk 2009, 2012; Segal 2011a,
2011b; Chen 2012; Henderson and Zahorsky 2012; Tamanaha 2012).
These critics claim that a law degree is a risky investment and that
many—and perhaps even most—law school graduates would have been
better off terminating their education with a 4-year bachelor’s degree.

2. Our analysis of Survey of Income and Program Participation (SIPP) data suggests that
about three of five law school graduates work as lawyers. A total of 58 percent of all law
degree holders report “lawyer” as their occupation, and 63 percent do so when the sample
is restricted to those working.
3. The disproportionate representation of law school graduates at the top of business
and government is indicative of decisions by many law school graduates to pursue careers
in these fields. Approximately 10 percent of chief executive officers of large companies and
50 percent of senators have law degrees, whereas only around 1 percent of the workforce
has a law degree (see, for example, Stuart 2006; Smallwood and Richards 2011).
4. For example, teachers, accountants, auditors, managers, nurses, and clergy often earn
a professional degree.

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VA L U E O F A L AW D E G R E E / 253

According to these critics, rapidly rising tuition costs and diminished


employment prospects for recent graduates following the 2008 financial
crisis have so eroded the value of a law degree that it no longer makes
financial sense for many to attend law school. The critics question
whether recent graduates who do not work as lawyers at big firms will
recoup their investments.
Academic critics’ views have been widely disseminated and highly
influential. Their conclusions have been reported in the New York Times,
the Wall Street Journal, and the National Law Journal. An article warn-
ing prospective students not to attend law school, “Mamas Don’t Let
Your Babies Grow Up to Be . . . Lawyers” and a related follow-up article
have been downloaded from the Social Science Research Network more
than 10,000 times (Schlunk 2009, 2012). These distinctions and wide-
spread publicity may enable critics to influence college graduates’ career
plans, the judiciary, and perhaps the future of legal education. They may
have already contributed to a steep 3-year decline in the number of law
school applications and enrollments (Ho 2013).

3 . E S TI M ATIN G T H E L AW S C H O O L P R E M I U M

3.1. Data and Specification

We estimate the earnings premium associated with a law degree by using


earnings, education, and demographic data from four panels (1996–
2008) of SIPP. We start with the 1996 SIPP panel because a substantial
survey redesign in 1996 complicates comparisons with earlier data. Each
panel covers approximately 4 years, following individuals over time, and
our latest data come from the beginning of 2013.5
Respondents report monthly earnings three times per year. We ag-
gregate monthly earnings into yearly earnings.6 Although we examine
time trends year by year, our base specification aggregates income data
across the 4 years that each person is typically in the sample. This im-
proves estimates of lifetime earnings by averaging out some of the noise
in year-to-year earnings.

5. A small amount of data from the end of 1995, comprising around 1.5 percent of the
sample, is also included. Although data in 1995 and 2013 are from partial years, we find
no evidence that excluding these data substantively affects our results. Because educational
attainment is measured at the start of each panel, the newest law degree holders in the
sample graduated in 2008.
6. We use longitudinal income imputations that fill in missing months using prior and
future months’ earnings, but we do not use any cross-sectional imputation that attempts
to estimate income using the earnings of other people.

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Our initial sample containing earnings data from 1996 to 2013 for
individuals ages 23–657 consists of approximately 200,000 people. We
exclude approximately 145,000 people whose education level is less than
a bachelor’s degree and approximately 17,000 people with advanced
degrees in a field other than law. This leaves approximately 37,500
people with either a terminal bachelor’s degree or a law degree.8
We include in our sample those who report being disabled or un-
employed but looking for work, but we exclude approximately 2,600
who report not working because they are caring for children or the
elderly. In unreported results we found that this exclusion made no
material difference to the estimates. We also exclude approximately
1,800 people who were enrolled in school full-time during the panel.
We construct a sample of bachelor’s degree holders and law degree
holders using SIPP’s topical module on education. Because the module
is administered early in the panel, we know only if someone has com-
pleted a bachelor’s degree or a law degree at the beginning of the survey.
Those who start the survey in graduate school are dropped from the
sample because the data are insufficient to determine if they are pursuing
a law degree.
Our final regression sample consists of 1,040 law degree holders and
31,014 bachelor’s degree holders, for a total of approximately 129,000
people-years. Summary statistics in Table 1 show a breakdown by sex,
race, age, and—for the law degree holders—year of law school gradu-
ation. Approximately half of our sample of law degree holders graduated
law school between 1959 and 1986, while half graduated from 1987 to
2008. Compared with the bachelor’s degree holders, a higher proportion
of law degree holders are white men.
Our basic empirical specification is straightforward:
yit p a # Lawi ⫹ X it b ⫹ dt ⫹ ␧i ,
where yit is log annual earnings for worker i averaged over his or her
years in the sample, with the median observation in year t. The term
Lawi is a dummy variable for receipt of a law degree; it is not indexed
by time since educational data for each panel are recorded only at the

7. We use the earnings of bachelor’s degree holders who are ages 23–25 and who re-
semble law degree holders to estimate the opportunity costs of forgone earnings while in
law school for purposes of calculating the present value of a law degree. Our regressions
of annual and log earnings, wages, and work hours include only people ages 25–65.
8. We require law degree holders to report earning a professional school degree in the
field of law and exclude a small number of individuals reporting a master’s or doctoral
degree. We also dropped all those imputed to be lawyers.

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VA L U E O F A L AW D E G R E E / 255

Table 1. Summary Statistics for the Survey of Income and Program Participation Regression
Sample

Law Degree Bachelor’s Degree


Holders Holders
N % N %
Sex:
Men 714 69 15,886 51
Women 326 31 15,128 49
Race or ethnicity:
White 968 92 26,402 85
Black 47 5 2,214 7
American Indian 14 1 1,220 4
Asian 19 2 1,178 4
Age:
25–29 65 6 3,697 12
30–34 129 12 4,022 13
35–39 143 14 4,244 14
40–44 177 17 4,447 14
45–49 173 17 4,257 14
50–54 131 13 3,751 13
55–59 114 11 2,941 10
60–65 108 10 2,871 9
Year of law school graduation:
1959–68 46 4
1969–78 229 22
1979–88 288 28
1989–98 322 31
1999–2008 154 15
Observations 1,040 31,014

beginning of the survey. Our sample includes only those with either a
bachelor’s degree or a law degree; thus, our comparison is the difference
between a law degree and a terminal bachelor’s degree. Our main co-
efficient of interest is the law school premium a.
The term Xit captures controls for gender, race, and ethnicity; a
dummy variable for 5-year age groups; college major; years to college
completion interacted with college major; indicators for completing 2
or more years of advanced high school math, science, foreign language,
or English; public or private high school; and college preparatory high
school. All estimates are weighted with SIPP sample weights.
Although it is somewhat limited in measurements of ability, SIPP
provides excellent coverage of a range of ages and a number of years.
Section 4 investigates the direction of ability sorting using richer data
from NELS. Previewing the results, we find little evidence that ability
sorting biases the SIPP estimates.

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Below we report both OLS and quantile regression coefficients. To


estimate the law degree earnings premium, we compare law degree hold-
ers to bachelor’s degree holders who are similar to law degree holders
on many observable dimensions that predict earnings. We defer to later
research the differences in earnings associated with law degrees com-
pared with alternate graduate degrees.

3.2. Ordinary Least Squares Results

Table 2 reports our base specification. The unadjusted log earnings gap
of .67 between the general population of bachelor’s degree holders and
law degree holders translates into an average earnings premium of 95
percent.9
One explanation for this enormous disparity may be selection: the
kinds of bachelor’s degree holders who attend law school may have been
more likely to succeed compared with the general population of bach-
elor’s degree holders, even without attending law school. With controls
for the array of earnings predictors Xit, the law degree premium drops
only slightly, to .61, equal to 84 percent. Consistent with our expecta-
tions, earnings are higher for those with additional years of advanced
high school math, English, and foreign language. Earnings are also higher
for business and science, technology, engineering, and math (STEM)
majors than for social science or humanities majors as well as the ex-
cluded category of other majors such as education.
Because of differences between men’s and women’s earning profiles,
we report the earnings premium separately for men and women. The
male earnings premium is lower than the female premium (.53 versus
.70). One explanation for this may be that women with law degrees
work more hours than their counterparts with a bachelor’s degree. We
investigate this possibility more closely in Table 3.
When we restrict the sample to full-time workers (those working at
least 35 hours per week), the earnings premium of a law degree falls
slightly, from .61 to .54. Thus, the premium does not seem to be strongly
related to whether an individual participates full-time in the labor mar-
ket.
The results of Table 2 are unambiguous—a law degree is associated
with dramatically higher earnings. This could be primarily because of
increased wages (earnings per hour) or increased number of work hours.

9. This regression, like all the others, includes time dummy variables. These make no
substantive differences in the results.

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Table 2. Difference in Log Earnings between Bachelor’s Degree and Law Degree Holders

No Full-Time
Controls Controls Men Women Workers
(1) (2) (3) (4) (5)
Law degree .67 (.03) .61 (.03) .53 (.04) .7 (.06) .54 (.03)
Female ⫺.43 (.01) ⫺.24 (.01)
College major:
Business and economics .21 (.02) .22 (.03) .16 (.03) .17 (.02)
STEM .24 (.02) .26 (.03) .18 (.04) .21 (.02)
Social sciences ⫺.01 (.03) .02 (.04) ⫺.03 (.04) .00 (.02)
Other .05 (.02) .05 (.03) .06 (.03) .03 (.02)
1 2 Years advanced high school work:
Math .09 (.01) .06 (.02) .11 (.02) .03 (.01)
Sciences ⫺.00 (.01) .03 (.02) ⫺.03 (.02) 0 (.01)
English .02 (.02) .05 (.02) ⫺.01 (.03) .01 (.01)
Foreign language .04 (.01) .05 (.02) .03 (.02) .06 (.01)
Public high school (.02) (.02) (.02)

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⫺.04 ⫺.05 ⫺.03 ⫺.04 (.01)
College preparatory high school .06 (.01) .05 (.02) .07 (.02) .06 (.01)
Observations 29,487 29,467 15,505 13,962 21,667
R2 .02 .14 .11 .06 .16

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Note. The sample is composed of individuals ages 25–65 with a law degree or a bachelor’s degree. All regressions include individual year controls.
Columns 2–5 include controls for age, race, and time to college completion. Age controls are 5-year interval dummies. Observations are individuals
averaged over all years of the sample. College-major effects are reported at a 4-year graduation window, with the baseline being humanities majors.
STEM p science, technology, engineering, and math.
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Table 3. Difference in Log Wage, Hours, and Earnings between Bachelor’s Degree and Law
Degree Holders

No Full-Time
Controls Controls Men Women Workers

Log wage .56 .5 .47 .54 .48


(.03) (.03) (.03) (.05) (.03)
Weekly hours 4.82 4.34 3.3 5.73 3.16
(.55) (.55) (.66) (1.00) (.39)
Annual earnings ($) 63,642 57,199 57,647 51,826 63,002
(3,631) (3,547) (4,634) (4,935) (4,137)

Note. The sample consists of individuals ages 25–65 with a law degree or a bachelor’s degree.
All regressions include controls for year, age, race, and time to college completion. Age controls
are 5-year interval dummies. Observations are individuals averaged over all years of the
sample.

Increased number of work hours may reflect reduced unemployment or


underemployment or may indicate that law degree holders are routinely
working much longer hours than they would prefer.
Table 3 reports several regressions that substitute alternate dependent
variables for log earnings. We compute the hourly wage as total annual
earnings divided by total hours worked and then use the log of this as
our dependent variable. The raw gap of .56, somewhat smaller than the
original earnings gap, is because law degree holders work more hours
than those whose highest degree is a bachelor’s. Adding controls reduces
the law degree premium slightly, to .50, which translates into a 65 per-
cent wage premium. In other words, a law degree is associated with
both more work hours and higher wages per hour, and most of the
increase in earnings is due to increased wages per hour.
The gender difference in hourly wage premiums is much smaller than
the gender difference in earnings premiums. The law degree wage pre-
mium for men is .47 and for women is .54. Thus, the gender gap in the
law earnings premium in Table 2 is mostly the result of differences in
number of hours worked compared with the control group of bachelor’s
degree holders.
We find that, after applying controls, law degree holders typically
work 4.3 hours more per week, or a little under an hour per day. Women
with law degrees work about 5.7 hours more per week than college-
educated women without law degrees, while men with law degrees work
about 3.3 hours more per week than men without law degrees. When
we restrict our sample to those working full-time, the law degree holders
work about 3.2 hours more per week, or 40 minutes more per workday.

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VA L U E O F A L AW D E G R E E / 259

The increase in hours among those who are working full-time is mild,
on average an increase of approximately 7 percent, and does not provide
much support for the view that most law degree holders suffer from
involuntary overwork. We can therefore reasonably base our estimates
of the overall earnings premium of a law degree on annual earnings.
Table 3 also presents annual earnings in inflation-adjusted 2013 dol-
lars. Our findings suggest a dramatic increase in earnings for law degree
holders of approximately $57,200 per year after applying controls. This
premium is higher for men, primarily because of higher baseline number
of work hours. Men with a law degree earn approximately $57,600
more per year than men without a law degree, and women with a law
degree earn approximately $51,800 per year more than women without
a law degree. Full-time workers earn approximately $63,000 more per
year with a law degree than without.

3.3. Quantile Regression Results

Previous studies have typically focused on differences in mean or median


earnings,10 although it is possible to estimate earnings premiums at dif-
ferent points in the distribution of ability levels using quantile regression.
Such a distributional analysis would test claims that advanced degrees
may not benefit less capable students as much as they benefit average
or above-average students. We use the same controls in our quantile
regressions as in our OLS regressions.11
Table 4 reports percentile estimates. Translating logs into percentages,
we find that the median difference is 73 percent in earnings, with a
median difference of 60 percent in (hourly) wages. This compares to a
mean difference (reported in logs in Tables 2 and 3) of 84 percent in
earnings and 65 percent in hourly wages. Our estimates suggest that the
percentage earnings premium is similar for those at the median and 25th
percentile and considerably higher for those at the 75th percentile. How-
ever, in dollar terms, the premium increases dramatically because those
close to the top of the distribution start from a much higher base level

10. Day and Newburger (2002, p. 2 n.6) use mean earnings. Carnevale, Rose, and Cheah
(2011, p. 1 n.2) use median earnings.
11. Although we still control for age, the large number of dummy variables is compu-
tationally less stable for quantile regressions, so we substitute the age dummy variables
for a quadratic in age. We tested this first in an ordinary least squares (OLS) regression
and found that it made no substantive difference. It also made no difference in those quantile
regressions that successfully converged.

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Table 4. Law Degree Premium across the Earnings Distribution: Quantile Regression

25th 50th 75th


Percentile Percentile Percentile
Men:
Log earnings .43 .46 .63
(.04) (.03) (.03)
Log wage .40 .45 .50
(.04) (.03) (.03)
Annual earnings ($) 20,150 36,905 76,681
(1,731) (1,859) (2,873)
Women:
Log earnings .63 .59 .70
(.08) (.04) (.04)
Log wage .43 .52 .57
(.05) (.04) (.04)
Annual earnings ($) 22,479 34,745 57,577
(1,829) (1,905) (2,536)
All:
Log earnings .5 .55 .69
(.04) (.02) (.02)
Log wage .43 .47 .56
(.03) (.02) (.02)
Annual earnings ($) 21,714 38,915 68,827
(1,210) (1,207) (1,878)
Note. The sample consists of individuals ages 25–65 with a law degree or a bachelor’s degree.
All regressions include controls for year, age, race, and time to college completion. Age controls
are 5-year interval dummies. Observations are individuals averaged over all years of the
sample.

of earnings.12 In 2013 dollars, the annual earnings premium climbs from


$21,700 at the 25th percentile to $38,900 at the 50th percentile to
$68,800 at the 75th percentile.
Women gain more in percentage terms throughout the earnings dis-
tribution. Wage premiums for men and women are much closer. For
annual earnings premiums, women do slightly better than men at the
25th percentile ($22,500 versus $20,200), but this reverses quickly as
we move up the distribution because of men’s higher number of hours
and greater labor force participation. At the 75th percentile, men gain
$76,700 while women gain $57,600. Thus, there appears to be a sub-
stantial earnings premium throughout the distribution for both genders.

12. To conserve space, we omit reporting quantile regressions for number of hours
worked. The number of hours worked rises about 3.5 at the 25th percentile and 5 at the
75th, in line with the slight narrowing in results when we move from earnings to wages.

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VA L U E O F A L AW D E G R E E / 261

Figure 1. Mean annual earnings, ages 26–65

3.4. The Law Degree Premium over the Life Cycle

Starting salaries are not always good predictors of lifetime earnings. An


advantage of the SIPP data over starting-salary surveys is that we can
estimate the earnings premium across the life cycle. For illustrative pur-
poses, we present the mean lifetime earnings stream of law degree holders
and our control group of similar bachelor’s degree holders (including
those unemployed, working part-time, or disabled) in Figure 1. For each
sample, we average earnings in 5-year age blocks and show a smooth
fourth-order polynomial trend line. In an unreported regression, we
found evidence that the premium rises substantially over the life cycle,
from 40 to almost 80 log points. We can reject equality across the
premiums (p ! .001).
We use cross-sectional data on the earnings of similar individuals of
different ages or experience levels to predict the future real earnings of
young workers using the current real earnings of similar older workers.

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This assumption is conservative, assuming no increase in real earnings


over time due to secular economic growth (although individual workers’
wages increase as they become more experienced).13 In reality, for the
last 3 decades, workers with advanced degrees have seen their real wage
earnings increase at a much faster rate than less educated workers (that
is, education has become more valuable after controlling for work ex-
perience; see Lemieux [2006, pp. 196–99]; Simkovic [2013, p. 537]; Day
and Newburger [2002, p. 3, fig. 2]). Recent estimates from long-term
census data suggest that real earnings for white male lawyers increased
about .25–1 percent per year from secular growth since the 1960s (Wil-
liams and Sander 2013, table 3). Although more conservative than the
secular-growth trend suggested by long-term historical data, our zero-
secular-growth assumption is consistent with a moderate version of the
structural-change hypothesis. More pessimistic secular-growth assump-
tions can be modeled by adjusting the discount rate upward.

4 . E V ID EN CE O F A B I L I T Y S O R T I N G

4.1. Data and Specification

Although SIPP provides excellent data on the earnings of law degree


holders across ages and years, it does not provide control variables as
detailed as we would prefer. Many additional differences in ability are
observable in another data set, NELS. We therefore further investigate
the direction and magnitude of ability sorting using supplemental data
from NELS. This panel data survey tracks a large pool of students from
middle school until their late 20s. These students, their parents, and their
teachers were interviewed repeatedly from 1988 to 2000. We filter the
initial sample of approximately 12,000 respondents by excluding ap-
proximately 8,000 whose highest level of education was less than a
bachelor’s degree, 1,300 who were enrolled in graduate school, and 400
who had advanced degrees in fields other than law. This leaves approx-
imately 2,400 respondents: bachelor’s degree holders, law school stu-
dents, and law school graduates. After dropping respondents with miss-
ing data, the final sample consists of approximately 1,500 bachelor’s
degree holders and 120 people with law degrees or who were in law

13. Day and Newburger (2002, p. 8) note that “these estimates do not account for any
future productivity gains in the economy, and therefore, the estimates may be low”; Car-
nevale, Rose, and Cheah (2011, p. 21) comment, “Productivity growth will [likely] lead
to higher earnings in the future and therefore the career of today’s young adults will lead
to higher lifetime earnings than presented here.”

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VA L U E O F A L AW D E G R E E / 263

school. The earnings regressions were run on bachelor’s degree holders


with complete information for all covariates.
Because the respondents in the sample are all the same age, entered
the labor market at much the same time, and were interviewed before
an extensive post-law-degree income could be observed, the data are not
a good source for studying the lifetime earnings of law degree holders
or how those differences vary over time. The advantage of NELS is
extensive data on academic achievement and family background from
an early age. This lets us estimate which factors lead an individual to
law school and how those factors predict earnings for those who have
only a bachelor’s degree.
Table 5 presents differences in observable characteristics between the
bachelor’s-degree-only group and law school graduates (calculated as
law school graduate minus bachelor’s degree holder). We present data
on the percentage of each group that falls into each of five college-major
categories: humanities, social sciences, business and economics, STEM,
and other.14 Law school graduates tend to have higher normalized grades
than those with a bachelor’s degree, but law school graduates dispro-
portionately have undergraduate majors such as humanities and social
sciences and are less likely to have majored in STEM or business and
economics. Law school graduates have higher standardized test scores
by about half a standard deviation, at the age of 18 report that they
subjectively expect to earn 35 log points more later in life,15 and come
from families with a slightly higher socioeconomic status (SES) (⫹.32
SD). They are equally likely to have a scholarship, attend slightly more
expensive schools by about half a decile, and care more about career
and education goals (⫹.2 SD).16
In theory, the overall effect of sorting may be either positive or neg-
ative.17 Many law schools screen for ability by requiring a minimum

14. The categories are based on those in the 1997 version of the International Standard
Classification of Education (ISCED) (UNESCO 1997). Our categories differ slightly from
those found in the ISCED because we classify business and economics majors separately
from other social science majors because of their systematically higher earning potential
(Black, Sanders, and Taylor 2003, p. 364; Arcidiacono 2004; Arcidiacono, Aucejo, and
Spenner 2012, p. 20).
15. We cap expected income at $200,000. This affects 1 percent of the sample.
16. We constructed a normalized index from a series of questions about the importance
of career success, money, work, leisure, and education.
17. See, for example, Heckman, Lochner, and Todd (2006, p. 349): “The traditional
ability bias model . . . predicts an upward bias in OLS estimates of the return to schooling.
In a sequential model, people with a good draw at lower schooling levels drop out, thus
producing a downward bias.”

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Table 5. Observable Differences in Ability between Law School Graduates and Graduates with a Bachelor’s Degree

Covariate Means
OLS
Bachelor’s Law (Law ⫺ Bachelor’s)
(1) (2) (3) (4) (5)
Female .54 .31 ⫺.23 ⫺.22 (.03) ⫺.24 (.03)
Race or ethnicity:
Black .09 .04 .05 (.06) .06 (.06)

264
⫺.05
Hispanic .05 .08 .04 .08 (.06) .11 (.06)
Other .05 .05 ⫺.01 .06 (.06) .06 (.06)
College major:
Humanities .14 .30 .16
Social sciences .07 .43 .36 ⫺.04 (.07) ⫺.04 (.06)

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Business .22 .17 ⫺.05 .29 (.05) .31 (.04)
STEM .27 .08 ⫺.20 .14 (.05) .15 (.04)
Other .29 .02 ⫺.27 .05 (.04) .05 (.04)
College GPA by major (normalized):

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Humanities ⫺.14 .30 .43 .04 (.04) .04 (.04)
Social sciences ⫺.14 .49 .63 .05 (.05) .04 (.05)
Business ⫺.18 .71 .89 .08 (.03) .08 (.03)
STEM ⫺.27 .22 .49 .13 (.03) .15 (.03)
Other ⫺.15 1.15 1.30 0 (.03) 0 (.03)
College scholarship or grant .49 .51 .02 .04 (.03) .03 (.03)
College cost decile 6.32 6.98 .66 .02 (.01) .02 (.01)
Importance of career and education ⫺.01 .20 .20 .05 (.02) .05 (.01)
Subjective earnings expectation at age 18 (log) 10.73 11.08 .35 .09 (.03)
High school standardized test scores ⫺.10 .37 .47 .01 (.02) .01 (.02)
Parents’ socioeconomic status .50 .82 .32 .07 (.02) .07 (.02)
Constant 9.18 (.31) 10.14 (.06)
Observations 120 1,510 1,390 1,510
R2 .16 .16
Note. The sample consists of respondents to the National Education Longitudinal Study. Humanities majors are used as the baseline. Although the number
of observations in the sample of those with a law degree is the same as that using only those ages 28 and 29, this is pure coincidence. The ordinary least
squares (OLS) log income regressions are run only on bachelor’s degree holders. The dependent variable in the OLS regressions is log income at age 28 for
those not in school. Robust standard errors are in parentheses. STEMp science, technology, engineering, and math; GPA p grade point average.

265

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Law School Admission Test score or college grade point average (GPA)
for admission. Law school graduates may also be more motivated or
come from more privileged backgrounds where the initial debt burden
of law school is less worrisome. Those advantages may be valuable
regardless of whether the student attends law school. On the other hand,
students who apply to and choose to attend law school are dispropor-
tionately drawn from college majors associated with relatively low earn-
ings and likelihood of obtaining employment at college graduation.18
Using NELS, we identify differences between those who attend law
school and those who do not. We then estimate how those differences
predict a change in later earnings without law school attendance. If the
factors that predict law school attendance also predict higher earnings
among those who do not attend law school, this suggests positive ability
sorting. If ability sorting is positive, then some portion of the earnings
premium associated with a law degree is due to differences in ability
levels, and the causal effect of the law degree will be smaller than ob-
served raw differences in earnings. On the other hand, if factors that
predict law school attendance do not predict high earnings without a
law degree, this suggests more strongly that the bulk of the earnings
premium associated with a law degree can be attributed to the law
degree.
To determine the aggregate effect of observable differences on the
earnings premium, we run a multivariate regression. Although we cannot
account for unobservable differences that are uncorrelated with our ex-
planatory variables, many of the most likely sources of ability sorting
are measured, albeit sometimes imperfectly, in our covariates.

4.2. Ordinary Least Squares Results

We use the OLS results in column 4 of Table 5 to determine how the


observed differences between the law degree and bachelor’s degree sam-
ples predict higher earnings for an individual whose highest degree is a
bachelor’s.19 We exclude subjective earnings expectations in column 5,
as these may be simultaneously determined with the choice to enter law.

18. In our discussion of the robustness of results, we also consider the possibility that
college major is endogenous—that is, that future law students choose low-earnings college
majors because they intend to go to law school.
19. The earnings coefficients of bachelor’s degree holders may be biased if there is a
selection of who obtains only a bachelor’s degree. But since the number of those with only
a bachelor’s degree is far larger than those with graduate degrees, the bias should not be
too severe.

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VA L U E O F A L AW D E G R E E / 267

The majors with the lowest predicted earnings are humanities (base-
line), social science (⫺4 percent), and other (5 percent). Business and
economics majors have the highest average earnings (29 percent), while
STEM majors have the second-highest average earnings (14 percent).
Law school graduates disproportionately have undergraduate majors
with low average predicted earnings. Thus, on the basis of college major
alone, we would expect our law sample to have slightly lower incomes.
We present grades normalized by major to be mean zero, with a
standard deviation of 1. This eliminates differences across majors that
are due to some majors awarding higher grades than others (Johnson
1997, p. 251, 2003; Simkovic 2013, pp. 570–80). Higher grades typically
predict higher earnings within each major, but the effect is small. A 1-
standard-deviation increase in GPA predicts an increase in earnings of
4 percent for humanities majors, 5 percent for social science majors, 8
percent for business and economics majors, and 13 percent for STEM
majors.
Multiplying column 3 by column 4 in Table 5 estimates the extent
to which each covariate predicts the earnings gap. Among law school
graduates who majored in humanities and the social sciences, having a
higher GPA relative to bachelor’s degree holders does not predict much
higher earning potential (2 and 3 percent, respectively). Differences in
GPA predict larger differences in earning potential for STEM and busi-
ness and economics majors, but even there the differences (7 percent)
are small relative to observed differences in earnings.20 Moreover, STEM
and business and economics majors account for fewer than one in four
law school graduates. Other differences in covariates between the two
groups follow the same pattern. Law school students have higher finan-
cial status and academic standing than bachelor’s degree holders, but
the estimated effect on earnings is far too small to explain the earnings
gap.
The coefficients in column 4, combined with the differences in column
3, suggest in aggregate that a typical law degree holder would earn 10.3
(SE 2.4) percent more than a typical bachelor’s degree holder, even if
the law degree holder had chosen to terminate his or her education with

20. Students majoring in science, technology, engineering, and math fields tend to have
the lowest average grades even though they have higher average standardized test scores
and spend more hours studying (see Johnson 1997, 2003; Black, Sanders, and Taylor 2003;
Arcidiacono, Aucejo, and Spenner 2012).

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a bachelor’s degree.21 The combined effect of higher grades, test scores,


SES, college quality, career motivation, and subjective expectations is
small—about 5 percent. The remaining 5 percent difference is due to
controls for race and gender already taken into account in our SIPP
estimates.22 Our SIPP data already include race, gender, college major,
and some proxies for ability, motivation, and parental SES that cause
the earnings gap in Table 2 to fall from column 1 to column 2 by 6 log
points.
Although we include variables that proxy likely sources of difference
between law school graduates and bachelor’s degree holders, we cannot
rule out remaining unobserved differences.23 Yet the small difference in
predicted earnings due to observable differences suggests that law school
graduates’ average latent earning ability may not be strikingly different
from others’. The ability gap identified here is comparable to the dif-
ference already taken into account using SIPP, and we therefore do not
adjust our SIPP estimates using the supplemental analysis in NELS.24

5 . R O B U S T N ES S

5.1. Ordinary Least Squares Compared to Instrumental Variables


Estimates

A standard criticism of an OLS education coefficient is that ability bias


moves the coefficient upward. Several studies have attempted to estimate
the causal effect of education on earnings using IV approaches in ad-
dition to OLS regression. These studies suggest that IV estimates using

21. We apply the estimated model coefficients to the covariates of our law and nonlaw
students and calculate the average difference. Results are similar (8 percent). Excluding
controls for major also gives similar results.
22. We determine this by running the model with and without the demographic controls
and comparing the resulting predictions. Excluding demographics, we find that the pre-
dicted pay of law degree holders is 5 percent higher than that of bachelor’s degree holders.
23. Measurement error in the variables could lead to underestimation of these coeffi-
cients. Instrumenting college grades, test scores, and socioeconomic status by earlier survey
values to purge measurement error changes our latent ability gap from 10 percent to 15
percent and doubles the standard error to 4.2. We are unable to reject the null hypothesis
that the original OLS version gives the same results as the instrumental variables version.
The small change is perhaps due to the fact that downward bias in the coefficient for one
variable tends to be offset by upward bias for other variables.
24. The log earnings premium in SIPP for those in their 20s appears to be smaller than
the overall log earnings premium across age groups. Ideally we would test our National
Education Longitudinal Earnings Study (NELS) model across the life cycle. Unfortunately,
the NELS does not yet have follow-up studies that could confirm these results as cohorts
age.

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VA L U E O F A L AW D E G R E E / 269

the same sample and control variables as OLS regression often produce
substantially higher estimates of earnings premiums than OLS methods
(see Card 1999, pp. 1834–46). On the basis of his review of these studies,
Card (1999, p. 1840) concludes that “instrumental variables estimates
of the return to schooling typically exceed the corresponding OLS es-
timates—often by 30% or more.” Instruments include birth quarter as
a proxy for opportunity to drop out of school early (Angrist and Krueger
1991; Staiger and Stock 1997), state-specific tuition rates (Kane and
Rouse 1993), proximity to an educational institution when growing up,
birth cohort effects such as changes to the minimum school-leaving age
or effects of war on schooling, and Vietnam War draft lottery numbers
(see, for example, Kane and Rouse 1993; Harmon and Walker 1995;
Angrist and Krueger 1992).25
Recent work considers selection in the related question of field of
study for postsecondary students using a regression discontinuity design.
Kirkeboen, Leuven, and Mogstad (2014) exploit institutional features
in Norway, where students are centrally assigned to a college major on
the basis of their ranked preferences and arbitrary score cutoffs that
change from year to year according to availability and requests for slots
in particular programs. The regression discontinuity estimates in the
study are similar to OLS estimates and suggest a model in which aptitude
in one area does not readily transfer to other disciplines. If true, our
OLS estimates would be less biased from an unobserved general ability
component.
Other studies attempt to estimate the causal effect of education on earn-
ings using twins with different levels of education (Card 1999, pp. 1846–
51). Card’s review of these studies suggests that these estimates corrected
for measurement error are generally only 10–15 percent lower than cor-
responding OLS estimates of the general population (Card 1999, p. 1851).
Although our data cannot readily be analyzed using IV regressions
or data on twins, the existing literature suggests that such an approach
would be more likely to increase our estimates of earnings premium than
to decrease them. Further, it would take a tremendous amount of data
specific to lawyers, given the typical power of IV approaches. Thus, in
light of the current state of the literature, in which no lifetime estimates

25. However, subsequent research suggests that draft lottery numbers do not predict
education levels and therefore are not a good instrument for education (Angrist and Krueger
1995).

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of any kind are available, we feel that the OLS results are a worthwhile
starting point.

5.2. Reporting Biases

These OLS estimates may not be as upwardly biased as is often suspected.


Measurement error tends to push the estimates downward, which cancels
out some or possibly all upward ability bias. Setting aside errors in
reported education, several studies comparing SIPP earnings data to
matched Social Security Administration earnings records conclude that
highly educated high earners tend to underreport their earnings to SIPP
while less educated, lower-earning workers tend to overreport earnings
(Pedace and Bates 2000; Gottschalk and Huynh 2010). This is probably
not primarily because of top coding.26 Instead, it appears that high-
income, highly educated individuals tend to report regular monthly sal-
ary and generally do not include end-of-year bonuses, pension contri-
butions, or other substantial benefits (Taras and Gesser 2003; Henderson
and Zaring 2007; U.S. Department of Labor 2013). Less educated,
lower-income individuals tend to report their monthly income in months
when they worked full-time, which is often less than 12 months a year,
rather than what they actually earn in a typical month.

5.3. College Major and Other Choices of Covariate

Humanities majors may typically be low earners, but those intent on


law school may have substantially greater ability than the average hu-
manities major. Controlling for the disproportionate representation of
humanities majors among law students would then distort the resulting
premium. We checked for evidence of this in our NELS data by ex-
amining if humanities majors had a wider spread of high school stan-
dardized test scores than other majors, such that their outcomes may be
more diverse. We found no evidence of this. For each of the five cate-
gories of major that we considered, the standard deviation in test scores
is .95 to 1.02, with humanities at .98.27
We then checked the NELS sample to determine if the difference in

26. Top coding is less problematic in the SIPP than in many other data sources. The
SIPP creates average top-coded values for all top-coded individuals in a certain category
(that is, black women working full-time) and then assigns everyone in the category the
top-coded value in the months when their income is above the top-coded level. However,
if top-coded law degree holders have higher earnings than top-coded bachelor’s degree
holders in the same category, top coding could still bias our estimates downward.
27. Note that these are standardized test scores, so the sample has an overall standard
deviation of 1 by construction.

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VA L U E O F A L AW D E G R E E / 271

test scores between humanities majors who later pursued a law degree
and humanities majors with terminal bachelor’s degrees is larger than
in other majors. This is also not the case. Law-school-bound humanities
majors average .31 of a standard deviation higher than fellow humanities
majors, while the average overall gap is .40. Thus, there is no evidence
that humanities students who pursue a law degree are disproportionately
of high ability compared with the ability gaps shown in Table 5. Controls
for major are unlikely to distort the results by underestimating the ability
of law-school-bound humanities students.
Conversely, grouping our sample into five college-major categories
might bias our results. We checked by rerunning the regressions using
the full set of dozens of majors reported by the SIPP. This did not alter
our law degree premium. Rerunning the estimation on the subsample
of data with a state-of-birth variable also did not affect the results.

5.4. Structural Shifts and the Recent Earnings Premium

Employment outcomes for recent law school graduates have deterio-


rated. According to the National Association for Law Placement
(NALP), real full-time starting salaries for recent law school graduates
declined by 20 percent between 2009 and 2012. The percentage of grad-
uates employed 9 months after graduation declined by 4 percent. The
NALP starting-salary and employment data suggest that recent law
school graduates are facing market conditions similar to those of young
law school graduates in the early to mid-1990s.
However, the relevant measure for our purposes is earnings of law
degree holders relative to earnings of similar bachelor’s degree holders
at the same time, under the same set of macroeconomic conditions. The
NALP data are of limited use because they do not include information
on comparable bachelor’s degree holders.
Another limitation of the NALP data and of studies that focus on
starting salaries is that earnings of professional degree holders, including
law degree holders, typically grow rapidly and peak in middle age. First-
year earnings represent a small fraction of the present value of lifetime
earnings—roughly 2 percent for law degree holders—and are imperfect
predictors of subsequent earnings.
We estimate lifetime earnings on the basis of historical data from
1996 through 2013.28 Using long-term historical data to project future

28. In this section, we exclude a small amount of data from the end of 1995 because it
may not be sufficient to reliably estimate earnings for the full year. See note 5.

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earnings is the most reasonable approach in employment markets that


are subject to cyclical booms and busts. Skilled labor markets—including
the market for law school graduates—typically feature cyclical move-
ments in entry-level wages, employment, and school enrollments (Eh-
renberg 1988; Rosen 1992; Shiller 2003). Entry-level earnings are more
variable than for the occupation as a whole because it is easier for
employers to refrain from hiring new employees or to offer lower starting
salaries than to terminate or reduce the pay of experienced workers.
Henderson and Zahorsky (2011) argue that the legal profession is
experiencing a structural shift because of globalization and technological
change. Although the labor market for law school graduates is distinct
from that of the legal sector—many legal-sector workers did not attend
law school, and many law school graduates do not work in the legal
sector—the structural-shift hypothesis raises several questions. First, is
a profound shift currently observable in relative employment and wage
data and distinguishable from ordinary cyclicality or past periods of
change? Second, is it likely that globalization and technological change
disproportionately harms law school graduates while leaving bachelor’s
degree holders unscathed, so that the relative outcomes for law school
graduates can be expected to decline?
With respect to the first question, we investigate changes in the law
school earnings premium from 1996 to 2013 and find a cyclical pattern.
Figure 2 shows the log earnings premium across all age groups by year.
The solid line is the earnings coefficient, and the dotted lines above and
below that line represent the 95 percent confidence interval. The hori-
zontal dashed line is the multiyear average, with each year weighted
equally. There are peaks in the point estimates of the earnings premium
in 2001 and 2008 and troughs in 1999 and 2002.29 Although the earn-
ings estimate declined from its 2008 peak in recent years, the estimate
remains close to the long-term historical average. Indeed, the estimate
was lower in the late 1990s and early 2000s than in the last 3 years.
The estimate today is about the same as it was in 1996.
The data do not suggest that law school graduates were unaffected
by the recession. Rather, earnings decreased for both law school grad-
uates and college graduates after the late 2000s recession, and law school
graduates maintained their relative advantage. Our data suggest that law

29. We can statistically reject the null hypothesis that the coefficients are the same
throughout the sample period with a joint test (p ! .001).

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VA L U E O F A L AW D E G R E E / 273

Figure 2. Log law degree earnings premium, 1996–2013

degree holders continued to fare better in the recent downturn than


bachelor’s degree holders without advanced degrees.
In unreported results, we also considered how the earnings premium
changed over time for young law degree holders (ages 27–33; see Sim-
kovic and McIntyre 2013). The point estimates suggest that recent law
school graduates’ advantage over similar bachelor’s degree holders is as
large or larger than that of previous cohorts, but the large standard
errors, owing to the small sample size, make it impossible to draw any
robust conclusions.30
Nor is a profound shift evident in recent employment or profitability
data for lawyers. From 2008 to 2013, employment for lawyers was more
robust than for the overall economy—the level of lawyers increased from

30. But see note 5. Although our sample does not include those who graduated after
2008, it includes 2008 graduates who, as young and inexperienced workers, are likely
vulnerable to many of the same shocks. Our sample also includes individuals who graduated
during previous recessions, and the long-term impact of early-career recessions on subse-
quent earnings is therefore averaged into our results. Future research could explicitly con-
sider cohort effects.

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.41 percent of the workforce to .45 percent (see U.S. Department of


Labor 2014). After declining in 2009, total gross revenue, profits, and
numbers of attorneys at the largest law firms increased annually from
2010 to 2013 (American Lawyer 2014a).31
The data suggest that the percentage law degree earnings premium
has remained relatively stable on average, even as the proportion of the
workforce consisting of lawyers has increased. Like the more recent BLS
data, the Current Population Survey suggests a long-term trend of law-
yers growing as a share of the workforce from the 1960s through recent
years.
Moving beyond trends for the average earnings premium over time
and aggregate employment levels, we ask whether structural changes
may have increased risk by causing deterioration in the law degree earn-
ings premium at the low end while causing an increase in the earnings
premium at the high end. Technology and globalization are often be-
lieved to produce winner-take-all effects, and such changes in the dis-
tribution would not necessarily be reflected in averages.
In unreported quantile regressions available from the authors, we
considered the distance between the percentage earnings premium at the
25th and 75th percentiles in each of four panels from 1996 to 2008.
We found no evidence of a trend toward a wider or narrower spread of
the earnings premium. Standard errors were large, so there may be a
trend we could not detect, but point estimates suggest, if anything, that
recent cohorts had less variability in earnings premium than did earlier
cohorts. Similarly, we did not find evidence of a growing spread in the
earnings premium among those younger than 40, but large standard
errors again prevent us from drawing definitive conclusions.32
As an additional check for changes affecting the bottom of the dis-
tribution—below the 25th percentile—we have considered data on stu-
dent loan default rates from the Department of Education (see Simkovic
and McIntyre 2013, pp. 45–49). Although student loan default rates

31. Revenue, profits, and attorney employment also grew from 2009 to 2013 in the Am
Law 200 (American Lawyer 2014b), the next 100 firms by size, although growth was not
as quick or as steady as in the top 100. The Am Law 100 and 200 combined employ less
than 10 percent of law degree holders, whereas the SIPP provides a much broader measure
of law degree holders’ earnings and employment.
32. The 75th percentile premium was about 20 log points higher than the 25th percentile
premium for those under 40 in the 1996 sample and 8–14 points higher in the 2004 and
2008 samples. The gap was quite large in the 2001 sample (about 40 points higher), but
given the standard errors we cannot rule out that these differences are just sampling noise.
Results for the overall sample were qualitatively similar.

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VA L U E O F A L AW D E G R E E / 275

were higher for law school borrowers who began repayment in the late
2000s than for those who began repayment in the mid-2000s, student
loan default rates also increased during this period for borrowers from
4-year and advanced-degree programs other than law. Law school bor-
rowers retained their relative advantage over these other groups, with
other borrowers four to five times more likely to default than law school
borrowers. The 2-year cohort default rates for those who began repay-
ment in 2008–11 were between 1 and 2 percent for law school graduates
compared with approximately 7 percent for bachelor’s and advanced-
degree borrowers. In addition, default rates for law school graduates in
recent years remain lower than those for law school graduates who began
repayment in the 1990s. Law school graduates’ relative advantage in
terms of lower default rates appears to be larger in recent years than it
was in the 1990s. In sum, the spread in incomes may have increased,
but because this is also happening among bachelor’s degree holders, the
spread of the earnings premium has remained relatively constant.
With respect to the second question, although no one can predict the
future, the recent data do not reflect a law-specific structural shift re-
ducing the value of the law degree. To the contrary, our point estimates
in fact increase over the last 9 years. This is consistent with the general
trend of large returns to higher education. Studies of outsourcing and
automation find that work that requires complex thought and cannot
easily be broken down into simple rules or algorithms is more difficult
to automate or outsource, and this favors highly educated workers such
as law degree holders over those with less education (Autor, Levy, and
Murnane 2003; Autor, Katz, and Kearney 2006). The premium is not
determined exclusively by changes to the earnings of law degree holders
but also by the changes to the earnings of comparable bachelor’s degree
holders.
Predictions of structural change in the legal industry date back at
least to the invention of the typewriter (see Simkovic and McIntyre
[2013] for a century of quotes). Yet lawyers have prospered with the
introduction and adoption of new technologies and modes of
work—computerized and modular legal research through Lexis and
Westlaw, word processing, citation software, electronic document stor-
age and filing systems, automated document comparison, electronic doc-
ument searching, e-mail, photocopying, desktop publishing, standard-
ized legal forms, and will and tax preparation software. Although each
of these was seen by some as a potentially damaging structural shift in
the return to law, the law degree still offers a large earnings premium.

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Various future changes may hypothetically decrease the law school


premium, but one could just as easily list reasons that the value of a
law degree will increase—higher compliance costs or more litigation
driven by new health care laws, the Dodd-Frank Wall Street Reform and
Consumer Protection Act, or the Consumer Financial Protection Bureau;
electronic communications and discovery making plaintiffs’ work easier
and driving more lawsuits; increased spending on lobbying and politics;
growing inequality and higher pay for corporate executives; or any num-
ber of potential new regulatory regimes.
Turning back to the data, we find that the decline in starting salaries
and employment for recent law school graduates appears to be part of
a broad cyclical downturn following the shock of the financial crisis of
2007–8 and the recession that followed. We find no evidence that the
downturn reduced the relative return to a law degree to below its his-
torical average.
Past performance does not guarantee future returns. The return to a
law degree in 2020 can only be known for certain in 2020, but historical
data provide a baseline against which to measure the magnitude of the
decline in the earnings premium that would be necessary for a law degree
to no longer be a value-creating investment. Assuming current tuition
levels and interest rates, we find that this would require the lifetime
earnings premium to fall approximately 88 percent at the median and
79 percent at the 25th percentile (see Section 6).

6 . T H E P R ES E N T VA LU E O F A L AW D E G R E E

6.1. The Value at the Start of Law School

Here we estimate the lifetime present value of a law degree at the start
of law school using data from the SIPP. This can be understood as the
total economic value of a legal education.33 This value is apportioned
among the law school student through higher earnings, the federal gov-
ernment as recipient of income and payroll taxes (see Section 6.3), and
law schools as recipients of tuition revenue.
We assume that law degree holders attend law school from age 23
to age 25. We estimate lifetime earnings streams from the age of 23 to

33. Our analysis estimates the value of a completed law degree, not the expected value
of starting law school. Most studies report law school noncompletion rates of 4–12 percent
(Law School Admissions Council 2014). Most attrition of law school students takes place
during the first year (ABA 2013e). Assuming an 8 percent likelihood of noncompletion,
the expected value of noncompletion is a loss of around $4,400.

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VA L U E O F A L AW D E G R E E / 277

65 for all law degree holders and similar bachelor’s degree holders, not
just full-time workers. We therefore incorporate differences in risk of
unemployment or underemployment. We control for differences in ob-
servable characteristics by reweighting our control sample. Using the
covariates from our baseline specification, we estimate the probability
of attending law school and then use this probability to reweight the
bachelor’s degree sample to be most comparable to the sample of law
school graduates. For example, a bachelor’s degree holder with a 15
percent chance of attending law school, on the basis of covariates, would
receive three times the weight as someone with only a 5 percent chance
of attending law school. To reduce noisy estimates, we aggregate earnings
over the 3 or 4 years a person is in the sample. This does create some
blurring in the slope of the age profile but also helps us better capture
lifetime averages rather than idiosyncrasies that can distort the values
at a particular age.
Many previous studies assume a 40-year working life for both groups
and focus on the earnings of full-time workers (Day and Newburger
2002; Schlunk 2009; Carnevale, Rose, and Cheah 2011). This approach
could overestimate lifetime earnings premiums by assuming unrealisti-
cally high utilization or underestimate lifetime earnings premiums, be-
cause individuals with higher levels of education are more likely to be
employed full-time and have higher life expectancy (Day and Newburger
2002; Steinmetz 2006; Hemmeter 2009; OECD 2011).34
Law degree holders are more likely than bachelor’s degree holders
to work full-time. Rates of labor force participation (either full- or part-
time work) are also higher for law degree holders: 90 percent versus 86
percent. We also find lower unemployment and disability rates for law
degree holders than for bachelor’s degree holders—2.4 percent versus 3
percent.35 We construct synthetic lifetime earnings using the sample of
those who are working (part-time or full-time) or are involuntarily un-
employed or disabled.36

34. For those with a bachelor’s degree or higher, life expectancy at age 25 is greater
than 82 for men and greater than 85 for women and has been increasing over time (National
Center for Health Statistics 2012).
35. These unemployment and labor force participation values are raw figures, without
exclusions of those caring for dependents or enrolled in school. Relative differences would
be substantially similar with exclusions and controls.
36. We include disabled individuals because disability, like unemployment, indicates
involuntary nonparticipation in the labor force, disability and unemployment risks vary
with education level, and many unemployed individuals claim disability and appear in
official statistics as disabled rather than unemployed (Autor and Duggan 2003).

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For each year, we subtract the earnings of bachelor’s degree holders


from similar law degree holders. During the first 3 years, while the law
degree holders are in law school, the bachelor’s degree holders have
higher earnings than the law degree holders.37 We discount the annual
differences back to present value as of the start of law school using real
discount rates of 3 percent (nominal discount rates of 6 percent) for our
base case. This discount rate is typical in earnings premium studies,
reflects the actual cost of capital typically faced by law students, and
may be conservative in light of student loan prepayments (for an ex-
tended discussion of discount rates, see Simkovic and McIntyre [2013,
appendix]).
Our estimates account for the opportunity cost of lower earnings
during law school compared with the earnings of a bachelor’s degree
holder not attending school.38 We assume that costs of living while in
school are similar to costs of living while working full-time and that
any differences reflect consumption benefits and therefore need not be
accounted for separate from opportunity costs of lower in-school earn-
ings.39
In addition to the lifetime value of a law degree, we also show the
contribution of each of 4 decades of work to the total present value of
a law degree. The first decade is the first 10 years from the start of law
school, including 3 years of law school and the first 7 years of work
after law school. The final “decade” includes 13 years, from age 53 to
age 65. The contribution of each decade may be of particular interest
to those who anticipate limited participation in the workforce.
Table 6 estimates the value of a law degree separately for men and
for women. The table includes mean values, as well as the 25th, 50th,
and 75th percentile values. These figures are in present value as of the
start of law school and are pretax and pretuition. In other words, these

37. See note 38.


38. We assume that law school students earn $5,000 in their first year, $7,000 in their
second year, and $12,000 in their third year with part-time and summer work, for a total
of $24,000 during law school. The SIPP data suggest typical 3-year in-school earnings
between $21,800 (median) and $48,000 (mean) for full-time graduate and professional
school students. Census data suggest substantial numbers of work hours among full-time
graduate and professional students (Davis 2012). Assuming no earnings while in law school
would reduce lifetime values by around $24,000 and would not substantially alter our
conclusions.
39. There are over 200 law schools around the country, so students have a variety of
options in terms of location. Consumption is generally a function of income and is likely
to be lower when income is lower while in school.

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Table 6. Present Value of a Law Degree

Men Women
25th 50th 75th 25th 50th 75th
Mean Percentile Percentile Percentile Mean Percentile Percentile Percentile
Lifetime value 998 395 645 1,553 981 554 857 1,420
Contribution per decade:
Years 1–10 (ages 23–32) 90 25 20 47 183 88 120 198
Years 11–20 (ages 33–42) 264 125 181 407 324 155 284 523
Years 21–30 (ages 43–52) 406 171 245 723 247 129 192 338
Years 31–43 (ages 53–65) 238 74 199 376 227 181 261 362
Internal rate of return 15.6 10.4 11.5 16.2 19.4 14.2 17.3 20.7
Note. Lifetime value is calculated with a 3 percent real discount rate (6 percent nominal rate). The sample includes degree holders who are currently
employed, unemployed, or disabled and excludes those who are currently not working because they are caring for children or the elderly and those who

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are full-time students. The bachelor’s degree sample is weighted using propensity score matching, so that bachelor’s degree holders are similar to law
degree holders (on the basis of observable data) other than law degree attainment. Reported values include the opportunity cost of attending law school
in terms of forgone earnings but do not include tuition or federal taxes. The internal rate of return is real (that is, net inflation) and assumes $30,000

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annual net tuition. Other figures do not incorporate tuition costs. Values are in thousands of real 2013 dollars.
280 / T H E J O U R N A L O F L E G A L S T U D I E S / V O L U M E 4 3 ( 2 ) / J U N E 2 0 1 4

figures reflect the maximum that a combination of the government and


the student should be willing to pay in direct costs, such as tuition, for
a law degree. Although the average (mean) lifetime earnings premium
is approximately $1 million for both men and women, the range of
potential outcomes appears to be wider for men. At the 25th percentile,
the value is approximately $400,000 for men and $550,000 for women.
At the 75th percentile, it is approximately $1,550,000 for men and
$1,420,000 for women.
It should be noted that our 25th percentile and 75th percentile values
are more extreme than the 25th percentile and 75th percentile values
for actual individual law degree holders over the course of a lifetime.
This is because our percentile estimates are based on the 25th percentile
and 75th percentile earners averaged over 4 years. Most individuals at
the 25th or 75th percentile in a given year will move closer to the median
in subsequent years; tracking individuals over only 4 years of data, we
find typical regression toward the mean of 8–9 percentile points for low
earners. Averaging individual earnings over 4 years reduces, but does
not eliminate, the problem of regression to the median.
These results suggest that even at the 25th percentile, the value of a
law degree exceeds typical net tuition costs by hundreds of thousands
of dollars. At the mean, the difference is close to $1 million dollars. We
therefore reject the claim that law degrees are priced above their value.
The value compared to net tuition prices suggests that legal education
is a competitive market in which surplus redounds to the benefit of
student-consumers.40 These high wage premiums might persist, even in
a reasonably competitive market equilibrium, because of heterogeneous
preferences and compensating differentials41 or credit constraints,42 to
name two possibilities.

40. There are 202 J.D.-conferring law schools approved by the American Bar Association
(ABA) in the United States, most of which compete across state lines for enrollments (ABA
2013a). Seventeen law schools were approved or provisionally approved from 2002 to
2012, which suggests few barriers to entry (ABA 2013b). The widespread use of tuition
discounting highlights intense price competition among educational institutions, including
law schools (Sebert 2002).
41. Representative surveys suggest that lawyers have above-average job satisfaction, and
most law school graduates are satisfied with their decision to attend law school (Smith
2007; Dinovitzer et al. 2009). However, it is possible that those who choose another
path—and therefore do not appear as survey respondents—would find legal education or
law-related work unpleasant.
42. Although law students can now borrow the full cost of tuition and reasonable living
expenses using federal student loans, prospective students may not be able to borrow
enough to smooth consumption or support dependents while in school.

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VA L U E O F A L AW D E G R E E / 281

6.2. Sensitivity Analysis for Discount Rates

We include a discount rate sensitivity analysis showing present values


under alternate discount rate assumptions, varying from 0 to 6 percent
real, or 3 to 9 percent nominal, in Table 7. For purposes of calculating
our base-case internal rates of return, we assume annual law school net
tuition (tuition net scholarships and grants) of $30,000, or a total 3-
year cost of $90,000. This is consistent with data collected by the Amer-
ican Bar Association on typical law school costs.43
Table 7 highlights the sensitivity of present-value analysis to the dis-
count rate. It also lets us isolate cases in which a law degree may be a
more questionable investment. As noted above, the distribution of the
earnings premium for men is wider than the distribution for women,
and the 25th percentile for men is therefore lower than the 25th per-
centile for women. With a 9 percent nominal discount rate, a man con-
sidering law school who believed that he was likely to be in the 25th
percentile of men would expect to reap only $200,000 in present value
of higher earnings. After taxes, this would likely be around $140,000–
$150,000, which would then be further diluted by tuition payments. If
the prospective student believed that the results were upward biased,
particularly in the lower 25th percentile, he could conclude that a law
degree might not be a good private investment. Under all other scenarios
in Table 7, the private return comfortably exceeds tuition at even the
most expensive law schools.

6.3. The Value of the Law Degree and Federal Tax Rates

Until now, we have not distinguished between public and private benefits
of legal education. However, prospective students evaluating law school
as a financial investment will be interested in after-tax value, while ed-
ucation policy makers will be concerned with the impact on public fi-
nances.
We therefore attempt to deduct costs that probably do not provide
higher consumption benefits to higher-income, educated workers (but
may provide public benefits) such as higher federal income and payroll

43. After excluding subsidies from state and local governments, the average 3-year net-
tuition cost of a law degree is probably somewhere between $80,000 and $100,000 (ABA
2014). The ABA data suggest approximately $7,000 in internal grants and scholarships
(that is, tuition discounting) per student per year in 2010–11, or $21,000 over 3 years
(ABA 2013d, 2013c). This suggests average annual net 3-year tuition of $45,348 for res-
idents at public law schools, $83,600 for nonresidents at public law schools, and $96,552
at private schools and implies a 20–30 percent average tuition discount.

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Table 7. Sensitivity Analysis: Present Value of a Law Degree under Alternate Discount Rate Assumptions

Men Women
Discount Rate: 25th 50th 75th 25th 50th 75th
Nominal, Real Mean Percentile Percentile Percentile Mean Percentile Percentile Percentile
3, 0 2,065 819 1,414 3,287 1,929 1,186 1,760 2,831
5, 2 1,260 500 832 1,979 1,213 703 1,075 1,766
7, 4 797 315 503 1,227 803 443 692 1,154
9, 6 519 204 311 779 554 294 467 785
Note. The sample includes degree holders who are currently employed, unemployed, or disabled and excludes those who are not working because they are
caring for children or the elderly and those who are full-time students. The bachelor’s degree sample is weighted using propensity score matching, so that
bachelor’s degree holders are similar to law degree holders in most respects other than law degree attainment. A 3 percent inflation (nominal discount rate
p real ⫹ 3 percent) rate is used. Reported values include the opportunity cost of attending law school in terms of forgone earnings but do not include tuition
or federal taxes. Values are in thousands of real 2013 dollars.

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VA L U E O F A L AW D E G R E E / 283

taxes. On the basis of current tax rates and models from the Organisation
for Economic Co-operation and Development and the Urban-Brookings
Tax Policy Center, we estimate that the average effective federal tax rate
on the law degree earnings premium is usually between 25 and 35 percent
(OECD 2010),44 although tax rates may change in the future.
The private benefits of a law degree (that is, the value to the law
degree holder) can be approximated by multiplying the values in Tables
6 and 7 by .7.45 Thus, the mean after-tax value of a law degree is ap-
proximately $700,000 for both men and women. For low earners, such
as those in the 25th percentile, values should be multiplied by .75. For
very high earners, such as 75th percentile men, or for those anticipating
higher tax rates in the future, values can be approximated with a .65
multiplier.
Because law schools engage in extensive tuition discounting, sticker
price is a poor guide to true net tuition cost. The cost of the degree
varies between individuals and between schools. Prospective students
and law school administrators with more specific pricing information
can compare the estimated after-tax value of a law degree to the indi-
vidualized 3-year price of their law degree.46
Because we discount our present values to the start of law school
and already include opportunity costs in our present-value calculation,
comparing the cost of the degree to its private benefits involves a straight-
forward calculation—start with the after-tax value of the law degree and
then subtract 3 years of tuition, books, and other direct costs that are
necessary for a law degree, do not provide consumption benefits, are
not matched by similar costs for bachelor’s degree holders who work
rather than attend school, and are not already taken into account
through opportunity costs of lower in-school earnings. Costs should be
discounted back to the start of law school. Therefore, student loan in-
terest accumulated during school should not be included.
Even at the 25th percentile, and after subtracting federal taxes, the
value of a law degree still typically exceeds its cost, although the private
returns are reduced. Income-based repayment plans with debt forgive-

44. We exclude the employer’s portion of payroll taxes instead of determining gross
income and then deducting the tax.
45. Approximately 70 percent of the earnings premium benefits the student, and 30
percent benefits the federal government.
46. Interested parties can multiply annual net tuition by 3 and compare the results to
our estimates of after-tax value.

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ness may reduce risk and increase private returns toward the bottom of
the distribution.

6.4. Public Return on Legal Education

Public benefits of legal education include the portion of the lifetime


earnings premium that accrues to the federal government through taxes,
reduced reliance on unemployment insurance and social services, and
profits from student loan interest. The federal tax revenue benefits of a
law degree can be estimated by multiplying the values in Tables 6 and
7 by .37, which includes both direct taxes and the employer’s portion
of payroll taxes. On average, the tax revenue is approximately $365,000.
At the 25th percentile, the tax revenue is approximately $175,000. If
prospective students are risk averse, income-based repayment with debt
forgiveness may benefit the public coffers by encouraging investment in
education.

7 . C O N CL U S I O N

After controlling for observable differences, we find that a law degree


is associated with an increase of approximately 84 percent in expected
mean monthly earnings (a 73 percent increase in expected median
monthly earnings), a 65 percent increase in mean hourly wages (a 60
percent increase in median hourly wages), and reduced risk of unem-
ployment or underemployment. Earnings differences between men and
women are due primarily to differences in number of hours worked. The
law degree earnings premium is cyclical; values in recent years are within
historical norms. Applying reasonable discount rates results in a mean
lifetime value at the start of law school of about $1 million before taxes
and $700,000 net of taxes. Median pretax lifetime values are approx-
imately $650,000 (after taxes, $450,000) for men and $850,000 (after
taxes, $600,000) for women. For most law school graduates, the benefits
of a law degree exceed its cost by a large margin.
There are important limitations to our study. Although we control
for some ability sorting, we cannot rule out selection or omitted-variable
bias. We investigate ability bias using the NELS sample and find little
evidence that those inclined to attend law school could earn comparable
amounts with bachelor’s degrees. Selection bias may be offset by re-
porting biases in the SIPP earnings data. Previous studies of education
earnings premiums suggest that OLS estimates are similar to, and gen-
erally lower than, estimates based on data from identical twins and IV

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VA L U E O F A L AW D E G R E E / 285

methods. These estimates are the best currently available, although fu-
ture work may be able to move us closer to the true causal effect. Another
limitation is that we are measuring population-level differences in earn-
ings. Individual outcomes vary, and we account only for a limited pro-
portion of the total variance in earnings.
We also cannot determine the earnings premium associated with at-
tending a specific law school. Our data cover a representative sample
of law degree holders who have attended a variety of law schools. Pre-
vious empirical studies have reached different conclusions about the
extent to which the earnings premium varies by law school ranking and
geography (Oyer and Schaefer 2012; Sander and Bambauer 2012). It
seems plausible that students who attend low-ranked or unranked law
schools located in low-wage labor markets may be more likely to have
below-average outcomes, while those at selective institutions located
near high-wage labor markets may be more likely to have above-average
outcomes. However, in every law school there is a range of ability levels
and outcomes. Individual variation in earnings could easily trump law-
school-based differences.
Nevertheless, our results suggest that attending law school is generally
a better financial decision than terminating education with a bachelor’s
degree. Even for relatively low earners, a law degree typically more than
pays for itself over the course of a lifetime. The downside risk of at-
tending law school is mitigated for individual students through income-
based repayment and related programs that spread risk.
Law school attendance benefits public finances through increased tax
revenue and student loan interest payments. Because the federal gov-
ernment is large and diversified, its outcomes will approach the popu-
lation mean—which is highly profitable—and the government is there-
fore well situated to absorb and spread the risks of investment in higher
education.

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