A Counterintuitive Thought on the Value of a Law Degree

If the Simkovic & McIntyre analysis of the value of a law degree is correct, there are two somewhat counterintuitive implications.  First, law schools have been massively undercharging for tuition in the past. If what is now a $150k investment produces $1M increase in income, why are law schools permitting students to capture all of that benefit? Presumably there'd still be plenty of takers for a $300k investment that produces $1M in benefits. And recall that the study is using data from 1996-2011, but that tuition in 1996 was hardly $50k/year.  

The second implication is that if Simkovic & McIntyre are correct about the system basically holding going forward, it also suggests that law schools should be raising their tuition. To the extent that it reduces enrollment, it might only boost the value of the degree by constraining the supply of lawyers. Still, I can't imagine any schools going this route (competition is apparently keeping tuition in check).  

I aslo wonder if we're seeing a bit of a behavioral economics phenomenon with the concern over law school economics:  if Simkovic & McIntyre are right and the fundamentals of the industry have not changed, what would seem to be occuring is that prospective students are facing an earnings benefit is spread out over time, but up-front costs. As there is greater uncertainty about future earnings now, the up-front costs are more salient, making a JD appear to be a less good investment even if it really remains a fundamentally sound investment for most students. 

Comments

[ThomasW]

I didn't try reading the paper but a few thoughts on this issue.

One factor is that college degrees are not a simple economic proposition. This was shown by the complaint of the person with a masters in puppetry complaining that he (she?) couldn't find a high paying job. People get a degree based on their interests and abilities, and many choose an interesting degree which may not pay as much.

One also needs to consider the relative advantage of different degrees vs their cost. A quick search of income by field (http://abovethelaw.com/2012/07/lawyers-rank-near-the-top-for-best-paid-careers-in-america/) says that average legal income (requiring 7 years of college) is about the same as the average engineering income (requiring 4 years college). If people thought strictly in terms of economic return, we wouldn't have the current shortage of engineers.

Unfortunately, the shortage hasn't caused my engineering salary to increase dramatically :-(

[buerroroshey]

the real economic benefit is not +$1m if you are someone who cares about future earnings and is willing to strive hard in other areas of business...

[Steve N.]

Here is why it doesn't work. If I take the 150k and put it in stocks, assuming a mediocre 5% return, I'd have 1.1 million in 40 years without contributing an additional penny.

[Anon]

Yes, Steve, but the $1.1 million is as of the *start* of law school, not 40 years later.

And where are you going to get the $150K? If you need to borrow at 5%, you're right back where you started.

[Nona]

LOL mr Anon, and where do you think law students are getting their $150K? They're borrowing it at far higher than 5% rate.