Simkovic and McIntyre’s article, Economic Value of a Law Degree, has received enormous attention. Previous Legal Ethics Forum posts on it can be found here, here and here. I learned a great deal from the article and find both its analysis and conclusions compelling. Most of the criticisms of the article that I have seen mischaracterize the methodologies used by Simkovic and McIntyre or focus on ancillary issues that could be the subject of future research.
I do have one concern about the article’s analysis, however. Although I am ultimately sympathetic to the authors’ view that we have yet to see clear evidence of a structural shift in the legal services market, contra Simkovic and McIntyre, I do not believe that the size of the earnings premium currently enjoyed by JD holders undermines the structural shift thesis.
My view on this point follows from one of the key findings of the article: The earnings premium of JD holders increased during the recent recession. Simkovic and McIntyre do not seek to explain this phenomenon and merely suggest that, as difficult as the economy was for JD holders, it was even more difficult for those without advanced degrees. While most industries used the last recession to “rightsize”, however, large law firms retained far more lawyers than needed to meet the demand for their services. Both the Georgetown/Peer Monitor Report and Citi/Hildebrandt Client Advisory recently noted the extent to which BigLaw continues to be plagued by excess capacity.
BigLaw’s behavior during the recession helps to explain why employment for lawyers has been more robust than for the overall economy and why Simkovic and McIntyre found that JD holders earned a larger earnings premium from 2008-2011 than they did from 2004-2007. A contributing factor may be that BigLaw generally provided laid off attorneys with generous severance packages and assisted them in finding alternative employment. If the foregoing is true, the large earnings premium observed from 2008-2011 may mask underlying weaknesses in the legal market.
One might wonder how BigLaw could still be suffering from excess capacity after the widespread Lathaming of associates in 2008 and 2009. The answer is that many firms cut their associate ranks significantly, but comparatively few partners were terminated (some were demoted). I previously discussed this point here. There are many possible explanations as to why law firms did not cut more deeply: Loyalty to longtime colleagues, a mistaken belief that the recession would be short in duration, or an inability to foresee alleged structural shifts in the legal services market such as the rise of LPOs and technologies such as predictive coding. Whatever the case, if demand for high-end legal services continues to stagnate as law firm leaders have predicted, we should anticipate further layoffs, not a substantial uptick in entry-level hiring.
While BigLaw has experienced ebbs and flows in the past, BigLaw generally did very well from 1996-2011, the time period studied by Simkovic and McIntyre. Indeed, the Citi /Hildebrandt Advisory characterizes 2001-2007 as “boom years” and notes that year-to-year growth in profits were also much more robust from 1992-2001 than they have been since 2008. I do not agree with Brian Tamanaha that the authors should have used a larger data set, but their results may have been buoyed by a different BigLaw than exists today.
BigLaw is obviously not the entire legal industry, and its recent troubles do not necessarily portend the struggles of JD holders generally. But BigLaw employs many of the individuals who are in the top quarter of JD earners, and its alumni often have very lucrative careers as well. Unless hiring increases significantly at large law firms in the near future, a significantly smaller percentage of JDs will find them themselves in these well-paid positions than in the past. This along with a steadily improving general economy will cause the earnings premium enjoyed by JDs to shrink in coming years. The structural change thesis will then seem more plausible, and law school will be a somewhat riskier investment than Simkovic and McIntyre claim.