the left peak has hardly advanced and is currently (as of 2011) located at $50K. Given that the debt burden of an average law school graduate is twice that (over $100K), it means that for all practical purposes the individuals in the ‘loser’ category will never be able to repay their loans. In other words, the group of elite aspirants who have gone to the law school since 2001 have been sorted into two completely separate categories: those who succeeded in entering the top ranks of the elites and those who have failed utterly, with very few people in between.
Read the whole thing. Pointer from Tyler Cowen.
It appears that there are two markets, one for elite lawyers and one for ordinary lawyers. However, law school tuition is relatively homogeneous. At some point, I would expect to law school tuition fall sharply at all but the elite institutions.
The motivations of those who go to law school are various, and the career paths too diverse to bear Turchin’s analysis.
1. A huge fractions of lawyers start their careers in government (a uniquely prominent employer of attorneys for obvious reasons, especially new ones) with a typically very low starting salary during the ‘probationary’ grunt-work years, followed by rapid large raises in the first few years, and then the usual wage compression after a decade. For example, a new military officer starts at $2,875 Base + $1,685 BAH (outer DC region) = $4,560. In only four years he’s earning $5,120 + $2,200 = $7,320, and another $250 if he gets married, and the after-tax equivalent is effectively a doubling in salary. You’re not going to see rapid doublings like that in the private sector very often. So, you have to take the expected salary pathway into account.
2. In addition, government work usually comes with additional benefits like health care, pension (military in 20 years, other government from 25-30, but at the latest still eligible for good pension by only 55), fewer hours, much greater job security, ideological-motivation and ‘depth, weightiness, societal-importance’ psychological compensations.
3. Furthermore, and very importantly in law where many graduates accumulated 6-figure debts over 7+ years, student-loan repayment / forgiveness. Student loan forgiveness in special government programs alone can account for up to $20K a year of ‘hidden’ additional compensation.
4. And some ‘starting salaries’ are because lots of law students, especially some of the most elite ones, start in thousands of judicial clerkships, where the pay is very low, but where the experience gets one a lot of networking capital, and is a huge signal to elite employers. Clerks often go on to well paid spots at the most prestigious firms. If the data include clerkship starting salaries then it is not reflective of the expected reality.
5. How many of our politicians are lawyers, or started their careers that way? How many managers and policy people in government have law degrees? Quite a lot! And everybody sees and knows this. So a pathway to entering the realm of politics / policy is a huge motivation for lots of law students. Again, we’re talking about motivations and compensations that are non-monetary and, therefore, it is hard to draw ordinary economic conclusions about them. In general tuition expenditures are investments that have two ways of producing a return on investment – monetary and non-monetary, and, in law the non-monetary side is peculiarly significant.
6. Finally, bear in mind that law is an industry that tends to amplify and exaggerate the state (and expected trends) of the overall economy. When there is optimism, people are eager to make deals, and there is plenty of contract work, and companies are eager to settle claims quickly to avoid losing all that future expected business, and because they expect to recoup the loss in future sales.
But when the economy slows and there is lots of pessimism, a lot of companies will purposefully keep themselves in a state of minimal equity, with every piece of working capital maximally borrowed against as secured-debt collateral, and thus the company is effectively judgement-proof.
Here’s how it works. If you write them a demand letter saying, ‘You owe my client $1 Million’, they will say, “Go ahead and sue. You only get paid if you win and, even then, only out of whatever your client gets. You will spend $50K upfront, and even if you win, you just made us insolvent, your judgment is merely an unsecured debt and there is nothing left on which you can attach, and we will just walk down the street and declare bankruptcy and start over, but not before wiping out the value of your award. Your client gets nothing, you just lost $50K and all the time, effort, alternative opportunities, etc. Now, how about we just settle for $20K, and at least you get a third of that for an hour’s work. Your client won’t be very happy about it, but honestly, he’s up the creek.”
You get the picture. And that’s the kind of legal environment we’ve been for the past five years, but with perhaps a light at the end of a very long tunnel. It’s yet another reason to look at charts like Turchin’s with a lot of skepticism as to how representative it is of ‘our era in general’.
50k isn’t peanuts in most parts of the country. The other factor to consider is just how much salaries will rise for those people in the first five years or so of their employment. The big audit firms, and I assume a lot of law firms as well, employ what’s known as a “cream will rise” hiring strategy, in that initial salaries are pretty low because there’s a big learning curve for first year associates. But after you’ve been there a year or so and shown you can do the job and learn the particulars of whatever your role is in the firm, raises are pretty generous.
Of course, the flip side to this cream will rise strategy is that people who can’t do the work get shown the door pretty quickly and the competition for promotions is fierce, leading to some pretty high burnout rates. But in general, just because starting salaries are low in a particular industry should not lead one to conclude they’ll remain low. First year associates in those kinds of industries are almost a net liability for the firm. They might have degree and a license or what have you, but that doesn’t mean they’re capable of doing anything useful for you. And since they require a lot of training and supervision to get them to the point where they can be a productive asset to the firm, they actually hurt the productivity of more experienced people who have to help train ans supervise them.
It would be more useful to have distributions (histograms) Net Present Values of projected lifetime earnings. As Commenter 1 said, might some career paths involve substantial gains down the road?
Or are most law school students too optimistic, essentially playing a lottery?
Lastly, it would be interesting to compare this with business school tuition and distribution of earnings. We know today only the top handful of MBA programs lead to exceptional salaries.