Timing Law School

• DOI: http://doi.org/10.1111/jels.12147
• Author: Michael Simkovic,Frank McIntyre
• Date: 01 June 2017
• Published date: 01 June 2017

Timing Law School

Frank McIntyre* and Michael Simkovic

We investigate whether economic conditions at labor market entry predict long-term

differences in law graduate earnings. We find that unemployment levels at graduation

continue to predict law earnings premiums within four years after graduation for earners at

the high end and middle of the distribution. However, the relation fades as law graduates

gain experience and the difference in lifetime earnings is moderate. Outcomes data

available prior to matriculation do not predict unemployment or starting salaries at

graduation. Earnings premiums are not predicted by BLS projected job openings.

Although changes in cohort size predict changes in the percent of law graduates practicing

law, we find little evidence that changes in cohort size predict changes in earnings. This

suggests that law graduates who switch to other occupations when law cohort sizes increase

are not hurt financially by larger cohorts. For medium- to high-earning graduates,

successfully timing law school predicts a higher value of a law degree ex-post, but

simulations show that no strategy for ex-ante timing is readily available.

I. Introduction

Individuals who complete law school typically receive a large boost to their earnings

compared to what they would likely have earned with a terminal bachelor’s degree.

The law earnings premium has exceeded the cost of law school by a wide margin,

even toward the bottom of the earnings distribution.

1

However, questions remain

about whether the lifetime value of the law degree will be different for those graduat-

ing into weak economies or with unusually large or small cohorts of fellow law gradu-

ates. In particular, do deteriorating employment outcomes shortly after graduation for

recent law school graduates entering the labor market during a recession predict a

smaller boost to earnings for those now starting law school? Do smaller law school

class sizes predict a larger boost to earnings? What can we learn about the predictive

*Address correspondence to Frank McIntyre; email: frank.mcintyre@business.rutgers.edu. McIntyre is Assistant

Professor of Economics at Rutgers Business School; Simkovic is Professor of Law at University of Southern Cali-

fornia Gould School of Law.

Many thanks to David Abrams, Kathleen Boozang, Neil Buchanan, William Hubbard, Deborah Merritt, Elise

Miller, Edward Morrison, Martin Katz, Paul Oyer, Ted Seto, Brian Sheppard, and Eric Talley for helpful

comments and suggestions. Thanks also to Joshua D. Allen, Thomas Green, James Maroules, Patrick Salemme,

and Weike Xu for research assistance. This study received funding from AccessLex Institute and from the Law

School Admission Council. The opinions and conclusions expressed in this report are those of the authors and

do not necessarily reflect the position or policy of AccessLex Institute or LSAC.

1

Michael Simkovic & Frank McIntyre, The Economic Value of a Law Degree, 43 J. Legal Stud. 249 (2014).

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Journal of Empirical Legal Studies

Volume 14, Issue 2, 258–300, June 2017

power of different proposed leading and lagging indicators from long-term historical

patterns?

This article investigates cohort effects in the law degree earnings premium.

Cohort effects refers to either macroeconomic conditions at graduation or to cohort

size. We ask: Do students who graduate in recessions or booms, or with an unusually

large or small cohort of law school graduates, see lasting changes in their lifetime earn-

ings relative to what they could expect to earn with just a bachelor’s degree? We find

that among inexperienced workers, unemployment at time of graduation predicts law

earnings premiums. This is in addition to the impact downturns have on earnings

throughout the economy. We also consider the extent to which cohort effects are pre-

dictable three to four years in advance when prospective law students must decide

whether or not to enroll. It would be interesting to consider what reliable predictors, if

any, are available to help guide student decision making about timing legal education,

especially if changes in subsequent earnings were not simply predicted by starting condi-

tions, but to a large extent were caused by them. We simulate a variety of law school tim-

ing strategies to test whether they perform better than immediate law school

attendance. We find that immediate attendance consistently outperforms any waiting

strategy.

The evidence for cohort effects driven by macroeconomic conditions at labor mar-

ket entry is stronger than the evidence for effects driven by cohort size. Several studies

suggest that entering the labor market during periods of high unemployment can depress

early earnings, while entering a booming economy can contribute to higher earnings.

2

However, many studies report that these effects fade as workers gain experience.

3

Although lingering effects of unemployment at graduation have been observed for both

2

Idiosyncratic earnings variability increased in recessions. Kjetil Storesletten, Chris I. Telmer & Amir Yaron, Cycli-

cal Dynamics in Idiosyncratic Labor Market Risk, 112 J. Pol. Econ. 695 (2004). Kahn found negative effects on

wages for college-educated U.S. white males graduating into a recession of between 1 and 20 percent per year,

but the effect faded as workers gained experience. Lisa B. Kahn, The Long-Term Labor Market Consequences of

Graduating from College in a Bad Economy, 17 Lab. Econ. 303 (2010). Oreopoulos also found negative effects

on earnings for college-educated Canadian workers entering the workforce during high-unemployment periods;

these also faded within five to ten years of work experience. Philip Oreopoulos, Till von Wachter & Andrew

Heisz, The Short- and Long-Term Career Effects of Graduating in a Recession, 4 Am. Econ. J. Applied Econ. 1

(2012). Similarly, Altonji, Kahn, and Speer found that those graduating from college into a recession experience

approximately a 1.8 percent average decline in earnings during the first 10 years, and that these effects faded

from about 10 percent in the first year to almost no effect within seven years. Joseph G. Altonji, Lisa B. Kahn &

Jamin D. Speer, Cashier or Consultant? Entry Labor Market Conditions, Field of Study, and Career Success, 34 J.

Lab. Econ. S361, S364, S394 (2016). Kwon et al. found positive effects on earnings and promotions for workers

in the United States and Sweden entering the labor force in a boom. Illoong Kwon, Eva Meyersson Milgrom &

Seiwoon Hwang, Cohort Effects in Promotions and Wages: Evidence from Sweden and the United States, 45 J.

Hum. Resources 772 (2010). Oyer found that elite MBA students (Stanford and Wharton) graduating into boom-

ing stock markets are more likely to start their careers in finance and are therefore more likely to have higher

earnings throughout their careers compared to those who graduate into weaker economies. Paul Oyer, The Mak-

ing of an Investment Banker: Stock Market Shocks, Career Choice, and Lifetime Income, 63 J. Fin. 2601 (2008).

Oyer also found some evidence of cohort effects for Ph.D. economists. Paul Oyer, Initial Labor Market Condi-

tions and Long-Term Outcomes for Economists, 20 J. Econ. Persp. 143 (2006).

3

Paul J. Devereux, Occupational Upgrading and the Business Cycle, 16 Labour 423 (2002). Kahn, supra note 2.

Oreopoulos, von Wachter, & Heisz, supra note 2. Altonji, Kahn, and Speer, supra note 2.

259Timing Law School

high school graduates and college graduates,

4

the long-term impact of graduating into a

recession appears to be dampened for those with higher levels of education.

5

Similarly,

Altonji et al. found that negative effects of unemployment at graduation are less severe

for those whose college majors are associated with higher earnings.

6

Macroeconomic

cohort effects do not appear to vary much by race, but may be larger for men than for

women, at least for relatively less educated groups.

7

The evidence for cohort size effects is mixed, with some studies suggesting that

larger cohorts are associated with lower earnings,

8

and others finding the opposite or

no result.

9

Although the economic literature is ambivalent about the relationship

between cohort size and graduate outcomes, the National Association for Law Place-

ment (NALP), a prominent provider of statistics about entry-level law graduate employ-

ment outcomes, routinely attributes year-to-year variation in law graduate outcomes to

changes in cohort size.

10

These untested casual attributions have been echoed by the

4

Supra notes 2 and 3; Brad J. Hershbein, Graduating High School in a Recession: Work, Education, and Home

Production, 12 B.E. J. Econ. Analysis & Pol’y (2012); Audra J. Bowlus & Haoming Liu, The Long-Term Effects of

Graduating from High School During a Recession: Bad Luck or Forced Opportunity? (2003).

5

David M. Cutler, Wei Huang & Adriana Lleras-Muney, When Does Education Matter? The Protective Effect of

Education for Cohorts Graduating in Bad Times, 127 Soc. Sci. & Med. 63 (2015).

6

Altonji, Kahn, & Speer, supra note 2 at S364, S395.

7

Ayako Kondo, Differential Effects of Graduating During a Recession Across Gender and Race, 4 IZA J. Lab. Econ.

23 (2015); Hershbein,supra note 4.

8

Freeman found large changes in law school enrollment in response to fluctuations in earnings of young lawyers,

and that law cohort size in turn has a negative association with law graduate earnings. Richard B. Freeman, Legal

“Cobwebs”: A Recursive Model of the Market for New Lawyers, 57 Rev. Econ. & Stat. 171 (1975). Welch found

that a large entry cohort depresses wages in a way that persists, at least somewhat, over the entire career. Finis

Welch, Effects of Cohort Size on Earnings: The Baby Boom Babies’ Financial Bust, 87 J. Pol. Econ. S65 (1979).

Berger found negative effects of graduating with large cohorts of college students majoring in the same field,

with larger effects for liberal arts and humanities majors and smaller negative effects for engineering and busi-

ness majors. Mark C. Berger, Cohort Size Effects on Earnings: Differences by College Major, 7 Econ. Educ. Rev.

375 (1988).

9

Falaris and Peters report an association between larger cohorts and higher earnings, possibly mediated by invest-

ment in education. Evangelos M. Falaris & H. Elizabeth Peters, Schooling Choices and Demographic Cycles, 27 J.

Hum. Resources 551 (1992). Connelly and Gottschalk also found evidence that cohort size behaviorally affected

the decision to attend college. Rachel Connelly & Peter Gottschalk, The Effect of Cohort Composition on

Human Capital Accumulation Across Generations, 13 J. Lab. Econ. 155 (1995).

10

James Leipold & National Association for Law Placement, Employment Rate for New Law School Graduates

Rises by More Than Two Percentage Points---But Overall Number of Jobs Falls as the Size of the Graduating Class

Shrinks (2015), http://www.nalp.org/2014_selected_pr; National Association for Law Placement, For Second

Year in a Row New Grads Find More Jobs, Starting Salaries Rise---But Overall Unemployment Rate Rises with His-

torically Large Graduating Class (2014), http://www.nalp.org/2013_selected_pr; National Association for Law

Placement, Law School Class of 2012 Finds More Jobs, Starting Salaries Rise---But Large Class Size Hurts Overall

Employment Rate (2013), http://www.nalp.org/classof2012_selected_pr.

260 McIntyre and Simkovic