Where all the money goes

Why has the cost of attending law school increased so drastically? Private law school tuition is a little more than two and half times higher in real dollars today than it was 25 years ago ($15K v. $40K), while resident tuition at public law schools is an astounding five times higher in real terms ($3.7K v. $18K).  This post will look at the role that the increase in faculty costs have played.  A subsequent post will look at other factors.

Faculty costs have gone through the roof, because of a combination of increased pecuniary and non-pecuniary compensation.  In regard to the former, consider this data from one elite law school (Michigan. All figures are in 2010 dollars per the CPI).
In 1980, the highest-paid members of the faculty were making $172K per year, while the dean was paid $175.7K.  Salaries for first-year tenure-track faculty were just under $74K.  I don't know precisely what sort of summer research support, if any, was available at this time at UM (summer research money, which at many schools has come to function as a de facto part of peoples' salaries, began to be introduced at elite law schools at around this time, although the sums were comparatively modest when considered from today's perspective).

In 2010, the highest-paid members of the faculty had base salaries of $286K, while the dean was paid $447K. Salaries for first-year tenure-track faculty were $158K.  In addition, all tenure-track faculty and most tenured faculty received summer research support equivalent to 15% of their base salaries.  What this means, of course, is that a new faculty hire at UM last year was paid more ($182K) than the dean was being paid 30 years earlier, while senior faculty were making well north of $300K.  It also means that entry level hires are being paid more than first year associates at top law firms, including bonuses (30 years ago first year associates at such firms were making $105K, i.e. 40% more than entry-level profs at elite law schools).

Surprisingly, this functional doubling of direct tenure-track faculty compensation -- considerably more than doubling at the junior level -- only accounts for about half of the increase in faculty costs over the course of the last generation.  (Naturally this figure will vary somewhat from school to school, but given normal patterns of behavior within an economic cartel, it's fairly safe to extrapolate limited data to other members of the arrangement).  The other main driver in the rise of the cost of the faculty has been how many more of us there are today relative to a generation ago.

Between 1978 and 2008, the student-faculty ratio at ABA law schools declined from 29 to 1  to 14.9 to 1. This ratio is calculated using the formula employed by the ABA when applying its accreditation standards, which count a full-time tenure-track faculty member as 1.0, a full-time non-tenure-track faculty member as .7, and an adjunct faculty member as .2 (tenure-track faculty who have administrative positions are counted as .5).  The ABA standards currently feature a "presumption" that a student-faculty ratio of less than 20 to 1 is acceptable, and that one of 30 to 1 or greater is not (schools with anything between these two ratios are subject to what is no doubt a very careful and scientific balancing test by ABA accreditation review site committees).

Most of this decline in student-faculty ratio has taken place recently.  Some individual schools have undergone truly stunning changes in student-faculty ratios in just the past few years.  Between 1998 and 2008, for example, Harvard's ratio went from 21.6 to 10.3, mostly as a result of a hiring binge during the much-celebrated reign of Dean Elena Kagan. Stanford cut its ratio even more drastically over the same period, from 18.3 to 8.3, while Chicago went from 19.1 to 10.3.  And, like everything else in legal academia, what's going on at the elite schools has a very strong ripple effect everywhere else. In the course of the same decade Emory went from 19.1 to 10.8, Seton Hall went from 26 to 15.5 and Widener went from 24.8 to 13.7.

In other words, since the 1980s per capita law school faculty direct compensation has roughly doubled, while the sheer number of faculty, relative to the size of law school student bodies, has also doubled.  I have entered this data into a program that can only be run on a Cray supercomputer, and the resulting calculation suggests that total law school faculty costs are four times higher now than they were 30 years ago.

To what extent has this spending spree improved the quality of legal education? It has certainly reduced faculty teaching loads by quite a bit, and enabled a quadrupling of the number of law review articles being published, from a modest 2,500 per year in 1980 to about 10,000 per year in 2010.  And of course it has attracted people to legal academia who would otherwise rather bill 2500 per year as big law firm associates than get paid 30% less to teach three or four classes per year and write one law review article as law school junior faculty members.  That these people must exist in large numbers is evident from the fact that if they did not, then the current compensation structure for junior law school faculty would make no sense in terms of classic market theory, and since that is obviously impossible, we must assume that it makes sense to pay entry level faculty at top law schools close to $200,000 per year (In law school this is known as "reasoning from first principles.").

In this sense, I suppose, law students are getting what they're paying for.