Smart Money

Here’s an examples of why it’s extremely difficult to stop people (and by people I mean in particular soon to be college graduates) from making ridiculous financial decisions in regard to attending law school.

It’s provided, ironically, by an article on the Wall Street Journal site SmartMoney, which tries to warn prospective students about “Ten Things Law Schools Won’t Tell You.”  Here are some pieces of information that are supposed to serve as red flags to 0Ls:

The latest survey data available by the National Association for Law Placement shows that about 88% of law students who graduated in 2010 were employed by February 2011 -- the lowest rate since 1996 and down from a peak of 92% in 2007. And almost a third of the graduates known to be employed were not working in a legal position that required passing the Bar exam.  [The new NALP stats for the class of 2011, released a couple days after this article was published, show this number declining to 85.6% for that class.]

Now what are prospective law students going to think about this stat should they happen to encounter it?  What they’re all too likely to think is:

(a)    An 88% chance of employment sounds pretty good in our “post-industrial” economy.

(b)   There’s no chance I’m going to be in the bottom 12% of my class.

(c)    If things were so good in 2007 why does a four percent decline in the chance of becoming a lawyer add up to such a terrible crisis anyway?

But wait, what about the final sentence, revealing that almost a third of graduates known to be employed were not working in a legal position that required passing the bar exam? Shouldn’t these words fill our sophisticated consumers with foreboding?  

For several reasons, that sentence is going to be ignored.  First, this article is already getting kind of complicated.  Remember most 0Ls know next to nothing about this subject.  What’s a legal position that requires passing the bar exam? This seems to suggest that there are legal positions that don’t require passing the bar exam. And there are -- for example being a law professor. Besides, the quoted statistics also mean that many graduates are employed in jobs other than those which require you to be a member of the bar, which in turn will sound to a receptive audience very much like an argument for the legendary (in every sense) “versatility” of a law degree.

In other words, confirmation and optimism bias (also known as “the American can-do spirit, the gospel of success, etc.) are pushing our 0Ls rapidly away from actually contemplating the risks which the piece is trying to get them to consider.

Things get much worse when the article starts talking about salaries.

While public service and government attorneys don't expect to make the big bucks, corporate law positions have traditionally paid some of the highest salaries of any industry. But even these lofty positions aren't recession-proof. Law school students who graduated in 2010 earn $84,111 on average during their first year, down 10% from 2009, according to the most recent available data from NALP.

And fewer graduates are landing six figure jobs. Eighteen percent of 2010 graduates earned $160,000 compared to 25% in each of the previous two years. Nearly half of 2010 graduates made between $40,000 and $65,000, up from about 40% for the prior two classes. In some cases, starting pay is even lower: Last week, Boston-based civil practice law firm Gilbert & O'Bryan posted a full-time associate position that pays $10,000 annually. Larry O'Bryan, a partner with the firm, says it has just two lawyers, hires when it receives extra cases, and that the salary is based on the amount of work billed and collected. So far, he says, the firm has received around 35 applications, mostly from recent law graduates. 

These numbers have two flaws: they’re going to encourage people to apply to law school, and they’re completely fantastical.

Does anyone think that reporting an average salary for the class of 2010 of $84,111 is going to lead your average political science or broadcast journalism or film studies major to not apply to law school?  Of course what the most recent data (salary data is not yet available for the class of 2011) from NALP indicates is not that law students who graduated in 2010 earned an “average” of $84,111, but rather that the median salary of the the 41.5% of graduates whose salaries were reported was $63,000. This means that nearly 80% of the class did not have a salary reported of as much as $63,000.

Given the very high reporting rates for high-salaried positions, the low reporting rates for low-salaried positions, and the bimodal distribution of those salaries across the profession, only a small minority – perhaps 12% to 15% -- of 2010 grads earned as much as this supposed “average” (mean) salary of $84,000.

Which brings us to the claim that 18% of 2010 grads earned $160,000. In fact 18% of reported salaries were as high as $160,000, and since we can be sure that the number of law graduates who made $160,000 and didn’t have their salaries recorded, with or without their cooperation, by their law schools was minuscule, this means the real number of grads who earned $160,000 was approximately 7.5%.

Similarly consider the claim that “nearly half” of 2010 grads made between $40,000 and $65,000. Again, this actually means that nearly half of reported salaries were in this range. But here, this information is presented in the context of a claim that the average salary was $84K, and that one in six grads made $160K. It will therefore leave impressionable 0Ls with the impression that making between $40,000 and $65,000 in the year after graduation is something approaching a worst case scenario, as opposed to what it really is, i.e., a better outcome than that enjoyed by a solid majority of the 2010 graduating class. (In this context, the story about the law firm offering a $10K starting salary will be dismissed easily enough as an extreme anecdote).

In short, many 0Ls would read this story and conclude that the average law graduate gets a starting job with a salary within hailing distance of six figures, that there’s a pretty decent chance of getting a mid-six figure salary, that a bad outcome consists of getting a legal job that pays $40,000 to $65,000, and that failing to get a legal job at all is fairly unusual. And that is an accurate description of the current employment situation for law graduates – as long as we’re talking about schools like Michigan and Virginia.

On the other hand, by the time you get to the 19th- ranked law school in the country (that is, in the 91st percentile of ABA schools) that scenario is far too optimistic.  As for the average law school, this “average” employment and salary information has about as much relevance to its graduates as the average NBA salary has to that of pro basketball players in Iceland (submit your resume now).