Market Overview

Law School Ekarmanomics: Ker-Splat!

A recent article featured in the New York Times written by David Segal entitled "Law School Economics: Ka-Ching!" discusses rising tuition costs for law schools and the inability for recent law grads to find quality jobs. The article suggests that American law schools are unique in being able to maintain demand even in a struggling labor market. According to the article, from 1989 to 2009, as college tuition rose by 71 percent, law school tuition increased by 317 percent. By maintaining the impression that legal jobs are not very scarce, law schools have been able to keep tuition prices high despite poor employment prospects for recent law grads. Despite the recession, New York Law School's incoming class in the fall of 2009 was its largest ever at 736 students. The article concludes that although some law professors may want to reform legal academia, they end up participating in the perpetuation of the status quo by virtue of their work.

However, newly minted lawyers enter the labor market only to be confronted with frustration; the story does not end there. Many recent law grads may find themselves stuck in a dilemma between paying off student loans based on mistaken salary projections and trying to get established in a struggling field, and this is just the beginning. The game of law school tuition is much more complex than law schools in effect exclaiming to students, "Ha ha, we won the deal. You lose and are now stuck with the consequences. Bad investment decision." A law school education comes at a cost, and a lot of times this cost comes in the form of student loans secured by the government. One might attribute the inflated nature of law school tuition to the accessibility and pervasive use of student loans, which may have drawn students towards a legal education in the first place. As the federal government has taken over student loans, in effect the federal government is giving in to these inflated law school prices. As law students graduate and are unable to find jobs, the federal government will most likely want to recoup its substantial losses not from students, who have no savings or assets, but from the law schools and academic institutions themselves. How could the federal government do this? There are several options.

Take for instance the new law school building at N.Y.L.S. Let's just say that the law school may have to learn to share the new law school building with the undergraduate students. After all, it would be a shame to let such a nice, new building go to waste. Perhaps in time the law school itself could be moved to an older building where the newer building can be used for more productive programs or programs for which students are able to repay their loans. Remember those "pure profits" gained by law schools? An even greater share of these law school profits may need to be forked over to undergraduate programs. Remember those law professors benefiting from the status quo? If demand for a legal education takes a sudden dive, law schools will not need to employ as many law professors. Cuts to student loan funding based on loan repayment projections have led to professor layoffs, and those law professors may find themselves competing for jobs in the same crummy market as recent law grads. There is a sense of economic karma to this problem. In a free market the invisible hand is king. And God save the invisible hand -- especially when there are inefficient, counterproductive businesses that should fail.

Because the federal government has recently taken over the student loan business, the federal government will probably be looking to what institutions took federal money for students not able to pay back their loans. With the prospect of income-based repayment, the federal government may stand to lose a tidy sum from their investment in these students. Thus, the game is not over for law schools as recent law graduates enter the unemployment line or find a new job at Starbucks. With the prospect of this outcome, law schools should be doing all in their power to make sure that their recent graduates find good paying jobs lest their US New & World Report rankings fall or their prospective students' loan funding be cut. Yes, though some economists and analysts may disagree with me, I believe there is a sense of economic karma in the world -- even with law schools.

But the game doesn't even stop there. In time, state governments may choose to work with the American Bar Association or state bar associations to change requirements for lawyers from three-year programs to two-year programs with a year of internship or residency (similar to medical degree programs). In light of this, law schools may need to lay off even more law professors as the labor required to support a class of students would be reduced. If the federal and state governments continue to be displeased with the results of their educational funding given the labor market, in the future state governments may end up eliminating a law school requirement to become a practicing attorney altogether. Believe it or not, at one time in American society law schools were uncommon and not a requirement for people entering the legal profession. If law school tuition is acting like a bubble and one day it bursts, it could end up taking the entire institution of legal academia down with it. If law schools cannot prove their worth in the labor market, then the demand of their product will be reduced, and if necessary, made obsolete. Hence, the practice of lawyer apprenticeship without a law school education could one day be revived.

The legal profession depends on its own legitimacy and credibility for existence. As the credibility of legal academia falls, so too falls the credibility of the legal profession. Thus, in the event of a vast scarcity of legal jobs, not only will recent legal graduates suffer, but in time, all who participate in the legal profession will suffer as well. The plight is a tragedy because the resources, time, and energy that went towards training lawyers could have gone to training other worthwhile, needed professions such as doctors, nurses, or scientists. To put this into perspective, the person who could have had the intelligent mind brilliant enough to cure cancer, Lou Gehrig's disease, or Alzheimer's disease may be sitting in a law school library right now. Due to market dynamics, he or she may have chosen law school instead of medical school, and now we may all be at a loss. But the law school conundrum is simply one small piece of a greater labor market quagmire. And the issues involved run much deeper than a simple supply and demand analysis. It will indeed take great minds to correct the problems involved with the apparent disparity between law school tuition and the legal job market. And yes, many of these great minds will be lawyers. Perhaps by looking into the cultural and economic roots of the dilemma, we will be able to make for a better labor market of tomorrow. As for today, we have to keep in mind the possible outcomes of our present economic activity, even if for it appears to be in our favor, at the moment.

The economist Henry Hazlitt once wrote, "If we try to run the economy for the benefit of a single group or class, we shall injure or destroy all groups, including the members of the very class for whose benefit we have been trying to run it. We must run the economy for everybody." In light of law schools and the labor market, there's a lot that legal academia can stand to learn from that principle. The same goes for the rest of us as well.

Posted-In: Politics General

 

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