BT Claim 2:  Using more years of data would reduce the
earnings premium

BT Quote: There is no doubt that including 1992 to 1995 in their study would measurabley reduce the 'earnings premium.'"  

Response: 
Using more years of historical data is as likely to increase the
earnings premium as to reduce it

We have doubts
about the effect of more data, even if Professor Tamanaha does not.

Without seeing data
that would enable us to calculate earnings premiums, we can’t know for sure if
introducing more years of comparable data would increase our estimates of the
earnings premium or reduce it.

The issue is not
simply the state of the legal market or entry level legal hiring—we must also
consider how our control group of bachelor’s degree holders (who appear to be
similar to the law degree holders but for the law degree) were doing.   To measure the value of a law degree, we must
measure earnings premiums, not absolute earnings levels.

As a commenter on
Tamanaha’s blog helpfully points out:

“I think you make far too much of the exclusion of the period from
1992-1995. Entry-level employment was similar to 1995-98 (as indicated by table
2 on page 9).

But this does not necessarily mean that the earnings premium was the
same or lower. One cannot form conclusions about all JD holders based solely on
entry-level employment numbers. As S&M's data suggests, the earnings
premium tends to be larger during recessions and their immediate aftermath and
the U.S. economy only began an economic recovery in late 1992.

Lastly, even if you are right about the earnings premium from
1992-1995, what about 1987-91 when the legal economy appeared to be quite
strong (as illustrated by the same chart referenced above)? Your suggestion to
look at a twenty year period excludes this time frame even though it might
offset the diminution in the earnings premium that would allegedly occur if
S&M considered 1992-95.”

There is nothing
magical about 1992.  If good quality data
were available, why not go back to the 1980s or beyond?   Stephen Diamond and
others make this point.

The 1980s are generally
believed to be a boom time in the legal market. 
Assuming for the sake of the argument that law degree earnings premiums
are pro-cyclical (we are not sure if they are), inclusion of more historical data going
back past 1992 is just as likely to increase our earnings premium as to
reduce it.  Older data might suggest an upward trend in education earnings premiums, which could mean that our assumption of flat earnigns premiums may be too conservative. Leaving aside the data
quality and continuity issues we discussed before (which led us to pick 1996 as
our start year), there is no objective reason to stop in the early 1990s
instead of going back further to the 1980s.

Our sample from
1996 to 2011 includes both good times and bad for law graduates and for the
overall economy, and in every part of the cycle, law graduates appear to earn
substantially more than similar individuals with only bachelor’s degrees.

 

 

This might be as
good a place as any to affirm that we certainly did not pick 1996 for any
nefarious purpose.  Having worked with
the SIPP before and being aware of the change in design, we chose 1996 purely
because of the benefits we described here.  Once again, should Professor Tamanaha or any other group
wish to use the publicly available SIPP data to extend the series farther back,
we'll be interested to see the results.