Why have law schools increased payroll spending so drastically?

According to Rick Bales, dean of Ohio Northern’s law school, there are three reasons that those mean “scambloggers” (this term is now used loosely to encompass pretty much anyone who criticizes the legal ed status quo) never mention:

The first is Baumol’s Cost Disease. The idea here is that in certain labor-intensive industries (such as education), there is little productivity growth over time. Car manufacturers automate; farmers have better equipment and pest-resistant seeds; but law school is still taught much the same way it was 50 years ago. Unless and until we see widespread adoption of online learning technology or other types of teaching-efficiency enhancements, the cost of higher education likely will continue to increase more than rate of inflation.

The second is increased reporting requirements. Twenty years ago law schools gave some basic data to the ABA and that was it. Today we collect and give a lot more data to the ABA, and then we format it exactly like they want it for our website, and we do the same for U.S. News, and the transparency movement wants still more. Many law schools now have a full-time data-reporting officer. Our Career Services Director spends almost as much time tracking student outcomes as she does helping students find jobs. Transparency is great in the abstract, and abuses in the past make today’s demands for more transparency reasonable. But all this data collection and dissemination isn’t free – it comes at a cost that ultimately must be paid from student tuition. . . .

The third factor contributing to higher costs is that faculty (and decanal) salaries are influenced by the anomalous bi-modal wage distribution of starting salaries for lawyers. As this chart makes clear, lawyer salaries follow more-or-less a normal bell curve in the $45,000-85,000 range, then spike strongly in the $155,000-165,000 range. The problem for law schools is that many of the faculty we want to hire (especially the folks who can teach corporate, tax, and estate planning law) are in that right-hand spike, and to attract them we need to be at least in-the-ballpark competitive. Even so, although law faculty may earn modestly more than the average (mean, median) starting salary of a practicing lawyer, they earn far less than the lawyers on the bigfirm partnership track.

In the classic example, Baumol’s cost disease is supposed to explain why it continues to cost so much, relatively speaking, to perform a string quartet, relative to the declining cost of farming an acre of wheat, etc. (Because you still need four musicians duh). But what if the American String Quartet Association decided that a Fully Accredited String Quartet now required eight musicians? What would that do to the cost?

Law school student-faculty ratios declined from 27.1-1 to 13.6-1 between 1980 and 2013, and are certainly lower than the latter figure today: what downsizing of faculties has taken place over the last couple of years hasn’t come closes to matching the decline in overall enrollment. Part of this decline can be attributed to the ABA’s Section of Legal Education’s (aka law school deans and faculty reveling in the joys of regulatory capture) accreditation standards, that used student-faculty ratios as a proxy for meeting quality standards.

But wait, there’s more. What if you doubled the salaries of the eight people now performing in your string quartet, at the very time that compensation for other musicians was plunging?

Let’s compare the compensation of an up and coming seventh year professor, who has just been promoted to full, at the University of Michigan Law School thirty-five years ago versus today. How much was this guy making in base salary back in the day? The answer is $31,500, which when we plug in our handy-dandy inflation calculator is about $91,000 in 2015 dollars. (His total comp for his academic labors had risen to $4.6 million in 2013, so don’t fill out a SNAP form for him just yet).

How much was a seventh-year law prof, just promoted to full, making in base pay at Michigan in 2014? The answer is $205,000 (In both 1980 and 2014 base pay numbers didn’t include a 15% summer research stipend, or the 10% of base pay that the university contributed to the faculty member’s retirement account).

Meanwhile, in the rest of the American university, average faculty compensation plunged between the 1970s and today, largely because of rampant adjunctification. (Law schools don’t/can’t use many adjuncts, relatively speaking, because adjuncts greatly increase student-faculty ratios per the ABA’s accreditation standards, since an adjunct who teaches a full course load counts as only .2 of a faculty member relative to a tenure-track person. True story).

Moving right along, what about those burdensome reporting requirements? In fact, contrary to Bales’ claims, the ABA reporting requirements haven’t changed a whole lot over the past 20 years, which anybody can confirm by checking out an ABA reporting form for 1996 and comparing it to today’s equivalent document. And really, compiling that data and putting them up on a website isn’t close to a full-time job for even one admin, so this rationale for skyrocketing costs is specious on its face.

Speaking of administrative personnel costs, in 2014 Michigan’s law school was paying the head of its admissions office (someone whose professional career experience consisted of two years being a lawyer and three years clerking for a judge before heading into university administration) $199,000 per year, which in inflation-adjusted dollars is quite a bit more than the dean of the law school was paid 35 years ago. (These days the dean is pulling down $450K).

Meanwhile, is it really true that you have to pay law faculty twice as much today as a generation ago or they’ll scurry off to corner offices at Cravath?

Cravath was paying entry level associates $141,000 in 2015$ 30 years ago; today the figure is $160,000. It’s true that compensation for Cravath partners has gone through the roof during the new gilded age, but the notion that legal academics are people with realistic career options that include equity partnership at mega-firms is about as plausible as the idea that they (we) are incurring the opportunity cost of not choosing to become NBA power forwards when we decide to dedicate ourselves to public service via the academic life.

Furthermore, as anyone who has been involved in law school faculty hiring knows, it has become an extreme buyer’s market: entry-level qualifications for tenure-track jobs are literally higher now than qualifications for tenure were even twenty years ago. (A senior professor at an elite law school told me recently that he’s quite confident law schools could collectively pay entry-level hires 60% of the current market rate with no loss of quality at all).

So the answer to the question posed by this post is the same answer one can give for so many contemporary economic transactions: because they could.

. . . Michigan Law School tuition (2015$):

1980: Resident: $2,008 ($5,775 2015$)

Non-Resident: $4,300 ($12,369 2015$)

1n 1980 Michigan was the most expensive public law school in the country.

2015: $53,153 resident/$56,153 non-resident

Also, the law school’s endowment is certainly larger today, in real dollars, than the entire university’s endowment 35 years ago. (The entire university’s endowment was $115,300,000 in 1982, which is $284,000,000 in constant dollars. The law school’s endowment was $248,000,000 fifteen years ago. About 3% of the university’s students are enrolled at the law school.)