Do Economists Make Better Lawyers?

Josh Wright —  31 May 2006

Yes. So says R. Kim Craft and Joe G. Baker in a recent paper in the Journal of Economic Education entitled “Do Economists Make Better Lawyers? Undergraduate Degree Field and Lawyer Earnings.” Here is the abstract:

Using nationally representative data, the authors examine the effects of preprofessional education on the earnings of lawyers. They specify and estimate a statistical earnings function on the basis of well-established theory and principles. Along with standard control variables, categorical variables are included to represent graduate degrees in addition to the law degree and an assortment of undergraduate major fields. Holding a Ph.D. or M.B.A. degree, with the law degree, is associated with significantly higher earnings in some sectors. Lawyers with undergraduate training in economics earn more than other lawyers, ceteris paribus, and economics is the only undergraduate field associated with earnings that differ significantly. The available evidence supports the hypothesis that economics training increases a lawyer’s human capital compared with other undergraduate majors.

(HT: Tom Ulen at Law and Econ Prof Blog)

12 responses to Do Economists Make Better Lawyers?

  1. 

    Right. Could be. Its certainly a possible explanation that this sort of selection effect story is driving the result, i.e. the model is really identifying a prestige effect because top schools do not offer business or accounting. Im just not sure whether that is actually the case. You are definitely right that it would be interesting to see what the data say within and between universities for lots of reasons.

    In any event, Im not convinced that economics is as unique as you suggest. First, my sense is that there are plenty students in plenty of fields out there who are motivated to maximize their income. I dont think economics, business, accounting, or finance majors have any special claim to this trait. I think you have to make some strange assumptions about the behavior of non-econ majors to tell the story you want to tell about their results. At least, the assumptions strike me as odd. Second, my sense would be that there are a vareity of majors offered at “prestigious” schools (sciences, engineering, etc.) that would fall into both sets you mention. My major point is one would need a slighly nuanced endogeneity story to explain the results. A point about which I think you agree (having come up with such a story).

    I certainly agree with you, as I mentioned earlier, the results are not dispositive of the human capital story. But very interesting nonetheless! And the data (as you mention) suggest that they might be able to do some interesting things with respect race, age, experience and other factors.

  2. 

    Two overlapping sets of majors — one that focuses on financial and money matters (economics, business, and accounting) and one that can be found at prestigious schools (math, physics, and economics). Economics is the only major in both sets.

  3. 

    I was always told that science and math carried the most prestige, though this was largely by mathematicians and scientists. I’m not sure that I follow your explanation of their results as a function of prestige. How would prestige explain the result that an economic education has significant results AND none of the other majors do. Surely, economics is not (perceived as) the ONLY prestigious major AND economists as the ONLY group that maximizes income? Though as an economist I would certainly like to believe the former, this seems implausible to me.

  4. 

    I just wish they were a little more nuanced with their conclusions. For example, their regression results in Table 7 show that the economics degree has significant positive effects in the state government and self-employed sectors, but not in the for-profit sector. The only group with significant positive results in the for-profit sector was the M.B.A. group. There are a lot of other interesting and significant results, including breakdowns by race, age, and experience, but the authors’ message is “Lawyers with econ degrees are better lawyers.” I don’t think that simple notion does justice to their results.

    The fact that other “money-oriented” majors do not have significant results can be explained by other factors. Economics is a more prestigious major than business or accounting. Many of the top schools do not have business or accounting majors. It’d be interesting to see the results if school prestige were taken into account. I would imagine that prestige is correlated with higher incomes.

  5. 

    I wholeheartedly agree that a willy nilly comparison of non-profit attorneys and for profit attorneys that concluded that because the latter had higher salaries we could infer something about “quality” would be faulty.  That seems to be your concern in Cmt #3 above. I’m just making the point that this isn’t what they did (though there may be other issues with exactly what they have identified here).  Their analysis is at least slightly more nuanced than that. Table 7 shows, for example, within those employed by the state government, attorneys with econ degrees make more holding all else constant. In other words, one would have to tell a more complicated endogeneity story than the simple “economics majors like money” to explain the results.

    There is surely an underlying assumption for the “human capital” story interpretation that within these categories, better qualified individuals will draw better salaries. Do you find that assumption problematic as well? I am curious, how would you explain the result that economics majors (and no others) experience this effect and not other undergraduate majors that presumably also “care about money”?

  6. 

    Here, I think, is the key graf:

    “The idea that lawyers with an economics bachelor’s degree might self-select into higher paying fields is implausible for the following reason. We assert that, with some exceptions, most lawyers maximize money income. If those with an economics degree have a greater propensity to choose higher paying areas of law, it would imply that those with other degrees do not know, or do not care, which fields pay better. It seems more likely that higher quality lawyers, or those who are perceived as higher quality, are more able to obtain positions in the higher paying fields — regardless of undergraduate degree.”

    So they seem to be making the assumption that pay is a good proxy for ability. And in law, that’s a very problematic assumption to make. I skimmed for the comparisons within categories (non-profit, gov’t, etc.), but I couldn’t find anything specific. Is it just the regression results that show this? Table 6 seemed to show a more mixed picture.

  7. 

    Matt, thanks for the comment. While I understand your objection, and am not here to defend the paper’s research design, the title makes sense in the context of the author’s story. They discuss and reject the possibility of econ majors self selecting into more lucrative fields (p. 278 again) in light of their result that this effect only applies to econ majors and not other fields in which law students might also want to maximize income. The authors argue that the most plausible interpretation then, is that higher quality lawyers (regardless of undergraduate major) are drawing higher salaries. The authors also look at pay differences across different sectors, which would seem to address your other concern (private, gov’t, non-profit).

    I’m not saying that I necessarily agree with this interpretation of their results, though they are pretty interesting, but their point really IS that the data suggests that economists make better lawyers.

  8. 

    My objection is that the title equates “better paid” with “better”. Some of the best attorneys out there work for the government or for non-profit agencies — their pay does not reflect their talent as attorneys. Econ majors might make more money because they are more likely to want to make more money.

  9. 

    Nope. No objection at all. One ought to be concerned with exactly that endogeneity issue, and I’m not sure what you would use to instrument. The authors actually note that the possibility that the “preprofessional education variables might be correlated with unobservable differences in ability or ambition.” As far as disentangling these two explanations, @ p. 278 the authors interpret the evidence that economics majors alone produce positive effects on lawyer salaries, and not other “ambitious” fields like science and engineering, as suggestive (but not dispositive) that there is something other than self-selection going on.

  10. 

    I have an alternative explanation, which has to do with endogeneity. I bet the authors haven’t dealt with it, since I don’t think a proper instrument exists.

    Here goes: most law-school-bound undergrads are social science and humanities majors, of whom econ majors are clearly the smartest. (Where have you seen an undergrad who failed as a Women’s Studies/English/Sociology major and then transferred to Economics, graduating with high honors? The opposite stories are everywhere). So, the smartest law school applicants major in econ, and they also make the highest-paid lawyers, but that’s because they’ve been the smartest all along, not because majoring in econ increased their earning capacity.

    I suspect Josh won’t object.

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