Matt rightly points out that this data suffers from survivorship bias AKA , "the graveyard problem" in that the reported $4M is only for people that actually manage to stay employed as a lawyer for their entire 40 year career - which is only a small percentage of those who graduate law school. This is a really important point to consider because law does not have a lot of job security - as I discuss here. My best estimate of those who are initially employed as a lawyer (not just "go to law school", but "employed") and make it through a full 40 years without significant unemployment is considerably less than half.
Matt also points out that the real premium for earning your law degree is the difference between the bachelor degree's earnings and the law degree's earnings - which works out to 1,764,000 - not the full $4M.
One additional interesting thing to consider that is not in the analysis is the impact of taxes. Why? Well, the really important number is not how much you "make", but how much you take home. At certain incomes, you basically get to take home 100% of what you earn, but at other incomes the government can take 40%+ of what you earn.
Let's see how that plays out here. Let's divide the BS and associate's salaries by 40 to figure out their yearly earnings ($56,700 and 43,175). For the legal salary, we have to subtract off the three years spent earning the law degree - this shows up in the chart - so we divide by 37. This gives us $108,973, which agrees closely with the Department of Labor's $110K/year number for average lawyer compensation.
Now let's see what happens to the take-home pay using this simple tax estimator. Let's use a hypothetical family of 4 - 2 parents and 2 kids - with the standard exemptions and deductions and only one parent working. Old fashioned? Maybe, but feel free to create whatever scenario you want. Here's what we get:
Yearly Salary Tax Take Home Adjusted Earnings Difference
Associate's 43,175 -1524 44699 (x40) = 1,788,000 +61,000
Bachelor's 56,700 971 55729 (x40) = 2,229,000 -39,000
Law 108,973 10,306 98667 (x37) = 3,651,000 -381,000
Some things to note:
- With the associate's degree, the family pays negative tax due to all the credits in place. The welfare program embedded in our tax code just gives them an extra $1,524/year. If the program continues for all 40 years, that's an extra $61,000 over their careers.
- Even with a bachelor's degree, although the family is now paying some tax, it is really not much. They are paying 1.7% of their income as tax.
- However, once we get to the law degree, taxes become significant. You can see that we lose almost 10% of our lifetime income to taxes.
- Consequently, if we want to see the "true take-home advantage" of the law degree relative to the bachelor's, we need to consider the tax loss and it is already down to 1,422,000 - not the 1,764,000 - a difference of $342,000
- To put it another way, of the putative advantage to getting the law degree that Georgetown proposes, about 20% disappears immediately when you factor in the higher taxes.
- Some people may see "earnings" and think "take-home". Nope, you have to think about the impact of taxes. Alternatively, people may be familiar with a tax code that that is kind and gentle and either gives you some money or only takes a little. That won't be the case when you practice law.
Thus, after taking into account increased taxes and loan repayment, even if you are lucky enough to remain employed for all 37 years as a lawyer, the advantage of the law degree is now only about $953K - that's a far cry from the $1,764,000 that Georgetown was initially trying to tell us - about a 46% decrease. Consequently, I think that it would be legitimate to say that even if you are fortunate to work in law for your entire career, about HALF of the advantage of getting the law degree is eaten up by increased taxes and loan repayment.
People considering law school should really think about that.