posted by Michael Simkovic
(Reposted from Brian Leiter’s Law School Reports)
BT Claim 2: Using more years of data would 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.
July 29, 2013 at 11:38 am Tags: Economic Value of a Law Degree, economics, law and economics Posted in: Accounting, Economic Analysis of Law, Education, Empirical Analysis of Law, Law Practice, Law School, Philosophy of Social Science Print This Post No Comments
posted by Andrew Blair-Stanek
Regardless of your take on the IRS targeting conservative groups applying for 501(c)(4) status, the episode demonstrates once again that Congress, the Administration, and the media have multiple avenues to pressure the IRS to act or to reconsider earlier actions. This susceptibility to political pressure has broad, counterintuitive implications for how to best deter violations of requirements throughout tax law.
In their path-breaking law & economics article, Calabresi & Melamed observed that every entitlement can be protected by either a property rule (e.g. injunctions, disgorgement of profits) or a liability rule (e.g. compensatory damages). The same is true in tax law. When a taxpayer violates a requirement for a favorable tax status, the tax code either imposes additional tax proportionate to the harm (a liability rule) or imposes the draconian penalty of taking away the tax status entirely (a property rule).
Which rule is most likely to deter a well-connected organization from violating a requirement imposed on it by tax law? At first glance, property rules (i.e. yanking the organization’s favorable tax status) appear to be the most effective deterrent. But the IRS routinely hesitates to take this draconian step, which would result in complaints to Congress, the Administration, the media, and other organizations. Even if the tax code, as written, imposes this property-rule remedy, the IRS can and often does decline to impose it in practice.
Examples of this problem abound throughout tax law. My favorite example is a real estate investment trust (or “REIT”) that had its IPO in 2007 and revealed in its SEC filing that it was in clear violation of one of the requirements (I.R.C. § 856(a)(2)) to qualify as a REIT for tax purposes. How brazen! But what was the IRS to do? The requirement is protected by a property rule: the only remedy available to the IRS was to take away the REIT’s favorable tax status entirely. This would have been draconian. All the REIT’s shareholders would have complained to their congresspersons, the financial press would have run stories, and the National Association of Real Estate Investment Trusts would have raised a ruckus. The IRS didn’t dare impose this property-rule remedy. The IRS did nothing, and the REIT suffered no consequences for the violation.
Would this REIT have been so brazen if the requirement had, instead, been protected by a liability rule, which would merely have imposed additional tax proportional to the violation? Almost certainly not. And that is the counterintuitive result: liability rules are often more effective in practice than draconian property rules in deterring taxpayers from violating tax-law requirements.
The relative merits of property rules and liability rules in tax law are explored in depth by this forthcoming Virginia Law Review article.
June 4, 2013 at 11:18 am Tags: Calabresi and Melamed, law and economics, liability rules, property rules, tax law Posted in: Economic Analysis of Law, Law Rev (Virginia), Tax Print This Post 2 Comments
posted by Lea Shaver
Say we agree there’s very little being translated into languages like Zulu and we agree that’s a problem. Is the problem that copyright makes it too expensive? Or is the real problem that translation or publication is inherently too expensive, given the limited size of these audiences and low ability to pay?
A theoretical model and some examples
It’s clear that the potential profits from Zulu translations aren’t sufficient to cover the costs. But those costs fall into lots of different categories: copyright licensing fees, the translator’s labor, distribution costs… etc. Would merely eliminating the copyright barrier be enough to tip the equation?
Let’s build a theoretical model first and then my research can look for data points…
P = potential income from book sales
C = costs of copyright compliance (including fees to the copyright owner, transaction costs of negotiating the license, and lawyer’s fees to handle copyright compliance and disputes)
T = costs of performing the translation (translator’s labor)
D = distribution costs (printing costs, shipping costs, overhead, leaving a profit margin for retailers, etc.)
For translated works to be produced, we would need to see that potential sales outweigh the copyright, translation, and distribution costs.
P > C + T + D
We can think about this equation as applying generally to works in a particular language market. Or more accurately, we can think about it applying to any specific work. If potential sales appear to be greater than costs, then the market should produce the work. So, let’s look at some specific works that the market is producing in Zulu right now…