Michael Simkovic
Michael Simkovic is an Associate Professor of Law at Seton Hall Law School, where his research focuses on taxation, commercial law, and corporate and consumer finance. He was one of the 2015 Young Scholars Award recipients.
Professor Simkovic’s research has been cited in the U.S. Congress’ Joint Economic Committee report recommending sweeping reforms of the credit card industry, which were enacted in 2009. His research has also been cited by researchers at the Federal Reserve Bank of New York and the Government Accountability Office, and in popular publications such as the New York Times, Washington Post, Los Angeles Times, Bloomberg, the Atlantic, and USA Today. He was the recipient of the American College of Consumer Financial Services Lawyers Writing Award in 2012.
Professor Simkovic has served as a visiting professor at the University of North Carolina, Chapel Hill and at Fordham University. Before joining the Seton Hall faculty, Professor Simkovic was an attorney at Davis Polk & Wardwell in New York; a strategy consultant at McKinsey & Company, specializing in legal, regulatory and business issues affecting financial services companies; and an Olin Fellow in Law and Economics at Harvard Law School.
Professor Simkovic’s research has been cited in the U.S. Congress’ Joint Economic Committee report recommending sweeping reforms of the credit card industry, which were enacted in 2009. His research has also been cited by researchers at the Federal Reserve Bank of New York and the Government Accountability Office, and in popular publications such as the New York Times, Washington Post, Los Angeles Times, Bloomberg, the Atlantic, and USA Today. He was the recipient of the American College of Consumer Financial Services Lawyers Writing Award in 2012.
Professor Simkovic has served as a visiting professor at the University of North Carolina, Chapel Hill and at Fordham University. Before joining the Seton Hall faculty, Professor Simkovic was an attorney at Davis Polk & Wardwell in New York; a strategy consultant at McKinsey & Company, specializing in legal, regulatory and business issues affecting financial services companies; and an Olin Fellow in Law and Economics at Harvard Law School.
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This article gauges efficient investment levels based on marginal rates of return relative to other investments. Labor economists struggle to explain why the rates of return to higher education have remained much higher than the rates of return to other investments. This article proposes a novel explanation: distortionary taxation.
Economic theory suggests that when investments that are substitutes for one another are taxed inconsistently, investors are less likely to choose the investment option that is taxed more heavily. Unfavorable tax treatment of higher education relative to other forms of investment could create an undersupply of educated labor. This distortion would increase pretax returns to education and reduce economic growth and social welfare.
Part I of this article reviews empirical evidence linking higher education to increased earnings and economic growth, and considers student responsiveness to financial incentives. Part II explains why the unusually high rates of return to higher education may indicate underinvestment. Part III presents a mathematical model illustrating the link between tax rates and rates of return. Part IV reviews optimal tax theory and the distortion problem. Part V contrasts taxation of favored investments with taxation of higher education. Part VI considers policy implications.
We improve upon previous studies by tracking lifetime earnings of a large sample of law degree holders. Previous studies focused on starting salaries, generic professional degree holders, or the subset of law degree holders who practice law. We also include unemployment and disability risk rather than assume continuous full time employment.
After controlling for observable ability sorting, we find that a law degree is associated with a 60 percent median increase in monthly earnings and 50 percent increase in median hourly wages. The mean annual earnings premium of a law degree is approximately $53,300 in 2012 dollars. The law degree earnings premium is cyclical and recent years are within historical norms.
We estimate the mean pre-tax lifetime value of a law degree as approximately $1,000,000.