III. The Hiring Decision

As discussed above, when law firms hire applicants, they have no way of determining their true productivity (let's call it the underlying ability index), so they must use all tools available to them to estimate it. These tools are the quality of law school the applicant attended, his performance in law school, and his personality. With the exception of personality, it should be fairly simple to determine the applicant's underlying ability index. If those with higher ability rank higher in law school, then the quality of school and the applicant's class rank can give the law firm a good idea of the applicant's ability. The law school, both in its initial screening of applicants and then in its evaluation of students, sends a signal to firms of applicants' abilities.

However, if this ability index is in fact highly correlated to LSAT score, why don't law firms ask for LSAT scores when they screen their applicants? Most of the recruiting coordinators I spoke to saw no reason to ask for scores since they hire applicants based on law school performance. Of course, since law school performance is positively correlated with LSAT scores, desirable applicants will most likely have high LSAT scores. One recruiting coordinator explained that another reason firms don't ask for LSAT scores is that "schools tell employers not to ask [for scores] because they say it's offensive." Today, putting a great emphasis on standardized test scores is not politically correct. Portraying a bad image to law schools is costly for a firm, and therefore, it is safer for them not to ask applicants for their LSAT scores. Conversely, many patent firms and judges, two of the higher paying and most selective law-related professions, do ask applicants for their LSAT scores. Because they are the most prestigious disciplines, their returns for finding the best applicants are higher than in other areas and therefore, they do not hesitate to ask for LSAT scores.

IV. Empirical Evidence

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In theory, law school graduates who have higher LSAT scores should make higher lifetime earnings than those with lower scores, both across and within schools.2 To test this hypothesis, I developed a model to measure the effect of LSAT score on starting salary. The model is:

Starting Salary is a function of LSAT scores and cost of living, plus an error term. Ideally, the student's grade-point average and the law school's rank should play a part in the model, but due to these factors' high correlation with LSAT scores, their inclusion in the model presented a problem of multicollinearity. Therefore, I could not control for other measures of student aptitude besides LSAT score.

I applied this model to three sets of data, including: 1.) Observations from the top 50 law schools in 1994, where LSAT scores were measured on the new scoring scale (120-180) which was implemented in 1991,3 2.) Observations from the top 50 law schools for the class of 1994, where LSAT scores were measured on the old scoring scale (10-48),' and 3.) Observations from individuals in the classes of 1993 and 1994 in one of the top 50 law schools. For the cross-school models, all variables are the medians for the school and the cost of living index applies to the nearest metropolitan city to the school.' I included the cost of living index as a variable because a large part of law school graduates (roughly one half), get their first job in the area in which they attended law school. Therefore, the cost of living should influence the median starting salary for a school. I used only the top 50 schools, as defined by U.S. News & World Report, in my model because they have the greatest variations in LSAT scores and starting salary from one rank to the next. It must be noted that a basic assumption of my model is that each graduate selects the job in which his income will be highest. Preferences for certain job categories which may average lower salaries and which may be prevalent in certain schools are not accounted for.

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The regression results show that, across the top 50 schools, LSAT scores are significantly related to starting salary, even when controlling for the cost of living in the school's location. One point on the LSAT is worth over $2,600 on the new scale and over $3,800 on the old scale in first year income alone (see Appendices I and 3). Of course, each point on the LSAT is not equal in terms of its effects on starting salary. At the high end of the scale, one point is worth much more than it is worth on the lower end of the scale. Without controlling for any other variables, a one point increase on the new scale on the LSAT (or a 1% increase at the mean) leads to a salary increase of $3,080 (8.5%, for the top 50 schools whereas a one point increase leads to only a $1,812 (6.2%) increase for all 177 schools combined (see Appendix 1). Similarly moving up along percentiles on the LSAT distribution brings higher returns at the high end. Average salaries for the top percentiles are:

However, the cross-school model overestimates the effect of LSATs on salaries. Because I cannot control for all other variables that differ between schools, the LSAT effect in the cross-model is biased upward. For example, perhaps 40% of "X" School graduates receive large starting salaries because they find a job through family connections. This upward effect on starting salaries in the model would appear to be attributed to higher LSAT scores, but in fact may be partially attributed to students' family status.

In order to eliminate the effects of schooling on salaries, I tested for the relationship between LSAT scores and starting salary within one law school.6 Such a model does not allow for the effects of school quality or school reputation on an applicant, and so the relationship between LSAT scores and income of a graduate is biased downward. If firms pay a rate equal to performance or ability, and if the LSAT is in fact an underlying measure of ability, then even within one school, students with the highest LSAT scores will earn the highest salaries and vice-versa.

The regression results for the individual data show that there is a significant (at the 5% level), albeit a smaller relationship between LSAT scores and starting salaries than there is for the cross-- school model. Among the students in one school, one point on the LSAT is worth only about oneseventh of what it is worth in the cross-school model. These results indicate that six-sevenths of the variance is being used up in the screening effects of the school. Law schools have the ability to put more energy into screening students than do law firms. Law firms assume that in general, students attend the highest quality school into which they were admitted. Therefore, the true effect of one point on the LSAT is greater than can be measured within one school.

However, in terms of lifetime income, the spread is still a significant difference even within one school. A student with a higher LSAT score, should, on average, make more money than a student who scored lower and attended the same law school. Between schools, the spread is larger. If a student scored in the top 5% on her LSAT and went to a top 5% school, she would be earning a higher salary, on average, than if she attended a lower ranking school.

V. Distortions of the LSAT's Predictive Value-LSAT Prep Courses

Since one LSAT point is worth thousands of dollars to the test-taker, it is obvious why the LSAT prep course industry is thriving with approximately $30,000,000 in revenue off courses alone every year. (One course costs $700-$800.) The commercial prep course market is dominated by two firms, Kaplan and Princeton Review. Competition for clients between the firms is a melodrama of its own, with unprofessional name-calling and ad falsification that results in costly arbitration. Both firms also sell study aids in the form of books and computer disks, as do several other companies and the Law School Admissions Council.

Kaplan claims a 7.2 point increase in scores for their LSAT prep course (Coleman). Kaplan, who claimed to have no special dialogue with U.S. News & World Report in a phone interview, is co-sponsor of their graduate school issue. Princeton Review claims a 7.5 point increase in scores for their LSAT prep course. Both claims are backed up by studies from prestigious accounting firms.

What about people who don't take a commercial prep course and use study aids instead? According to studies administered by Law School Admissions Services (LSAS), those using official Law Services test preparation materials (old tests) have the highest LSAT mean as a group than any group using other study methods. LSAS sells old tests at $6 a test. In general, those spending $800 on a prep course do not have higher LSAT scores than do those using much cheaper study aids.

However, these statistics do not show if commercial prep course users have a greater relative advantage than if these courses did not exist at all. Is it the study method that determines final LSAT score or is it the type of people that take prep courses that lower the mean LSAT score for the group? To answer this question, I conducted a survey among Washington University law school students to determine score improvement among those using Kaplan, Princeton Review, and book aids. My results show that Kaplan raises scores 5.7 points, Princeton Review raises then 5.5 points, and book aids raise them 2.5 points (see Appendix 5). Final mean LSAT scores for those using prep courses and those using book aids varied by only one point, with those taking prep courses having a slightly lower LSAT mean. Furthermore, regression analysis showed that the amount of time and money put into studying for the LSATs is actually inversely related to higher LSAT scores. This phenomena is not due to any adverse effects of studying. Those who spend more time and money on studying for the LSAT will end up with lower scores because they started out with lower scores in the first place, and while studying will raise their score, it will not raise it above those who do inherently better on the LSAT.

The prep course industry, while it may raise the scores of its clients, actually does not improve their standing or their lifetime incomes as an aggregate. What it does is decrease the variation in LSAT scores, thereby increasing the marginal value of one point. In its application to this paper, all results are pertinent to post prep course scores. However, because not all test-takers take a prep course, those who do have a greater relative advantage than those who do not. On an individual basis, prep courses skew the market for certification of ability, removing some validity in the test's value. If these courses did not exist, each point on the LSAT would be worth less, but the statistical significance of the LSAT in the earnings equation would be higher.

V. Conclusion

I have attempted to assign a quantifiable measure to one point on the LSAT for the law school applicant and for the law school graduate. The results show that the LSAT is in some effect a measure of true ability, but it is far from being a perfect measure. The LSAT is far more important to an applicant than it is to a graduate, and a student should worry about his LSAT score mostly to the extent that it allows him entrance to a "good" school. Once enrolled, the LSAT, which is in some form a measure of ability, still helps to determine performance and future income, but schooling adds a great amount of influence also. In addition, Prep Courses are useful to the individual because they often do raise an individual's score, facilitating her entrance to a better school. In sum, LSAT scores are important, on average, in determining lifetime income. But their effects stay largely on the law school application. Once used to gain admission, their influence in future success, while present, is limited