Does the Lack of a Profit Motive Affect Hiring in Academe? Evidence from the Market for Lawyers

Introduction The human proneness to snobbishness does not disappear with education. Students of elite universities like to think that admission to and graduation from these schools validates their personal status. Graduates of prestigious universities often presume that graduates of less distinguished institutions are not as talented or as well trained. Conversely, graduates of non-elite universities often claim that they never get a fair shake in their careers, as the elite look out for each other. Snobbishness is a form of prejudice, and economic research shows that by forcing people to bear its opportunity costs, markets curb discrimination (Becker 1971). By implication non-profit employers should be more likely to indulge snobbishness more than for-profit firms. The market for lawyers combines non-profit law schools and for-profit law firms, and thus offers an opportunity to test whether academic markets are more prone to prejudice, specifically a prejudice for pedigree. While all employers might like to hire from elite law schools, law firms face reduced profits when indulging this prejudice whereas law schools will not lose profit when hiring based on pedigree instead of ability. We test the role of the profit motive on hiring by comparing the educational backgrounds of the faculty of 20 top ranked law schools to the lawyers of six prestigious law firms. This article specifically investigates a relatively benign yet tangible form of prejudice--for pedigree. Presumably other more problematic prejudices (including political ideology or research methods) could be indulged in faculty selection (hiring, tenure, and promotion). As Polanyi (1962) noted, science (and other disciplines) share the base architecture of the market economy, namely decentralized decision making coordinated through a feedback process. Academic markets nonetheless do differ in some ways from markets, notably in their reliance on prestige and peer review as opposed to direct payment for scholarship (Burris 2004; Thornton 2004), so research benefits authors by generating a reputation. In addition, research fields are dominated by academics located in non-profit universities in contrast with profit driven firms in the economy. The absence of the profit motive could help explain the difference in performance of spontaneous coordination in the academy relative to traditional economic markets. Many observers raise a number of charges of scholarly bias against specific disciplines and the academy as a whole. For example, the economics profession has been accused of bias against heterodox economics (Lee and Eisner 2008) and Austrian economics (Yeager 1997). Others charge economics with pursuing excessive formalism and mathematical modeling at the expense of testable hypotheses (Leontief 1982; Coelho and McClure 2005). And commentators on the political right accuse the entire professorate of left-liberal bias (Kimball 2008; Horowitz and Laskin 2009). Our investigation provides perspective on the potential causes of such bias. If indirect exchange and reputation seeking function analogously to monetary exchange and profit seeking, then academic markets should not be less efficient than economic markets. But the absence of a profit motive may provide academics slack with which to indulge prejudices and biases. The remainder of this article is organized as follows. The next section further discusses the role of the profit motive and commercial forces generally in limiting academic prejudices and relevant literature. The third section describes the construction of our data set. The fourth section presents the main results. Law schools are significantly more likely to hire graduates of elite law schools than the most prestigious firms. Overall 61 percent (81 percent) of faculty of top 20 law schools graduated from one of the top 5 (top 20) ranked law schools, compared with 35 percent (69 percent) of lawyers in private practice. …