Postmortem on the 2010 Westlaw Professionalism Panel & Thoughts on Attorney Oversupply

You probably don’t know this, but I sat on a Westlaw Professionalism webcast panel on December 30th.  Towards the end, I laid out what the tuition bubble is and remarked how the ratio of attorneys per capita has dropped from 695:1 in 1951 to 264:1 in 2000, and that one projection sighted it at 100:1 by 2050.

IMPORTANT: The oversupply problem is difficult to disaggregate from the Lesser Depression we’re now in, so unemployed lawyers can’t solely blame “The System” for their hardship, though oversupply must contribute.  I’ve written elsewhere on the distribution of lawyers per capita in various states.  For more on the issue of professionalism and attorney oversupply, I highly recommend reading Professor Jason Dolin’s article, “Opportunity Lost,” which I cited in the program.

One of the other panelists, Brian O’Neill, partner at Faegre & Benson in Minneapolis, responded by recommending young attorneys open their own practices, reduce their hourly rates to $100-$150 per hour and serve the middle class, which he described as homeowners with annual incomes of $250,000.  This class, he believes, is underserved by BigLaw, which prefers to charge $500-$600 per hour and won’t stoop to handling property boundary disputes.  I don’t know if Mr. O’Neill thinks there’s enough work here for all new attorneys, or if he thinks this is just a good way for them to weather the economy.

I pointed out that his response is not unusual and that its complement is the “go rural” directive the ABA espouses.  More often though, I run into the bottleneck argument, which claims that there is no oversupply problem and that the tuition bubble is really a faculty bubble.  Fire the faculty, and all will be well.  I’d like to respond more fully to Mr. O’Neill’s thoughts as I’m a better writer than speaker, though others have addressed this clearer than I have in other contexts.

I should say first that I don’t think Mr. O’Neill is a blamer the way some other experienced attorneys are, and I learned a lot from his description of Twin Cities’ practice 40 years ago.  However, I wished he’d commented on the legal education side rather than the oversupply problem, even though I was the one who brought it up.  I do think it’s important for me, certainly, to maintain my preparedness should I don my expert hat again.  Which I hope to.  Here are my thoughts:

(1)  $250,000 per year in annual income is not middle class by any definition[i]97.13% of American households earn less than that.  30% of American households earn more than $75,000 annually.

(2)  That aside, as a practical matter, the BLS says that competition for law jobs (which can be fairly extended to legal work in general) will be “keen” due to the large number of graduates from the law schools.  That should be the first response to anyone claiming there’s legal work out there. To get a handle on its credibility, contrast what the BLS says about lawyers to dentists, another graduate-level profession that has only 57 nationally accredited schools and will experience faster-than-average growth due to retiring practitioners, among other factors.

(3)  What about theory?  In the program, I said that this isn’t an issue of law practice management but one of simple economics: supply & demand.  There are only three ways a “middle-income” family (let’s say a suburbanite family earning between $40,000-$250,000 annually, assuming manageable household debt and some savings) can fail to access legal services: (i) there’s an attorney shortage, (ii) there’s an information/marketing gap: lawyers aren’t good at marketing or potential clients aren’t looking very hard for lawyers willing to work for them, or (iii) price-fixing’s afoot.  We know there’s no attorney shortage, certainly not in Minnesota; I’m incredulous of an information failure—if you’re earning $250,000/year and can’t find a lawyer, you’re not looking very hard, and I doubt lawyers aren’t doing enough to reach out to markets; I’ve seen zero evidence of price-fixing and have even read bar association discussions of clients demanding lawyers unilaterally reduce their fees.

(4)  More broadly, how could this situation happen?  On the one hand, if there’s a massively underserved market that can afford to pay for services at reduced rates, why will no one serve it?  On the other hand, if this underserved market is small, how can it possibly serve the employment needs of tens of thousands of unemployed, indebted attorneys?  I seriously disbelieve there’s a phantom middle here.

In the absence of evidence, we’re making arguments from ignorance.  Consequently, I suspect this is turning into a competing presumptions game: do I have to show that there’s insufficient work for attorneys (beyond the BLS or NALP) or does the “underserved market” proponent have to prove the underserved market’s existence?

I believe it’s the latter unless there’s a point in economic theory I’m missing.  Where there is demand, someone will supply it, even if it means someone can only be a lawyer part-time while working at the local dry cleaner.

As for the oversupply problem itself, as I’ve said, it’s harder to document and multiple factors affect it.

BEWARE: I’m not a lawyer-hater who believes lawyers deliberately manipulate the law to raise procedural hurdles to make more work for themselves.  I bet (and I suspect Brian O’Neill does too) it’s their clients who do that.  This is why my blog isn’t ThereAreTooManyGoddamnLawyers.com.  The oversupply problem has its own arguments that are harder to deal with than ones on the tuition bubble:

  • As the law becomes more complex, demand for lawyers increases.

Professor Ilya Somin argued something like this a while back, though he believes that fewer laws means fewer lawyers.  I don’t buy it as I’ve stated it because for one it disregards the laws limiting work for lawyers, such as tort reform.  A more critical example is bankruptcy: mortgage cramdowns aren’t allowed and student loans are nondischargeable.  Finally, much law is preventative: a few corporate counselors will save a business a lot more money and attorney work than litigating will.

As a result, the theory I propose is the “Law of Conservation of Disputes.”  Take the classic Law & Economics example of the tannery creating externalities on the nearby community.  We have one conflict, but policy gives us multiple responses: public/private nuisance lawsuits, regulation, taxes, or zoning.  All require lawyers—some more than others, but there’s still only one dispute to be resolved.  We can change how it’s resolved, but that doesn’t suddenly create a need for more lawyers, even if the option we choose is highly adversarial like the nuisance option.  To that extent Professor Somin is right, except we should add that fewer laws does not lead to fewer disputes.  Instead, it just leads to fewer lawyers resolving disputes, and the work will shift to mediators or thugs, depending on your opinion of human nature.  For related discussion, consider this recent Times article on illegal rare earth metal mining in China.

So yes, lawyers are necessary to resolve disputes but more laws won’t create more disputes without draining the economy, and inhibitive laws prevent dispute resolution while creating injustice.

  • We’re moving to a service economy or a knowledge economy, so we need more lawyers to handle the workload.

Essentially, this is the same argument as the one above.  Legal services, as a tertiary good, can easily crowd out economic growth through wasteful procedural requirements.  Additionally, there’s an argument that patent and copyright laws actually burden economic growth, especially drug patents that cost American consumers vastly more than generic drugs do.  I have my thoughts on IP law, but that’s for a later post.

The lawyer oversupply problem doesn’t just inhibit the economy and misallocate human capital.  Worse, it distorts the public’s perception of the profession.  The problem isn’t the number of attorneys in practice earning a median salary of $110,590 annually; rather, it’s the growing number of juris doctor holders who will never be able to work in law and earn an income relative to the cost of the degree.  This is an externality the legal profession is dumping on society–a dispute that it must resolve.

Happy 2011.


[i] And this comes from someone who prefers terms like “middle-income” or “working class” because they’re more descriptive.  If you’re looking for a definition of “middle class,” read The Legal Dollar on the subject.

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3 Responses

  1. I’m a bit baffled by this supposed underserved middle class willing to pay $100-200 an hour. Saying “BigLaw won’t stoop to meet it” is counter to everything big business is all about. Bigger operations, because of economies of scale problems, could meet this supposed demand with much greater profits than solo attorneys just starting out could. Enterprising firms could hire on staff attorneys at $50/hr and then bill them out at $125/hr to the underserved class to handle their property disputes (Property disputes? Really?). There’s simply too much profit potential for every mid- and large-sized firm in the metro area to shrug at the idea because they’d rather bill the local industrial giants.

    I can’t imagine someone with 100k+ in household income not being able to find and hire a lawyer right now for run-of-the-mill stuff. The idea’s absurd.

    As for the existence of any supposed market, burden of proof is on them. You could never logically show it doesn’t exist; they can always find something to show it does. But capitalism has this wonderful way of finding viable markets, and there’s 10,000 extra attorneys in every large American city and they’re not being found, it’s either really good at hiding or it just doesn’t exist.

  2. Excellent points J-Dog.

  3. I’m a bit baffled by this supposed underserved middle class willing to pay $100-200 an hour.

    Especially since there is an entire niche of firms charging in the $125 to $150 an hour range that is having a very hard time generating enough work.

    Middle class families of the type described don’t have that much in the way of real legal needs.

    There is also an entire niche at $69/hour (they receive referrals from legal service plans that are “insurance” that just provide referrals to their plan members) and they are finding a massive shortfall of clients as the insurers cull the lists.

    It is indeed, an argument from ignorance.

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