Legal Sector 2018: 500,000 Law Grads vs. 100,000 Lawyer Jobs

[****THIS RESEARCH IN THIS POST HAS BEEN CONSOLIDATED ON THIS PAGE. PLEASE LINK TO THAT INSTEAD.****]

[UPDATE: Through more recent research, I discovered that the BLS does calculate job growth due to replacement needs, projecting that 141,900 lawyers will retire or pass away. Adding that to the net growth figure cited below gives us a total of 240,400 lawyer job openings between 2008 and 2018. Read the Law Graduate Overproduction page for more information.]

Introduction: Harvard Says We Need More Lawyers

Recently, the ABA teamed up with Indiana-Bloomington Professor Bill Henderson to produce a chart of attorney salaries county-by-county. Now, I’m the type who’s wont to read blog comments (and here readers give the ABA a good whoopin’), and one attorney going by the moniker, Joel, said he crunched some of the numbers of attorneys in the U.S. based on 2009 BLS data on his own blog, Legally Sociable, where goes by Sagescape. Now, I use the 2008 data because it includes self-employed lawyers (partners and solos) and it predicts future attorney employment (very bad, more on that below), but I appreciate a more recent number. Sagescape directs us to Harvard’s “Analysis of the Legal Profession and Law Firms,” where we read the following:

The ratio of lawyers/jobs was flat for most of the 20th century and then rose dramatically after 1970, roughly doubling between 1970 and 2000. That increase (of 100% over 35 years) is similar to increases in the share of service and knowledge-based jobs in the US economy since 1970. (Wyatt and Hecker 2007)

The growth of lawyers is constrained by the output of US law schools. [!!]

The number of law schools has grown, but more slowly than the ratio of lawyers/jobs.  In 2007, there were 196 ABA-accredited law schools, compared to 144 in 1970, an increase of 36% (ABA).

The number of law school graduates has grown, faster than the number of law schools, but again, more slowly than the ratio of lawyers/jobs.  There were roughly 44,000 graduates of accredited law schools in 2005, compared to 30,000 in 1975 and 36,000 graduates in 198 [sic], an increase of roughly 50% over 30 years (ABA).  (Numbers for the early 1970s were depressed by Vietnam.)

Wow Harvard, the sting of your lash! Who thought universities were cruelly denying the public affordable legal services by declining to open more law schools!

Harvard bases its research on Wyatt and Hecker, who give us a similar analysis, though in their defense they use data going to 2000.

Lawyers and judges increased one-and-a-half times as a proportion of total employment between 1910 and 2000, with almost all growth coming since 1970. (See chart 5…) Between 1910 and 1970, lawyers and judges grew from 0.29 percent to 0.35 percent of employment (reaching a peak of 0.36 percent in 1940), after which they jumped to 0.71 percent by 2000. Employment grew from 112,000 in 1910 to 272,000 in 1970 and 927,000 in 2000. Stiff licensing requirements (for both individuals and law schools) and other restrictions on supply limited growth through 1970, but as these restrictions weakened or disappeared, the number of law graduates grew. At the same time, demand for lawyers increased, as many more laws were enacted, business activities became more complex, and society became more litigious. Civil rights legislation for minorities, women, and older and disabled persons; laws regarding the environment, employer-employee relations, product safety, and consumer protection; and higher crime and divorce rates all contributed to the growth of lawyers and judges. Several Supreme Court decisions expanded the right to a court-appointed counsel for criminal defendants, which in turn led to increased funds for public-defenders’ offices and a sharp increase in the number of court-appointed defense attorneys. [Page 43]

Here’s Wyatt and Hecker’s “Chart 5″:

So I guess law jobs are growing faster than society is making new lawyers. Well folks, that’s it for the Law School Tuition Bubble. I suppose I’ll just blog about music (I’m still listening to the Softies; help me stop!) or just post my crazy doodles on the Internet.

What’s that you say? My dozen or so consistent readers want a pro forma challenge? A rear-guard action, if you will?

Fine, but only because I like you.

Legal Sector Reality

Intuition tells me to return to Amir Efrati’s 2007 Wall Street Journal article, “Hard Case: Market Wanes for Lawyers.” Efrati’s article is better than David Segal’s 2011 NYT piece because he does more empirical research. This graphic always entrances me, like dangling string in front of a housecat:

A slack in demand appears to be part of the problem. The legal sector, after more than tripling in inflation-adjusted growth between 1970 and 1987, has grown at an average annual inflation-adjusted rate of 1.2% since 1988, or less than half as fast as the broader economy, according to Commerce Department data.

A while back, I tried to find the Commerce Department data Efrati refers to and couldn’t, but after my recent ABA→Legally SociableHarvardWyatt and Hecker sojourn, I did. I don’t know where Efrati gets the 1970 numbers, but I can get the 1977 to 2009 ones and I’ve adjusted everything to inflation using 2005 chained indexes.

Here’s the legal sector’s nominal size in billions of dollars:

As my favorite BigLaw partner, Phil Ken Sebben would say, “Rising profits, enlarging revenue, lots of good firm growth, we’re turgid with cash!”

Are we? Not quite. Here’s the size of the legal sector relative to the economy:

Wait a minute. Efrati’s “tripling” between 1970 and 1987 isn’t even that descriptive. Things were flat from 1977 until 1981, and after 1992, the legal sector’s proportion of the economy fluctuates between 1.44% and 1.55% of the U.S. economy. That’s certainly not the impression Wyatt and Hecker give us.

Let’s expand, update, animate, and interpret from Efrati:

DUUUUUUUUUDE. It would appear the legal sector of 2009 is no larger than it was in 2000, and in the twenty years between 1989 and 2009, the legal sector grew just under ten percent.

This is a very, very different story from the one Harvard told us. Taste the whip Harvard, now bleeeeeeed fo~~r me~.

Let’s say there was fantastic growth from the 1970s to the late 1980s. Obviously it wasn’t continuous. The legal sector went into a deep intra-economic recession during Paul Volcker’s infamous years at the Fed. In 1983 though, fantastic growth resumed. From 1983 to 1990, what I call, “Seven Years of Plenty,” the legal services sector grew at an annualized rate of 5.29% from 58.265 to 83.591 (original). Much of that occurred in 1988 when the sector saw a tremendous 13% surge. Savings & Loan litigation perhaps?

Even though the legal sector resumed growth along with our recent bubbles, the growth rates between the two tell us that the legal sector didn’t really keep up with the economy.

What’s going on here?

Two things happened in “Seven Years of Stagnation.” One, while the rest of the economy grew, the legal sector fell into recession twice. Two, the legal sector stopped growing past 1.44% of the economy. Efrati called this a “slack in demand,” but I see it as something else: Maturity, which the Economic Glossary defines as:

The third stage in the product life cycle, characterized by flattening of sales and decreasing profit margins. Advertising and promotion are used to maintain market share and to prevent the erosion of sales and profits. During this stage, the initial decline of a product begins and many businesses try to “re-invent” their products to prevent the upcoming decline stage. Many times the company finds new uses for an existing product (baking soda as a deodorizer), totally new markets (foreign countries), or a way to enhance the existing product to make it better and to re-start the life cycle. The television has gone through at least two life cycles, first from black and white to color and then from color to high definition (HD) and plasma. Along the way there were enhancements such as remote control, VCRs to complement them, and cable to help with reception.

Unlike some products (VCRs), legal services will always be in demand, but 1.2%-1.5% of the economy is the most it will ever get because legal services are an intermediate good: they’re a catalyst for economic activity and never an engine for growth. The best firms can do is increase advertising, to the extent they’re allowed, and I think this includes an even greater emphasis on credentials. This is something else Bill Henderson writes about. Once the pond stops growing the issue turns to how its resources are distributed. For law firms, demand for those who are perceived to be the very best attorneys increases. I suspect this also explains the birth of the bi-modal starting salary distribution, which also occurred at the time, but BigLaw is not my bailiwick, so read Steve Harper and Jerry Kowalski as a supplement. I recall Stephen Bainbridge coming to this conclusion.

Ironically, the fact that the number of law students per capita declined during the 1990s actually mitigated some of this, though the 2000′s growth towards the 1980 record doesn’t help.

Maturity also implies that legal education’s then tolerable inefficiencies hit a wall, and normally market forces would’ve required adaptation. The financing system and accreditation monopoly prevents that, and we can see the rising tuition as a result of increased competition for high quality students. Perhaps maturity even explains the prevalence of the U.S. News rankings.

Mesmerizing...

Another thing that happens in this stage of the product cycle is a shift from providing new services to increasing productivity in existing ones. Fewer inputs for the same output saves money, attracting clients. For example, I redirect you to the recent coverage on the development of super-effective document review software. What caught my eye there was this line:

[The five CBS studios sued by the Justice Department] examined six million documents at a cost of more than $2.2 million (~$7.4 million in 2011), much of it to pay for a platoon of lawyers and paralegals who worked for months at high hourly rates. But that was in 1978. Now, thanks to advances in artificial intelligence, “e-discovery” software can analyze documents in a fraction of the time for a fraction of the cost. In January, for example, Blackstone Discovery of Palo Alto, Calif., helped analyze 1.5 million documents for less than $100,000.

6.7¢ per document versus $1.23 per document. Which would your client rather pay?

One could argue that with cheaper discovery litigation will come into greater vogue, especially between small plaintiffs against large entities, but any technological advancements will likely reduce the legal sector’s size within the economy and it certainly won’t employ all the lawyers it offsets.

Conclusion: Law Graduates Dashed Upon the Rocks

In fact, we’re not going to need nearly as many lawyers as our law schools are producing. The smoking gun, which sadly was under my nose all this time, is in the erstwhile 2008 BLS data, which linked to a PDF projecting job growth for lawyers. Between 2008 and 2018 net lawyer job growth will be…98,500.

Of this, 50,300 will be legal sector employees (non-equity attorneys); 29,400 will be in government, and a whopping 9,800 will be self-employed, i.e. partners and solos. Obviously we’re talking about net job growth, so we must account for retirees, advancers (e.g. judges, legislators, presidents and governors, law professors (which will decline at some point regardless of what the BLS thinks), etc.), walk-aways, lay-offs, failed practices, and ousted partners. Nevertheless, given that the ABA-accredited law schools produce 44,000 juris doctors per year, to say nothing of the roughly forty non-ABA schools, it should be clear that no sector of the economy will gainfully absorb half a million new lawyers by 2018.

It looks like the LSTB will continue its traditional programming.

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16 Responses

  1. Excellent post, Matt! I had just written a post that we should limit the availability of student loans to try to correct the supply/demand imbalance of law students
    – but I had no idea that it was this bad. 400,000 law students saddled with non-dischargable student debt. 400,000 lives destroyed – and the infuriating thing is that it is completely preventable. We could take action now to limit the number of student loans for law students to the number of expected hires – but we lack the fortitude and foresight to do it.

    • MP, even I find these numbers shocking. It gets worse:

      BLS says in 2008 there were 560,600 employee lawyers, and in 2009, there were 556,790–a loss of 3,810 jobs.

      To get to the 2018 projection of 649,400, the growth rate would have to be a minimum of 1.7% between 2009 and 2018.

      JJD tells us the legal sector lost 2,900 jobs in February. [http://www.notolawschool.com/2011/03/more-legal-job-losses.html]. Presumably some of these were lawyers, and employee lawyers in the legal sector comprised 64.3% of all employee lawyers in 2008. So we’re *still* not seeing growth.

      If the legal sector is permanently tethered to the economy as I’ve shown, hopefully the fact that we’re operating under capacity implies that if the economy soaks up some unemployed lawyers it’ll “rescue” some recent law grads. I doubt it though.
      [http://www.frbsf.org/economics/datadive/2011/0302.png]

  2. “But some people choose to go to law school for non-economic reasons,” the shills and roaches chirp. Going to law school should be an ECONOMIC decision. You want to learn some interesting theories? Go to the local university and take some continuing ed courses, with regard to philosophy or astronomy.

    • In the comments, Bill Henderson (who I have to admit seems rather awesome) mentions lawyer over-supply and a Chicago Lawyers study. I’d complained about his study being window dressing for the ABA, you know, “Look the lawyers (who have jobs) are doing just FINE.” And he said that some info is better than nothing, and left this comment:

      “To Liz (#39 and #42),

      I completely agree with your comment—and I wish I could be more responsive. I think there is very likely that the supply of lawyers is far in excess of number of entry level lawyer jobs—and I have not be shy about expressing this view. The stakes are becoming high precisely because (a) tuition/debt loads are growing much faster than expected lawyer income, and (b) the credit markets provide credit to law students at an irresponsible rate—it is another housing bubble waiting to happen.

      The data I have assembled here will not enable us to quantity the problem, however. The best evidence of falling lawyer incomes is the Chicago Lawyers II study (published as Urban Lawyers (2006)). Income is flat or declining in all sectors except BigLaw and in-house lawyers. Granted, it is limited to Chicago, and only compares 1975 to 1995 in real dollars, but solo lawyer incomes plummeted from $95,000 to $55,000 (in constant 1995 dollars) over that 20 year period. Further, a huge proportion of the solos were working two jobs to make ends meet. Lawyer oversupply is the most reasonable explanation for this change over time.

      The profession needs better longitudinal data. I am not sure young people will fully analyze it before enrolling in law school, but it is our obligation to collect it and put in an accessible format that encourages its us”

      • Thanks for redirecting me to the comments, Liz. I alerted any subsequent readers to the BLS projection. Wished I’d thought to do it earlier, but hopefully Professor Henderson will see and find it useful. I’m glad he characterizes this as a bubble as I do.

    • What are you saying Nando? That there’s no shame in wanting a living wage for the education you’ve received? Next I’ll bet you’ll demand other “dignities” like voting rights.

  3. Amen, Nando. Unless the student is some kind of trust-fund multimillionaire, law students absolutely need to consider the economics of their decision.

  4. I used to subscribe to that belief that there were all of these poor people running around with no access to justice.

    When you really think about it, you can’t really quantify who was “denied access to justice.” What exactly does that actually mean? It’s one of those phrases where you can mentally fill in the blank with a concept based upon what you think it should mean, but are we talking about helping giving free divorces and criminal defense, or having some sort of Denzel Washington character go marching on the steps of Congress and demand that the poor breathe free? If one of them calls up an attorney and asks them to find a loophole to keep them from paying all income tax and the attorney blows them off because they don’t have a real case, were they denied access to justice? If one of them is appointed a lazy attorney and they ended up getting a stiffer criminal sentence than had they been able to pay top dollar for the best, were they denied access to justice?

  5. An excellent post, Matt.

    @chief constable: And even if there was such a thing as being denied “access to justice,” a million extra attorneys are going to meet the task no better than 10k extra attorneys. The problem isn’t the attorney availability, it’s the money. To serve poor people in credit defaults, divorces, evictions, custody, etc., you have to be funded somehow. There’s no funding now, nor will there be if we keep pumping law grads.

  6. I like both of your points. I hadn’t thought of “access to justice” like that.

    I just wonder when this idea came into being that new lawyers should be Buddhist monks begging for cases and alms.

    • Exactly. It always disgusts me that it is law school Deans who make $300K/year and up talking about “increasing access to justice”. If the really cared at all, they would take $250K of their salary and sponsor 5 social justice lawyers at $50K/apiece. Instead, they just keep pushing the idea that the sacrafice should be made by anyone by them. Their example is disgusting and ludicris – when they make such statements, they should be met with jeers.

  7. I think you just blew a lot of people away with this one!

    • Thanks Anon. Surprisingly, I’ve put more effort into other posts, but I’m kinda proud of this one and it was well-timed. Hopefully, it will reach prospective law students and make them unprospective law students.

  8. Sure, when law school tuition was $300.00 a semester, one could go to law school for non-direct employment related reasons (I had a guy in my class who intended to go into the foreign service, for example), but when tuition is $40k a year …

    But otherwise, your essay is spot on, nicely done.

  9. Excellent work and a great post. Thank you for taking the time and effort needed to sort through all of that data and to produce those excellent animated graphs. I was impressed.

  10. [...] and start a business, and Lowrey applying the idea specifically to law school. Matt Leichter argues convincingly that the number of law school graduates over the next ten years will outpace the number of [...]

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