Commerce Dept.: Legal Services Sector Contracts (Again) in 2013

Earlier this month the Commerce Department’s Bureau of Economic Analysis (BEA) updated its GDP by industry data. The chief finding for law-watchers is that in 2013 the legal services industry shrank by 2.9 percent. Ouch. The legal services industry includes all private law firms, and it employs about half of all lawyers. Meanwhile GDP grew by 2.2 percent, meaning that once again, the shriveling legal sector is being outdone by the rest of the economy.

Percent Change Real Value Added by Industry

(Source: GDP by Industry (xls), author’s calculations)

[Correction: Half of wage and salaried lawyers work in the legal services industry; most self-employed lawyers probably work there too.]

I’m providing moving averages to illustrate the break between the legal sector and GDP that began in 2005. That’s not to say things were hunky-dory before, just that those data still haven’t been revised yet. Go ahead, look at the old data and show me the situation was better before 1997. I dare you.

To editorialize, yes, the annual updates are horse-race reporting and recent years get revised a little bit each time, but I’m not enjoying reporting on the contracting legal sector nonetheless. I’m genuinely surprised that it’s still doing so badly, and I thought the Great Law Depression would’ve leveled out by now. Maybe future years and revisions will bear that out, but it’d take a sustained period of significant growth for the outlook to improve. Even a single year of 2.9 percent growth wouldn’t persuade me things are getting better, but even a piddly 0.4 percent would be nice to see.

To make things worse, when drilling into the real value added components, “compensation of employees” has been consistently contributing to the decline.

Contributions to Legal Services Real Value Added

(Source: GDP by Industry (xls), author’s calculations)

Only “taxes on production and imports (less subsidies)” has been growing consistently in the last three years.

The legal sector’s productivity measures are similarly unrelentingly bleak. Real value added per person engaged in production has fallen by about $20,000 since 1997 while the same measure has grown steadily throughout the economy and for the legal industry’s sibling in the “Professional, Scientific, and Technical Services” category, “Computer Systems Design and Related Services.”

Real Value Added Per Person Engaged in Production

(Source: Real Value Added by Industry, NIPA Table 6.8, author’s calculations)

If things keep going at this rate, the average legal services worker will be indistinguishable from the average worker overall. I guess it’s a good thing that the mean average worker isn’t anything like the median? It’s clear, though, that computer design is a much better candidate for “golden-ticket industry” than legal services.

Finally, we have the Bureau of Labor Statistics’ output per hour measure of labor productivity, which is a bit sharper than the real value added per person engaged in production estimated above.

Percent Change Output Per Hour

(Source: BLS Nonmanufacturing Multifactor Productivity Tables)

Here too, the long dashed moving average line (legal services) is comfortably below the thick line (nonfarm business), showing that the legal sector is not becoming more productive with the rest of the economy. More alarmingly, it’s lost about 8 percent of its productivity since 2007, and now the amount of private legal services the country is getting per hour worked is about what it was in 1988.

In conclusion, the data again depict a sputtering industry. For all the reporting on the declining supply of future law graduates, little is said about the long-term trends in the sector that’s most likely to drive demand for their services. Increasingly it appears to be dwindling while at the same time better opportunities for workers are forming in other sectors.

States’ Projected Lawyer Surpluses Deteriorate for 2022

…Is up on The American Lawyer.

I’m proud to say that unlike last year, there is no “Mississippi problem,” in which the net lawyer growth rate in any state exceeded its ten-year annual job growth rate, yielding a negative replacement rate, sky high surplus calculations, and a lot of time spent explaining math to the media.

Site Update: ‘Law School Tuition Data Going Back to 1996’…

…Can be found on the “LAW SCHOOL COST DATA (1996-)” page.

Formerly called ,”Tuition Increases at All ABA Law Schools (1999-),” or something like that, I’ve revised this site’s renowned tuition data page. Biggest changes include:

  • Tuition data for each law school going back to 1996 and up to 2013
  • Percentages of full-time students paying full tuition at each law school
  • Percentages of full-time students receiving the median grant or more at each law school (as stated in the Official Guide)
  • Tuition levels discounted by the median grant at private law schools that aren’t Brigham Young
  • A bunch of carefully sculpted dispersion charts and tables showing changes in law school tuition since 1985 or 1996 with the annual Stafford loan limit
  • And no tuition projections. I know they were popular. I know they gave me easy page views, but I don’t think any forward projection based on past data will be accurate anymore given that tuition increases are slowing down now. Also, the necessary methodology page was truly boring to write, and if anything, you folks deserve more “No Bubble, Just ROCK!!!” posts than me being bored on my own blog.

Don’t worry though, the URL is the same as before, so anyone linking to it will find the same information.

Tracking this kind of information on the back end is becoming harder as law schools (a) are socialized by public universities (meaning a change in status), (b) change their names (sometimes to sound more “hashtaggy”), and (c) contemplate splitting into multiple campuses. I’m sure consolidations are on the way as well. As it is, gathering their exact, full names was easily the most tedious aspect of this update. Easily.

Like, law schools, if you can hear me, please put your complete, full name on your main pages. Not in logos, and definitely not ending in “[law school name] Law” as though your school’s name is in fact the title of a law. To pick on one example, when I read “Wayne Law,” I thought about The Wonder Years taking place in a Michigan law school with Fred Savage, Jason Hervey, and Danica McKellar, the awesomest mathematician alive.

Which reminds me: Law schools, I’m into women as much as the next gynephile, but you do realize you put a lot of women on your main pages. There’s a certain … lack of originality to seeing attractive young women on the law school Web sites.

Wait, what am I complaining about? Strike that.

Okay, I should add—and this is very, very, very important—because the data page is so long (which is by design and I have no interest in changing) it doesn’t load well in Mozilla Firefox. If you scroll down far enough, at some point the screen turns black and the numbers are unreadable. It doesn’t crash the browser, but it doesn’t make the site easy to read. It does, however, work in Google Chrome. I don’t know if it works well on other browsers. Frankly, I don’t care at this point. Chrome is free; I prefer Firefox; whatever; we’re done here.

Law School Salary Outcomes in One Uninfographic

More than three years ago, Frank the Underemployed Professional commented:

It’s too bad that there isn’t a good way to numerically quantify the monetary value of having a law degree. If we could do that and plot it over time, I’m sure it would decrease precipitously as the cost of tuition increases.

I thought of Frank when I put together a time-series chart of law graduate earnings for my last American Lawyer piece. It was really only one step away from being a comparison between law school costs and earnings outcomes. So after a little tinkering I think I can give as close an answer as anyone’s going to get.

Behold, on this day I give unto thee the law school outcomes “uninfographic”:

Law School Uninfographic
(Click to Enlarge)

Why an uninfographic? Because it tells so much yet requires even more explanation. The data come from three sources: the National Association for Law Placement’s (NALP’s) Employment Report and Salary Survey (ERSS) (many older years courtesy of moldy paper editions of the Official Guide), the ABA’s Section of Legal Education and Admissions to the Bar, and the Census Bureau’s Person Income Tables. I’ll go through each of these sources.

NALP

NALP’s ERSS tracks law graduates’ employment status outcomes, their job types, and their median salaries if they work full-time. It’s been doing this for nearly thirty years, but I’ve only managed to find data going back to 1991.

The salary data are not drawn from a random sample, and for most employment statuses only a minority of graduates report salaries. The median salary is very likely well above what the median graduate earns unless non-reporters and those in part-time positions are somehow earning more than grads employed full-time. Assuming this isn’t the case, the overall median figures shown here are roughly in the top 20-25 percent of total graduates between 2007 and 2012. Moreover, as demand for lawyers slackens, the median becomes even less representative of the class, a phenomenon I suspect is true for the 1990s legal sector recession. Oh, and did I mention that the median salary is also smack dab in the middle of a bimodal distribution?

What follows is a breakdown of each employment status by the range of graduates reporting salaries, the range of full-time workers in that status category, and the range of total workers in that employment status. Again, these ranges go from 2007-2012.

Employed Full-Time (black with circles):

  • 18,400-23,300 full-time salaries
  • 31,100-34,800 full-time workers
  • 35,700-37,500 total
  • 43,500-46,400 graduates

Bar Passage Required (blue with diamonds):

  • 16,000-21,300 full-time salaries
  • 24,900-30,000 full-time workers
  • 27,200-31,100 total

JD Advantage (red with squares):

  • 1,100-2,200 full-time salaries
  • 2,500-4,700 full-time workers
  • 3,100-5,900 total

Other Professional (green with triangles):

  • 670-780 full-time salaries
  • 1,700-1,800 full-time workers
  • 2,000-2,300 total

Non-Professional (purple with x’s):

  • 40-80 full-time salaries
  • 280-330 full-time workers
  • 530-810 total

Not Working (FYI):

  • 900-1,200 Advanced Degrees
  • 1,700-4,700 Seeking Employment
  • 700-1,300 Not Seeking Employment

Not Reporting (FYI):

  • 2,000-3,200 Not Reporting

ABA

The ABA Section of Legal Education collects graduate debt data from each law school (black with crosses for public law schools, black with dashes for private law schools), which excludes accrued interest. It then averages these without weighting them by the number of graduates with debt per school. Part of the rapid rise in law school debt is due to some law schools misreporting their 3Ls’ disbursed debts rather than their graduates’ total debts. The larger factor, I believe, is students’ decisions to rely more on Grad PLUS loans, which law students can use for living expenses as well as tuition not covered by Stafford loans.

I thought about using median law school tuition instead of graduate debt but decided against it. On the one hand, tuition data go back further and they show just how much more expensive public law schools have become. On the other hand, mean debt figures include tuition discounts, private loans, and living expenses.

Census Bureau

The Current Population Survey tracks full-time workers by education level attained and age, and it provides specific data on earnings of those who work full time, defined as those working 35 hours or more per week. Shown here is median earnings of full-time workers aged 25 to 34 with a bachelor’s degree (black with x’s). I included it to show a baseline alternative to law school. Unfortunately, it’s an age range and not a starting salary, so it’s not perfectly comparable to the NALP data, but at least it’s a “true” median and not the 75th to 80th percentile due to poor sampling like NALP’s.

Between 1994 and 2012, 73 to 78 percent of 25 to 34 year-olds with bachelor’s degrees who reported earnings worked full-time. Including people in that age range without earnings, it ranges from 65 to 71 percent.

Editorial

1). Strikingly, law graduates in full-time, non-professional positions make less than the median full-time college graduate in the same age range. Even the 75th percentile full-time non-professional salary (not shown) is less than the median full-time college grad. This is a strong indicator that law grads who do not find good jobs quickly do not benefit much from going to law school. In any given year, roughly 20 percent of all graduates are in a non-professional position or less (i.e. unemployed or not reporting, which I don’t take to be a good outcome).

2). Many graduates in better-than-non-professional jobs earn less than the college median nonetheless. Of course, as we’ve learned from the After the JD research, there’s a lot of attrition for law grads in private practice, with some leaving law entirely for positions that don’t really need legal education. Others find themselves in smaller practices with reduced earnings. The turnover factor increases the likelihood that there are better alternatives to law school.

3). I’m sure I say this every other post, but the Grad PLUS Loan Program needs to die. Although some law grads may’ve benefitted from it instead of taking out private loans (or even skipping law school), its primary contribution to humanity is to bail out law schools by providing them with students who would have been unable to attend for want of money for living expenses and excess tuition. Those students now have much higher debt-to-income ratios and no real choice but to go on IBR, which is turning into a policy piñata. Even if you ignore the discussion of whether law schools absorb federal loans, I’m still astonished that to my knowledge no law school has ever discouraged students from taking out giant sums of money for living expenses.

4). Recent graduate full-time starting salaries have fallen to their mid-1990s level. Looking at the ABA data for 2013 grads’ employment outcomes, it doesn’t look like this summer’s edition of the ERSS will show much improvement. Anyone predicting recovery in demand for lawyers is invited to explain what mechanism will bring that about. It certainly won’t be household spending on legal services that’s for sure.

5). Due to the aforementioned bimodality of the NALP data, the 25th percentile full-time employed law graduate reporting a salary (not shown) was only $5,200 higher than the median full-time college grad in 2007.

By 2012, the gap had fallen to $668.

Assuming a hierarchy of earnings with full-time jobs over part-time jobs over non-reports over unemployment, the 25th percentile salary was the ceiling for roughly 60-66 percent of law graduates from 2007 to 2012. Even I don’t want to believe the outcomes can be that bad.

That’s all I’ve got to say on the subject for now.

After the JD Wave 0

Last month I wrote an article for the The Am Law Daily about the After the JD project, a longitudinal study that measures employment outcomes for people who passed the bar exam in 2000. I thought it might be interesting to offer, as an appendix, the Official Guide‘s employment outcomes for Y2K law grads (they’re in the ’03 edition). Obviously, this isn’t a perfect fit as some people who passed the bar in 2000 graduated earlier, but the overlap should be fairly significant.

Back in those days, though, the Official Guide wasn’t the treasure trove of knowledge that the ABA’s employment questionnaire reports are now, and it’s certainly not as detailed as the After the JD’s information is. However, for those interested in getting a sense of the legal market many of the After the JD cohort entered into by law school, look no further.

To conserve blog space, the tables will follow the jump.

Continue reading

Class of 2013 Employment Report

[UPDATE: Emory’s data are now included in this page.]

Okay, this’ll be short as I have work to do.

The ABA has released its employment data for the class of 2013, which is defined as everyone who graduated between September 1, 2012, and August 1, 2013. Employment data are outcomes as of February 15, 2014, irrespective of interim job changes. Savvy readers will notice that the most mediocre law school ever, Generic University School of Law, made an appearance again. They’ll also note that Emory’s data have been removed from the ABA’s site, which I’m sure will be corrected soon. For those who are truly curious, the ABA has even broken down the employment data for each of Cooley’s branch campuses. There are a few other traps for the unwary, e.g. schools that haven’t received even provisional ABA accreditation, like Lincoln Memorial. Even Peking China made the list. None of these schools have any useful data.

Generally, graduates fared little better this year than last year. 55.3 57 percent were employed full-time/long-term in bar-passage required jobs. This is up 0.2 0.8 percentage points from February 2013.

On the other hand, the graduate unemployment rate grew while the non-response rate declined.

Tables below the jump to conserve blog space.

Continue reading

Site Update: Lawyer Overproduction Page

You can find it here or in the “original research (updated)” menu above. It’s long overdue as I’ve received requests for its sources.

I also delisted the “law schools and law students per capita” page. It hadn’t been updated in around three years, and the lawyer overproduction page pretty much supersedes it. It’s a little sad because that was the first research project I started on this blog back in the summer of ’10. Maybe I’ll come up with a reason to put it back into the mix, but not now.

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