Why the Stagnant Labor Productivity in the Legal Sector?

In my last Am Law Daily article, I discovered that contrary to all expectations, the quantity of private legal services provided per hour worked has stagnated for more than two decades. I think this is one of the most important insights I’ve come across, and I think the macroeconomic data on the legal sector is greatly undervalued in commentary on the future of law and law school. The lack of productivity increases certainly deserves a bit more discussion than I gave it in the article.

Legal Sector Labor Productivity

(Sources: BLS multifactor productivity tables, BEA, author’s calculations)

So, were lawyers (okay, legal sector workers, but I may use the term interchangeably) more efficient when they used paper reporters than LexisNexis?

Unlikely. I think there are other things going on here.

One, (private) legal services aren’t homogeneous outputs. An hour spent on a criminal defense matter isn’t the same as an hour spent on a landlord-tenant dispute or a corporate merger. It’s possible that many lawyers (and firms) have become more productive over the years, but the composition of the average hour of legal services Americans are buying has changed.

All this observation does, though, is raise the question of how the average hour has changed, and there isn’t much direct evidence on the subject. There are some indirect data. For example, American Bar Foundation (PDF) statistics show that since 1980, large firms have crowded-out smaller ones, though curiously solo practitioners are about as abundant as they ever were.

Percent Private Practice Lawyers by Firm Size

In 1980, only 7 percent of all private practice lawyers worked in a firm larger than 50 lawyers; in 2005, 20 percent did. But this doesn’t show much because in most circumstances we expect larger firms to be more efficient than smaller ones, so they’d cost less per client. On the other hand, Bill Henderson tells us that the employment composition of biglaw has changed since the 1980s as well, which I think can support the idea that the average hour of legal services has changed.

We also know that in general legal services have become more expensive over the years, even as the number of employed lawyers has grown. Legal services cost twice as much on average in 2011 as they did in 1985 in real terms.

Real Legal Sector Price Index

(Source: BEA, author’s calculations)

So how do you square the circle of more lawyers yet costlier legal services? In two ways: First, you can argue that demand for legal services is wealth and income elastic, i.e. the more money one has, the more they like spending it on lawyers and they buy different kinds of legal services too. And wouldn’t you know it, just this morning The National Law Journal reported that $1,000 per hour billable rates for “in-demand partners at the most prestigious firms” aren’t rare anymore. Second, you can argue that as Americans’ incomes and wealth decline, they’re unable to purchase the legal services that they used to, and the lawyers who formerly served them either move to a higher-priced market or go out of business.

The only alternative you’re left with is that there’s an attorney shortage, and all those “excess” law school graduates are really just lazy, greedy, entitled, and unwilling to make the tough sacrifices like abandoning their current lives and moving to rural America to serve the poor. However, this argument requires throwing out rational behavior assumptions and leads us to wonder why the supposedly efficient large firms won’t serve the poor if the greedy grads will not. The “market failure” line is ever wanting for an explanation.

If the composition of the average hour of legal services hasn’t changed, then the only way I can think of where we get the same (or less) output for the same effort despite technological advances and rising prices is by systemic fraud and cartelized behavior on a spectacular scale. Lawyers lie in lockstep about the cost of their services. Then they work fewer hours a week and take Fridays off. New lawyers attempting to enter the market, work more, and charge lower prices face threats and sabotage.

I’m sure plenty of people believe the above is true, but there’s scant evidence of it.

********************

So we have stagnant legal sector labor productivity. I think it reflects wealth concentration rather than fraud.

Incidentally, clever observers might wonder how much it matters. Maybe increases in overall labor productivity have a long way to go to catch up to the legal sector’s, an observation that didn’t make the cut in my Am Law Daily piece. Indeed, most productivity gains over the last few decades have not gone to workers. Here’s a different measure, output per worker (instead of per hour, which is more precise).

Real Value Added Per Person Engaged in Production

(Source: BEA, author’s calculations)

By this measure, the legal sector has become 13.5 percent less productive between 2009 and 2011. This could mean that either all lawyers who didn’t lose their jobs in the Lesser Depression organized a work slowdown, or the Lesser Depression laid-off the most productive legal sector workers. In a variant of the latter, some practice areas might be more productive than others—especially those benefitting poorer clients and not the wealthy—and once poor people become destitute, an otherwise productive chunk of the legal sector goes out of business. Regardless, there may be significant deadweight workers in the legal sector.

What does this mean for the as-yet unmentioned prospective law student? As I wrote in the article, law will only consistently pay off for those who can serve the wealthy, at least in the short term. Also, as the largest purchaser of law graduates’ labor, the legal sector sets their wages. If legal sector productivity has stagnated while other sectors become more productive, there are probably better long-term opportunities than law.

A crucial independent variable here is how long the depression will last. Given the dismal December 2013 Establishment Survey figures (and the Obama administration’s shameful spinning of them), things are bad. Here’s the employment-population ratio for 16 to 54 year-olds and my projection of them based on the positive growth since September 2011.

Civilian Employment-Population Ratio (16-54)

(Source: BLS)

If the legal sector is sensitive to employment levels and wealth concentration, then it’s going to be a long while until law starts paying off consistently from the demand side. From the supply side, obviously, there are far fewer people going to law school, and I’m hopeful (yes!) that the median graduate in a few years will have less law school debt than in previous years. It’s also obvious that the trivial accounting identity holds true: The first person who doesn’t go to law school is the first not to be unemployed after graduating. The real questions are (a) whether the demand-side factors really are as bad as I think they are, and (b) whether some law schools’ reputations are so insubstantial that legal employers would rather hire an unemployed graduate from a better-regarded school.

But the Jobs Weren’t There to Begin With

There’s been a lot of coverage recently on this year’s contribution to the law school applicant nosedive that began in 2011. Even The New York Times has jumped aboard. None of the coverage says a whole lot you don’t already know, but there are moments when I think it’s inaccurate.

The drop in applications is widely viewed as directly linked to perceptions of the declining job market. Many of the reasons that law jobs are disappearing are similar to those for disruptions in other knowledge-based professions, namely the growth of the Internet. Research is faster and easier, requiring fewer lawyers, and is being outsourced to less expensive locales, including West Virginia and overseas.

In addition, legal forms are now available online and require training well below a lawyer’s to fill them out.

In recent years there has also been publicity about the debt load and declining job prospects for law graduates, especially of schools that do not generally provide employees to elite firms in major cities. [Emphasis LSTB]

Okay, we can argue over perceptions, but there’s a distinction between people not applying because the jobs are declining due to productivity and people not applying because the jobs were never there to begin with because of a flawed system. The article implies that all law schools, including those that “do not generally provide employees to elite firms in major cities,” lived in a golden age until only recently, and all their graduates were able to find work at least as solo practitioners hauling in “middle class” incomes until WebPleader 2.0 came along. Perhaps I’m exaggerating the Times‘ perspective, but I doubt this was ever true. More importantly, the Bureau of Labor Statistics doesn’t either.

Even though jobs for lawyers are expected to increase rapidly, competition for job openings should continue to be keen because of the large numbers graduating from law school each year. During the 1970s, the annual number of law school graduates more than doubled, outpacing the rapid growth of jobs. Growth in the yearly number of law school graduates tapered off during the 1980s, but again increased in the early 1990s. The high number of graduates will strain the economy’s capacity to absorb them. Although graduates with superior academic records from well-regarded law schools will continue to enjoy good opportunities, most graduates will encounter competition for jobs. As in the past, some graduates may have to accept positions in areas outside their field of interest or for which they feel they are overqualified. They may have to enter jobs for which legal training is an asset but not normally a requirement. For example, banks, insurance firms, real estate companies, government agencies, and other organizations seek law graduates to fill many administrative, managerial, and business positions.

From last year’s Occupational Outlook Handbook? More like 1996-97′s. I don’t claim to read the minds of people who don’t apply to law school (there’s a koan for you), but the link to David Segal’s previous work notwithstanding, the Times appears to believe that no university frivolously expanded by building a law school. In short, it’s avoiding a discussion on the over-expansion of legal education generally by claiming applicants read about legal sector outsoucing on The Wall Street Journal rather than a scamblog or Above the Law.

Instead, “Some argue that the drop is an indictment of the legal training itself — a failure to keep up with the profession’s needs.” I don’t think anyone complained about the substance of legal education when it was cheap and Americans’ incomes were sufficient to afford legal services, so this strikes me as corporate opportunism. No one wants to pay to train their workers, and demanding law schools open expensive clinics to train tens of thousands of people for only thousands of jobs only places an impossible burden on the schools and shifts the training costs onto the students. Although the one-year and two-year specialist training discussed in the article are better than the existing system, supply still does not create demand.

The closest the Times goes to criticizing higher education expansionism is at the very end:

Whether or not such changes occur, for now the decline is creating what many see as a cultural shift.

By “cultural shift,” the Times refers to a statement that Bill Henderson makes about how law school is no longer the last refuge of the liberal arts major. Of course the Times doesn’t ponder why colleges sell degrees that don’t lead to relevant jobs. That’s just a “cultural” given. The fact that the government enthusiastically endorses mass higher education in the face of such poor outcomes doesn’t raise any eyebrows either.

For your edification, here’re the updates to the LSAC’s data over the last few weeks. We are now on week 4 of 2013.

No. Applicants Over App Cycle

No. Applications Over App Cycle

In short, there’s been no real change since I wrote on this three weeks ago.

Two Worlds, Side by Side: ABA Journal & Letter from Law School

I received a letter from my law school subtly informing me that my name would be placed on “the permanent donor wall located near the entrance” if I gave a gift or commitment of $5,000.

The same day, the ABA Journal published Bill Henderson’s article titled, “The Law School Bubble: How Long Will It Last if Law Grads Can’t Pay the Bills?” in which the author writes in a section called, “ENDGAME”:

“Given the likelihood of some form of curb in federal student lending, there are gut-wrenching times ahead for law schools—even those that continue to enjoy a surplus of applicants … [T]he U.S. Bureau of Labor Statistics acknowledges a shortage of [doctors and dentists] and a growing glut of lawyers. Further, the Bureau projects that these shortages and surpluses will continue over the next decade.”

I don’t bring this up to attack my law school specifically—mine’s not alone in asking for alumni donations—and it’s no secret that my dollars are better spent on rent, groceries, and Screaming Trees’ discography than to have my name placed on a wall for vanity’s sake. Rather, I wonder aloud if lawyers who do have the disposable income and the class/professional/generational identity will gift their law schools money after reading Henderson’s argument that law schools are over-enrolled, overbuilt, yet devouring excessive amounts of federal debt money nonetheless.

I have four thoughts on Henderson’s article.

(1)  The law graduate surplus is not new. Here’s how Henderson characterizes the situation:

“Youthful overoptimism, bleak job prospects for college grads and the entry of several more universities and for-profit businesses into the legal education business are some of the root causes for the supply-and-demand imbalance in entry-level lawyers.”

The Bureau of Labor Statistics wrote in 1996:

“During the 1970s, the annual number of law school graduates more than doubled, outpacing the rapid growth of jobs. Growth in the yearly number of law school graduates tapered off during the 1980s, but again increased in the early 1990s. The high number of graduates will strain the economy’s capacity to absorb them.”

I repeat this point once again because (a) it still shocks me, and (b) it not only illustrates the scope of the law school bubble, but it also speaks to the ABA’s carelessness. Although I wrote last week that the Association’s Section of Legal Education’s accreditation system doesn’t cause tuition hikes, that doesn’t mean it’s blameless for the situation the profession is now in. The ABA was in the best position to inform the public that there were too many law graduates and it could’ve encouraged existing law schools to taper enrollments while dissuading universities from initiating new programs on frivolous justifications. It may’ve even been able to hamper enrollments by requiring more undergraduate prerequisites the way medical and dental schools do. These steps might not’ve worked, but contrast them to the ABA’s current ideology, which to this day has been to encourage access for anyone at any cost.

Now, the costs are coming in, and worse, otherwise excellent economists tell us that the ABA is greedily engineering a lawyer shortage contrary to the evidence. Catastrophe and ignorance do not combine for effective solutions, and the ABA will now have to manage both.

(2)  Speaking of the ABA, Henderson hints at the question that’s been slowly festering: Will the ABA, ED, and Congress throw indebted law grads under the bus?

“Although IBR may be viewed as a boon to law students, law school graduates may view it differently—15 percent of their monthly income paid over more than half of their career span is a severe burden, especially if the sought-after gains in earning power fail to materialize…”

“Still, scrutiny by the scamblogger movement and legal and mainstream media may speed up the process. One plausible outcome has the Education Department using its accreditation authority to force law schools to demonstrate, as a condition of receiving federal loan money, a minimum threshold of employability and income upon graduation.”

I’m more in the boon category than Henderson. When I enrolled, law school debtors had to make the monthly payments or watch the interest capitalize onto principal forever, so I still see IBR as better than the world without it. Plus, it’s now 10 percent of disposable income, and I’m guessing that a lot of people who have a few kids will see their monthly payments drop to the level of a utility bill they don’t discuss. They’ll worry about the income tax issues later, but that’s a long way off and there is an insolvency exclusion in the tax code.

Still, his is a fair point: there is no justice in forcing someone to pay a debt for something they cannot directly use. The whole point of student debt is to increase human capital more quickly so the economy can benefit from it sooner. If there is little human capital created or it’s unnecessary, then it’s morally wrong to force people to pay a cent for their degrees. Such is the risk of making unsecured loans.

However, look at Henderson’s prediction of ED more rigorously regulating law schools. What does this do for “Andrea,” the twice laid-off 2009 law school graduate the article uses to illustrate the problem? Sure, fewer law grads in the future shrinks the bottleneck and increases the present value of her law degree, but even if that were to happen tomorrow, are we really supposed to believe that lawyer salaries will rise to the point that she’s making payments on a 25-year monthly plan and not on IBR? It’s unlikely to happen, which is why we should be leery of partial fixes. Unfortunately, I doubt the ABA will start advocating for those it’s effectively abandoned. It should.

(3)  Speaking of solutions, we have a law school dean who does not like them:

“Mark Grunewald, interim dean of the law school at Washington and Lee University, thinks any blanket restrictions on federal student lending would be disastrous and unfair. ‘There are real differences among prospective law students’ economic circumstances, and new blanket restrictions on lending could hurt those most in need of financial support,’ he says. ‘It’s also unclear what the legal employment market might look like after a general economic recovery. Market forces may ultimately prove to be a better corrective.’”

Washington and Lee’s tuition has grown 35 percent over the inflation rate since 2004, above $40,000. Three years then buys two years today with no discernable increase in quality. Between 2004 and 2010, its full-time student-faculty ratio dropped roughly 18 percent to 9.5. Washington and Lee could easily provide cheaper legal educations without risking its accreditation, but it chooses not to. If Dean Grunewald were serious about ensuring access, he could persuade W&L’s Board of Trustees to invest in its students by giving them free legal educations conditioned on them paying 10 percent of their salaries back for 10 years. If this causes Washington and Lee to lose money or close, so be it. It’s not the federal government’s problem if a law school doesn’t increase human capital.

But the part that riles me is the “blanket restrictions on federal student lending” being “disastrous and unfair.” Does Dean Grunewald also think the blanket restriction on discharging student debt is “disastrous and unfair”? I bet not.

(4)  Henderson writes:

“Unless the government’s actuarial assumptions on student loan repayments turn out to be correct, federal funding of higher education is on a collision course with the federal deficit.”

It’s worse than this: the government knows its actuarial assumptions are wrong. The Congressional Budget Office directly told Congress that its accrual accounting methodology overstated the revenue of student loans, and when it used fair-value accounting it found the government loses 12¢ on the dollar on average over the next decade. This is without including IBR in the mix, so we’re looking at somewhere around $120 billion in losses on top of the drain on the economy that comes from zombie-debtors making good on bad debts rather than spending on houses and kids toys.

The CBO adds:

“The costs of income-contingent repayment, or of loan forgiveness or forbearance, are generally higher on a fair-value basis than under [accrual] accounting, because borrowers are more likely to take advantage of those opportunities in economic downturns, when the value of the forgone payments is greatest. (Page XI)”

I hope the student debt write-down Henderson writes about isn’t far off, but until then our lawyers are left with two worlds, side by side. In the one hand, the dean’s letter and the name on the wall near the door? Or in the other, Bill Henderson’s shameful law school debt factories?

I choose Screaming Trees.

(Oh, and this is my 200th post. Yay!)

WSJ Op-Ed Brings Shock Doctrine to Law Practice

The Wall Street Journal provides space for Brookings Institute fellows Clifford Winston and Robert W. Crandall to publish their op-ed titled, “Time to Deregulate the Practice of Law.” Fuller text available at TaxpProf Blog. The authors use a fictitious attorney shortage and failing legal education system to advance their legal profession deregulation agenda. I’ll limit myself to the second and third paragraphs, and underscore the claims to which I’ll respond.

Is there really an excess supply of lawyers? The Senate Judiciary Committee is investigating the subject while the New York Law School and the Thomas Cooley Law School in Michigan are being hit with class action suits claiming that they fraudulently inflated employment statistics to lure prospective students. But the solution proffered by many in the legal community—to put new limits on entry into the legal profession—is not the answer and will make the problem worse over the long term.

The reality is that many more people could offer various forms of legal services today at far lower prices if the ABA did not artificially restrict the number of lawyers through its accreditation of law schools—most states require individuals to graduate from such a school to take their bar exam—and by inducing states to bar legal services by non-lawyer-owned entities. It would be better to deregulate the provision of legal services. This would lower prices for clients and lead to more jobs.

1). Yes Winston and Crandall, there is an excess supply of lawyers. Winston and Crandall cite no evidence showing this is not the case, just that the ABA accredits law schools and that most licensing authorities grant its system a monopoly; therefore, there must be a shortage. Had they realized that demand for legal education and demand for legal services are entirely separate, they would know that the ABA-accredited law schools have been over-enrolled for decades. There are roughly 1.5 million working-age juris doctor holders in the U.S. and just over half of them were employed as attorneys or judges in 2008. Today, that number is likely lower. This is an important point because if there are more people who could practice than are doing so, the question is why the bottom hasn’t fallen out of the legal sector due to practitioner surplus. In other words, “The reality is that many more people could offer various forms of legal services today at far lower prices,” but they’re choosing not to. Answering why this is the case requires a more nuanced approach than simply calling for deregulation.

2). Almost no one in the legal profession argues for enacting new limits on entry into the profession. I can only think of three people who’ve contemplated artificially limiting the number of lawyers via the law schools. The first is Mark Greenbaum, who suggested in his LA Times editorial that the ABA shut down “unneeded law schools.” To which ABA president Carolyn Lamm shot back that artificial limits would risk “antitrust concerns.” The second is Stephen Bainbridge, who argued for unilaterally shutting down one thirdrevised upward to one half—of the law schools. The third was Bill Henderson’s prediction in the January New York Times article by David Segal, that a public authority will intervene and shut down “a bunch of lower-tier law schools.” Bainbridge conditioned his solution on the existing entry barriers such as law schools and bar exams; Henderson has said elsewhere that he favors deregulation of some legal services. Thus, Winston and Crandall’s “many in the legal community” offering artificial shortages as a solution to the juris doctor surplus are essentially nonexistent.

3). The ABA does not “artificially restrict the number of lawyers through its accreditation of law schools.” First of all, the ABA doesn’t even place informal limits on how many people enter its law schools (such as minimum LSAT requirements and required undergraduate course streams), and no one accuses the ABA of stingily granting accreditation. Second, as fun as it is to bash the ABA Section of Legal Education, it doesn’t create lawyer licensing requirements but merely executes its mandate from the Department of Education that law school curricula be uniform nationally in schools choosing to participate in its system. Whether we like the substance of its regulations is a separate matter (we don’t). State bar authorities can allow other avenues to legal practice, and some do, such as California, where law licenses can be purchased relatively cheaply if not quickly. States can walk away from the ABA whenever they want to, which leads Winston and Crandall to their laughable accusation that the ABA “induces states to bar legal services by non-lawyer-owned entities,”as though the ABA has Nosferatu-like powers over bar authorities and state legislators.

4). Deregulation might lower prices but it won’t create jobs. Let’s begin with the questions, “Are legal services too expensive? And if so, why?” We know legal services are a free market and there is no shortage of lawyers. Buyers can shop around and demand discounts. We also know that legal services have become more expensive relative to inflation. Behold:

So the cost of legal services has nearly tripled since 1986 while the CPI hasn’t even doubled, and though the gap between them grew more in the last decade than in the preceding 13 years, it’s starting to narrow, especially in 2011. What caused this increase? It could be regulatory fees like malpractice insurance and CLEs, or legal publishers are gouging law firms, or large law firms may be overcharging their clients with excessive billable rates (the recent revelation of profits-per-partner juking by law firms fighting over their rankings comes to mind). As every legal education reformer worth listening to knows, the entry costs to legal practice are borne by lawyers and taxpayers. Lawyers who include their entry costs/debt as overhead will be outcompeted by those who paid less personally. Your law school debt isn’t your clients’ problem any more than your choice to rent an oversized office or buy a gas-guzzling car is. Lawyers can try to sneak these costs past clients, pad bills, perform and charge for unnecessary tasks, but someone who went to a state school and took on less debt or lived a frugal lifestyle will outcompete the zombie debtor lawyer. In Winston and Crandall’s world, buyers can’t shop around or demand discounts because the sellers operate a cartel that bribes lawmakers into passing laws that invalidate self-drafted wills and criminalize pro se litigants. Yet they provide no evidence of law firm price fixing, which would be illegal nonetheless, and all evidence indicates there’s an excess supply of legal training, not a deficit.

To the authors’ credit, I’m sure a majority of attorneys would like cheaper or non-mandatory malpractice insurance, doing away with trust accounts, and elimination of CLE requirements, and since these costs are borne by all lawyers, they do raise prices. However, they have nothing to do with the legal education system. If Winston and Crandall limited their argument to these regulatory hurdles, they would be technically accurate, unless we thought these regulations prevent client abuse that licensing and unauthorized practice of law rules are meant to prevent.

As it is, the Legal Sector CPI increase can only price consumers out of the market if legal services has a unimodal cost system and that consumers purchase the same types of legal services in the same quantities. Clients can opt against hiring large law firms that exclusively hire Ivy League graduates if they think they’re overpriced. And guess what, they are doing exactly that as indicated by the declining gap between the CPI and Legal Sector CPI.

None of this is to say I’m against deregulating law practice (more like specializing?), but legal education reform won’t provide the kind of savings Winston and Crandall believe it will because the markets are unrelated. I certainly don’t think deregulation will result in net job growth because demand for legal services depends more on the real economy and personal incomes than on an attorney’s CLE fees.

Now you may be thinking, “Why LSTB, if you think restructuring the profession is a good idea, why are you arguing against Winston and Crandall?” Two reasons, dear reader: their opportunism and contempt towards their readers. Winston and Crandall are playing a trick on their readers (to say nothing of the Wall Street Journal’s editorial staff) to advance their agenda. They’re arguing:

Look! Everyone’s attacking the legal education system; ungrateful graduates are even—*gasp!*—SUING THEIR LAW SCHOOLS! even though they’ll all have jobs in the future because the ABA uses powers it doesn’t have to maintain an attorney shortage that doesn’t exist. Therefore, to reduce the cost of legal services, we need to wipe out the ABA system (even though it has little to do with the increase in the cost of legal services, and isn’t even a licensing authority) because we hate regulation.

They are not arguing:

The ABA system is costly to students and taxpayers; law school takes too long, there are way more than the economy needs, they don’t create practice-ready lawyers as its 19th century progenitors promised, and oh my God, have you seen how much debt these students are taking on?? They’re never going to pay that down. Law schools are taking taxpayers for a ride. Therefore, we need to wipe out the ABA system.

Because it doesn’t further their goal of having non-lawyers at life insurance companies drafting wills. Instead, they both deny law school over-enrollment and use a besieged legal academy and the plight of student debtors to their advantage, none of which I can condone.

Indiana Tech’s Proponents Continue to Make Fools of Themselves, Amuse Critics

The Master's "Client Incarnation" CLE is always well attended.

The Fort Wayne Journal Gazette decided to update us on my new least-favorite new law school (Wilkes-Barre, I miss you!), Indiana Tech School of Law. Readers will recall I dipped into the topic after J-Dog did simply because the university’s reasons for establishing another law school were too absurdly self-serving to pass up, particularly in this line:

However, absent dramatic change in the way law is currently practiced and given the dynamics of the national demand for legal education, the United States may need to import foreign lawyers or increase the outsourcing of legal work to foreign lawyers in their home countries to meet this country’s projected demand for legal services. (Page 9, pdf page 17, emphasis LSTB)

After one month that line still makes me both laugh and shake my head in embarrassment for those who published it.

This month, Devon Haynie sets up the pins yet lacks the will to knock ‘em down. As you can imagine, I felt his article is too neutral rather than unbiased, particularly the heading titled, “Backed by research,” which contained this nugget:

The [feasibility study] also concluded that Indiana had few lawyers compared with other states, which could put the state at an economic development disadvantage. Many Hoosier college graduates would like to go to law school in-state, the report argued, but can’t get into Indiana’s other law schools. As a result, the report found, many Hoosier students attend law schools out of state, never to return.

Last time I checked, demand for lawyers is based on supply and demand for legal services. Unless Indiana tries to limit the practice of law to only those who have degrees from Indiana law schools, the state can easily import lawyers from other states. Neutral indeed. The real “research” that backed this move:

[Indiana Tech President Arthur] Snyder ultimately made the recommendation to move forward with the law school, he said the decision was a result of months of discussion among the board of trustees’ executive committee about how to broaden the school’s academic offerings and strengthen its reputation.

Why are broader academic offerings and a stronger reputation necessary? No answers. Fortunately, after carefully considering all the arguments thrown at them, President Snyder and Chairman Robert Wagner developed strong rebuttals:

The economy may look bleak today, they say, but that won’t last forever. And not every graduate will be clamoring for the kind of legal jobs that are in short supply today. Increasingly, Wagner notes, law school graduates are taking jobs in business and other fields where law degrees are considered an asset.

The Bottleneck Argument and the Versatile JD? That’s all they could come up with? No LSTB, they do try harder:

The school, Snyder said, will pair students with attorney mentors, place them in internships at local law firms, and draw on other local resources to ensure students are prepared to practice as attorneys immediately after graduation.

This is a non sequitur. Practice-ready attorneys are nice, but no amount of training wills clients into being. Stagnant demand for legal services is the issue.

Once Snyder appoints a dean, which he hopes to do by September, he said he will have a better idea of how the school will distinguish itself. For now, he plans for the school to concentrate on leadership, with a chance for students to earn a dual degree in law and organizational leadership.

Organizational Leadership? This is new to me, but here’s a link to Indiana Tech’s undergraduate OL degree. It’s a business degree with added courses like “Employee Development,” and, “Managing Organizational Change.” Interesting stuff but it still doesn’t create jobs. Bill Henderson comments:

“I don’t think it’s fair to heap scorn on the people starting this thing at Indiana Tech,” he said. “It creates problems for the legal profession when you have too many law schools cranking out lawyers – that’s something we’re going to have to deal with. But there’s room for improvement in legal education … It is possible to create a really terrific law school that does a better job than others.”

Yet this is not what Indiana Tech’s proponents argue. The university isn’t claiming that it’s trying to butt-out other law schools at a shrinking trough; rather, it’s claiming the trough is big enough for everyone, or that it will be when the economy recovers, or that demand for legal services doesn’t affect national lawyer mobility, or that we’ll need to import foreign lawyers in the coming decades, or that it doesn’t matter because Indiana Tech’s specialized professional degree is a Swiss army knife, and that the university needs to expand its graduate school and gain prestige without any explanation. Such is the extent of Indiana Tech’s overreach. I would not heap such scorn on Arthur Snyder’s plan if he argued that Indiana Tech was going to employ a superior curriculum to crowd out the Notre Dame 2Ls in OCI. He would be reckless and unprincipled if he planned that, given how legal education works, but we could not call him absurdly unrealistic.

However, there is no superior curriculum. No new law school can crowd out Notre Dame, law schools cannot create demand for legal services no matter what supplemental knowledge graduates receive, and no one can create financial aid ex nihilo. Consequently, it is very fair to heap scorn on Indiana Tech.

"Financial Aid ex nihilo," another of the Master's popular lectures

A Less Gilded Past: The SmallLaw Dead Pool

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

A Less Gilded Future,” in the Economist [H/T JETs with J.D.s]

Opening with the tale of Howrey’s passage to the BigLaw Dead Pool, the Economist tells us:

Though Howrey was the only big firm to collapse-

***sound of needle scratching record***

Only big firm to collapse?? The BigLaw Dead Pool lists six others that failed since 2005. Let this sloppy error set the tone for tonight’s post. Permit me to begin again.

Though Howrey was the only big firm to collapse, the forces that destroyed it hit the whole profession hard … Clients became keener to query their bills—and to demand alternatives to the convention of charging by the hour, such as flat, capped or contingent fees. Small and innovative firms began obliging them, and big firms increasingly felt forced to follow suit … All this took a toll on the labour market. After a dozen years of growth, employment in America’s law industry, the world’s biggest, has declined for the past three years.

First of all, the U.S. is the third largest country on Earth by population, the largest by GDP, and it uses a common law system unlike nearly everyone else who uses civil codes. We should expect it to have the largest legal labor market. Try harder Economist.

Reading the article, you would think that the legal sector’s problems only began in the last decade:

Trends that were not part of the recession will not disappear with the recovery. Some will even strengthen. William Henderson of Indiana University points out just how good and how long a run lawyers had. Spending on legal services grew from 0.4% of America’s GDP in 1978 to 1.8% in 2003. The legal business grew four times faster than the economy. Now, Mr Henderson says, a “hundred-year flood” is hitting the profession. [Emphasis LSTB]

This chunk is a mess, yet where have I seen that italicized portion before?

Oh God, no. Please, no. *Ungh…*

Jack Crittenden’s, “A Wise Investment,” in the National Jurist (37).

I’m swear I’m that guy from Alien/Spaceballs.

Note to the legal profession: Any data also appearing in that Jack Crittenden article should first seek the LSTB’s wise counsel.

There are four problems with the italicized passage, to say nothing of the “good and long run lawyers had,” which I’ll get to.

1). The numbers are flat out wrong. According to the BEA, they are 0.8% (1978) and 1.5% (2003). More accurately, they’re 0.83% and 1.47%, respectively. So instead of a 350% increase in “percent of the economy,” we’re talking about 77%. Not the same thing.

2). Two data points does not a trend make. Unlike ABA President Stephen A. Zack’s recent frivolous comparison of law graduates per capita between 1990 and 2009, there is absolutely in no way a gentle trend connecting the legal sector of 1978 to that of 2003. This is what happened.

It’s fitting that The Economist chose 2003 as the target year: the legal sector’s percentage of GDP was the same as it was in 1992, the year before the legal sector contracted relative to GDP.

3). Legal services are more expensive than ever before! If we’re going to be comparing the size of the legal sector to the overall economy over time, at least take inflation out from the nominal GDP and use real value added with 2005 as the base year. The BEA obliges.

Nominal = Real (Quantity changes) + Deflator (Price changes (not CPI, but close))

Whoo! I cannot say I expected that! Incidentally,the BEA has a legal sector deflator series (1977-2009) for anyone else who is approaching Peak Nerd.

So in 1978, the legal sector’s real output was 2.01% of GDP; in 2003, it was 1.55%, a 22.9% contraction. In 2009 it fell to 1.37%, a record low as far as we know.

4). Growth is measured in stuff. So explain to me why we should we care about the legal sector’s percent of GDP? Gentlemen, we have the nominal value added and the deflator, so let’s just look at the damned raw output already.

If I knew nothing about the American legal sector and you showed me this graph, I would say that with an R­2 of .8822 it’s f’ing volatile. I would not, for example, characterize the run that lawyers had as “good,” or “long.” Instead, I would say that this is an industry that has been undergoing serious structural changes since it fell into stagnation in the 1990s. I suspect that non-Biglaw suffered badly during these years.

Return to this statement: “The legal business grew four times faster than the economy.”

I simply have no idea where this comes from. It is nonsense.

Even if we assume the Economist’s fantasy legal sector were true we get this:

1978 2003 Percent Growth Annual % Growth
GDP Nominal $2,293.8 billion $11,142.1 billion 385.7% 6.5%
Legal Sector Nominal $19.1 billion $163.5 billion 756.0% 9.0%
Economist’s Legal Sector $9.2 billion $200.6 billion 2,080.4% 13.1%
GDP Real (base, 2005) $5,677.7 billion $11,840.7 billion 108.5% 3.0%
Legal Sector Real (base, 2005) $114.2 billion $183.35 billion 60.6% 1.9%

Only if we divide the ludicrous 2,000% figure by GDP growth do we get a fivefold number, but nominal total growth over that time period was actually twice as fast as GDP, not four times as The Economist claims. Looking at real value added, we find very much the reverse: GDP outgrew the legal sector by 1.58 times annually.

Longtime readers have seen this story before.

I have no more will to quarrel with anything else the Economist says aside from its exclusive focus on Biglaw, whose contribution to the legal sector output is unspecified. I credit it for pointing out that American lawyers have unilaterally adopted free trade in some legal services while everyone else is protectionist. Not that anyone goes to law school to do doc review.

However, those wishing to talk about “structural changes” to the legal sector and “hundred-year floods” should at least get their facts right. Things haven’t been gilded for a long while, and the real story hints of a much eerier SmallLaw Dead Pool, unacknowledged by the profession and concealed by the law schools.

.

.

.

Okay, fine here’s your damn deflator.

There, happy? Hey … the cost of legal services has outpaced prices in the rest of the economy. No shit. I hope quality has improved or else things will get even worse.

No Bubble, Just ROCK!!! Vol. 5

I’m dashing off to Wisconsin later this week, so I’ll miss the first-of-its-kind panel discussion b’ween deans Ackerman (Wayne State) and Closius (Baltimore), professors Henderson (Indiana-Bloomington) and Tamanaha (Wash U), and Third Tier Reality’s Nando. Moderation provided by All Education Matter’s Cryn Johannsen. If you’re interested in legal education all five of the participants have contributed to the issue.

I’ve also found a ringer to cover for me with some guest posts while I’m out.

So, here’s some of Wisconsin’s contributions to American culture:

Boris the Sprinkler (they’re from Green Bay, not Green Day!)

Pale Young Gentlemen, a Madison band led by folks a grad school classmate grew up with (and who allegedly opened for the Clientele, which neither of us believed)

Finally, the Milwaukee-based Charles Walker Band, with a guitarist I grew up with (on the left)

Legal Academy Approaching an “Endgame” Predict Bill Henderson and Andrew Morriss

First of all, because I’ve spent a good portion of my adulthood in Japan, my thoughts go to the victims of the recent earthquake near Sendai. As far as I know, all of my friends are safe; I hope they continue to be.

Now, to the topic.

Legal Academy Approaching an “Endgame” Predict Bill Henderson and Andrew Morriss

U.S. News’s Bob Morse chafes at shilling law schools’ gamed employment data because it makes his publication look like nonsense, so he pleads the law schools to stop making him look bad. He then ups the ante:

In an effort to make our law school employment data more reflective of the current state of legal employment, U.S. News has modified how we calculate the employment rates that are used in the new law school rankings. We will also be publishing more detailed law school employment data on our website as part of the new rankings.

Professors Bill Henderson and Andrew Morriss predict this will come about not by increasing the weighting on employed-at-graduation numbers—which more and more law schools mutinously decline to submit—but by one of two ways:

  1. “[Heavily penalizing] schools that withhold the employed at graduation data,” or by
  2. “[Formulating] a way to quantify how many jobs at graduation map onto full-time professional jobs that require a law degree…Unknown may also be treated as 100% unemployed rather than the current 25% presumption of employment. Such changes would have the law schools scrambling to report better numbers in higher weighted categories rather than just finding ways to goose up the employed-at-graduation and employed-at-9 months figures.  Remember that Bob Morse explicitly endorsed the Law School Transparency movement.”

Are you convinced?

I’m not, but I won’t cry if proven wrong. When Morse says “modification,” I don’t think he means “significant punitive reweighting.” I believe as ever that U.S. News picks winners and not losers. In other words, it will never give a law school a vote of no confidence, nor will it allow its fourth tier to bulge.

Readers, take note: The flipside to “cynical” is “strategic,” and that’s the motivation I attribute to U.S. News and the law schools (sounds like I have a name for my next garage band), and hey, if law school professors can speculate, why can’t I?

U.S. News is caught in a rare and beautiful thing: a trilemma. It wants to sell magazines and maintain its credibility. To that end, it can’t let the law schools game its rankings lest it publish numbers the public won’t take seriously; it can’t ask law schools questions they’ll refuse to answer; at the same time it wants the law schools to take its rankings seriously enough that they’ll compete over them. While it’s reasonable to believe Bob Morse wants transparency for moral reasons, he doesn’t want to take up the spear himself lest he alienate more law schools into employment data noncompliance. Recently, he said he wants the ABA to make transparency happen and won’t directly ask for more from the law schools. His support of LST is similarly strategic because it can take the rejection that U.S. News prefers not to shoulder. Nor did he flippantly title a blog post, “LSAT Will Still Be Weighed Heavily in Law School Rankings.” For these reasons, I doubt that any law schools will find themselves in the “Unemployment Factory” tier on the Ides of March.

Indeed, the letter U.S. News editor Brian Kelly sent to the law schools that Morse reproduced for our entertainment stated quite clearly:

The main responsibility to gather data and implement quality standards lies with the ABA, which also accredits law schools. For whatever reason, it appears that some schools do not treat the ABA reporting rules with the seriousness one would assume. We understand that the ABA is working toward the creation of tighter, more meaningful standards, which seem promising.

“For whatever reason”? Mr. Kelly, there is one reason the Villanova Scandal happened: Law schools know full well your magazine’s ranking is their bond rating, and they’re willing to lie to the ABA to preserve it. I cynically—not strategically—believe other law schools are doing the same.

Kelly doesn’t issue an ultimatum. Instead he begs the law schools fall on their swords and maintain the status quo so his publication doesn’t publish more nonsense.

But the ABA can’t do it alone. Whatever the ABA’s ultimate decision, we would urge you to make sure that the information your school is reporting is as accurate as possible, and to consider going beyond the current industry standards. Perhaps we need metrics besides total employment rates to evaluate a successful law program. More data—on employment or other topics—is a positive factor for our readers and your students. We stand ready to work with you to find ways of publishing it.

Funny, I thought the ABA was in charge here. Law schools know that what makes U.S. News happy won’t necessarily make them look good.

Yet why is yours truly showing a sliver of optimism? Because if ever there was a time to leave the law schools holding the bag, it is now. Bill Henderson, and last week Bill Chamberlain, a dean at Northwestern, have both publicly alluded to the attorney oversupply problem and the likelihood of law schools closing. No one seriously believes that (private) law school tuition increases are anything other than rent-seeking by the schools. Consequently, in the medium term tuition and enrollments will drop, and for our viewing pleasure, U.S. News is deservedly caught in the middle. Profit from another year of one-size-fits-all rankings or purify itself for the new legal education order?

Henderson and Morriss, for their part, believe that law schools must submit to transparency or suffer decisive judicial or executive intervention:

At some point, all our lawyerly rationalizations will come to a bad end because a governmental agency or a court is going to challenge our right to self-regulation, thus ushering in a truly disgraceful chapter in the history of American legal education.

Now is one of the very few moments in our careers as academics where we have to make hard choices and demonstrate that we warrant the trust and respect of our tenured positions.   Through our governance organizations (ABA, LSAC, NALP, AALS), we need to implement a system of complete transparency on employment outcomes.  If the system has real teeth, it will force us all to work very hard to ensure we are delivering value commensurate with the tuition dollars we collect.

It’s the end of the road.  We likely have one last chance to get it right.

My bet’s on intervention.

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.

The Law School Tuition Bubble: Tuition Increases Law School-by-Law School from 2005 to 2011, Part 1

As a member of a learned profession, a lawyer should cultivate knowledge of the law beyond its use for clients, employ that knowledge in reform of the law and work to strengthen legal education. – Wisconsin Rules of Professional Conduct “Preamble: A Lawyer’s Responsibilities,” ¶6, (WI SCR Chapter 20)

Introduction

Last May, I started the Law School Tuition Bubble for two personal reasons. One was to maintain my writing skills while I was unemployed (and ironically I found work around the time I started writing). The other reason was to contribute to the legal profession. At the very least, I could fulfill the Wisconsin Bar’s directive: reform the law and improve legal education. This blog fulfills that requirement.

My goal was to keep the candle alive on the supply side of the issue. Other reformers focus more on the demand side, gathering better graduate employment statistics and then transmitting them to prospective law students. Coverage on legal education’s ills has crested into the public’s knowledge over the last several months, but the tuition increases that animate the problem and their connection to the nondischargeability of student debt in bankruptcy, whether protected by income-based repayment, frequently appear as an afterthought.

I often run across quotes like these:

Tuition costs at law schools accredited by the American Bar Association have doubled in the last nine years. Total inflation during that same period was less than 25 percent. –Dean Michael Coyne, Massachusetts School of Law (non-ABA)

It’s always given as a statistic, even by the ABA. More sophisticated writers will distinguish between the causes of tuition increases in public versus private law schools. But it’s always a statistic. Somewhere someone has the spreadsheet with all the law schools’ tuition increases on it. I looked myself and it’s impossible to find it on the Internet.

So I built it myself.

Literature Review

As always, every discussion of the tuition bubble requires distinguishing a bubble from what I call a bottleneck. Law school staff (and sadly even progressive economists whom I agree with over just about everything else) look at the problem in terms of the economy. Every industry is doing badly, they will say. It’s just “cyclical” unemployment. Assumedly, as the economy improves, lost generation attorneys will be reabsorbed. In the meantime, unemployment remains high, the country is saddled with detritus of an $8 trillion housing bubble, and the federal government refuses to intervene on debtors’ behalves. Worse, structural problems plague the legal sector, too many attorneys chasing too few jobs, even if the economy reached a new normal.

You need not take my word for why I believe the bottleneck argument is false. Students, you are now enrolled in the Law School Tuition Bubble’s eponymous graduate-level seminar. Here is your syllabus culled from the Internet. I think that’s fairly comprehensive. If readers would like to add anything, let me know, and Professor LSTB will assign it.

  • “Competition for job openings should be keen because of the large number of students graduating from law school each year,” and, “Job Outlook: About as fast as the average employment growth is projected [for lawyers], but job competition is expected to be keen.” Bureau of Labor Statistics, “Lawyers,” and, “Judges,” Occupational Outlook Handbook, 2010-2011 Edition.
  • The ratio of attorneys per capita has risen from 1:695 in 1951 to 1:264 in 2000. Jason Dolin, “Opportunity Lost,” California Western Law Review, Vol. 44, 219-255 (2007).
  • The legal field has not grown along with the rest of the economy. Amir Efrati, “Hard Case: Job Market Wanes for U.S. Lawyers,” The Wall Street Journal, September 24, 2007. [I believe this article is slightly crisper than David Segal’s recent and noteworthy New York Times piece.]
  • Over the last twenty years, the distribution of graduate starting salaries gas shifted from a common mode of $30,000 per year to a bimodal distribution with a minority of graduates (about 25%) earning more than $160,000 and 34% of graduates earning between $40,000 and $65,000. NALP only reported 19,513 salaries in this stark 2009 graph. No one knows what the remaining 25,000 law graduates are earning, if anything.
  • ABA records indicate that around 1.4 million juris doctors have been conferred in the period between 1968 and 2008. By contrast, the BLS reports 759,200 people employed as lawyers and 51,200 people employed as judges (total 810,400). No one knows how many people entered the field via non-ABA accredited law schools, especially in California, nor does anyone know if the remainder of those with ABA law degrees are gainfully employed or even if their law degrees helped them get their current jobs. No one knows how the employment situation is since 2008.
  • The ABA also collected data from state bar authorities reporting 1,180,386 attorneys licensed and active within their jurisdictions as of 2009. No one has explained the gap between the ABA’s numbers and the BLS’s.
  • The ABA’s MacCrate Report, published in July 1992, finds that law schools mostly do not adequately prepare law students for practice. Things have not changed since then.
  • Using comparable back-of-the-envelope calculations, Fluster Cucked independently arrived at similar conclusions.
  • Shilling Me Softly diligently reports the growth in Legal Process Outsourcing.
  • Practioners: Jerry Kowalski informs readers that law jobs are down to 1991 levels. The Legal Dollar provides similar analysis.
  • Growing numbers of law professors, likely too many to track, publically agree on these issues to varying degrees: Professor Bainbridge, Richard Sander, Steve Harper, Maimon Schwarzschild, Bill Henderson, Herwig Schlunk, Christine Hurt (whose article helped inspire this blog), and my favorite on the subject Brian Tamanaha +1.
  • Dean Richard Matasar of New York Law School has long predicted the end of easy federal money to law schools. Richard Matasar, “The Rise and Fall of American Legal Education,” New York Law School Law Review, Vol. 49, No. 2, 465-504 (2004-2005); “Does the Current Economic Model of Legal Education Work for Law Schools, Law Firms (or Anyone Else)?New York State Bar Association Journal, October 2010, 20-26.
  • On the good news side, the Law School Admissions Council (LSAC) reports fewer LSAT takers in 2010 than in the previous year. Assuming legal education is highly countercyclical, this may indicate that the reform movement is successfully discouraging people from going to law school when it has a low return on investment.

Your three-page critical reviews are due next week.

So what?

What’s the benefit of knowing law schools’ tuition increases severally if we know them jointly? Shouldn’t hypotheses accompany research? Yes. The data I have collected tell us nothing we don’t already know. Although, all we can find easily is the post-aggregated statistics. Partly, this is an exercise in ensuring this blog lives up to its name. Those of you who want a tuition bubble, here is your tuition bubble.

More importantly, I think the statistics disconnect people from the reality of the crisis. Older practitioners can compare what law schools are charging today to what they paid. Younger graduates can see how much tuition has increased since they’ve left (even my recent successors’ fates sadden me). Students can envy what their recent predecessors paid, and hopefully prospective law students can grasp the bigger picture, especially since they don’t really know what they’ll be paying until they’re asked to pay it.

Data Collection Methodology:

I’ll explain how I gathered the tuition data autobiographically to explain the scope of the project.

I started collecting the data from U.S. News’s website, which gave the 2009-2010 school year’s tuition (with a few exceptions). Then came the hard part: finding the pre-2010 tuition data. At first, I went to law schools’ websites and went through the Wayback Machine, but this proved frustrating and took too much time. Then I made a breakthrough. The LSAC maintains data reported by law schools to the ABA going back to the 2004-2005 school year. I downloaded all 970 pdf files, 80.2 megabytes in all, and will provide them to those who don’t want to go through the LSAC themselves. Finally, to gather data for the 2010-2011 school year, I visited every law school’s website, seeking its tuition data.

Most of what I learned from the data-collection experience occurred while sifting through the websites. I can’t imagine too many other people having done this, save Nando from Third Tier Reality. It usually took only two clicks to find a law school’s current tuition, unless it was available via a pulldown menu. However, applicants trying to assess next year’s tuition are out of luck (except University of Hawaii, which estimates its 2011-2012 tuition). Law schools’ sites are well-designed. Eerily like a for-profit university, finding out how to apply for or obtain financial aid is far easier than finding the law school’s actual cost. That prospective law students can’t finance their own way through law school is usually taken as a given, not as a problem. How current students are given notice of tuition increases, I know not.

Notes on the Data:

The critical rule in empirical research is accuracy and precision. Accuracy refers to the degree to which the observations accord with the actual measurements, and precision refers to the reproducibility of the observations. These data are precise to the extent that one can look over the three sources and compare them, and I’m pretty damn good at data entry so I doubt there’re any mistakes. As to accuracy, because the data come from three distinct sources, they may vary. I’ll go into them.

  • The LSAC data come directly from the ABA, and for the first five years, they should be consistent unless stated otherwise. For instance, sometimes, I conclude that a law school’s semester tuition is reported instead of its annual tuition.
  • U.S. News data are reported by the law schools to the magazine. I doubt they differ from what the ABA reported in the LSAC data. When the LSAC publishes its law school reports for 2011, I’ll reenter those into the 2009-2010 school year.
  • Law School websites are far different from the other two data sets. Often readers may find that tuition dropped in the 2010-2011 school year over the 2009-2010 school year. This is not evidence the bubble is deflating! Rather, I took the bald tuition statistic the law school published and excluded fees whenever possible. Law schools are very inconsistent in how they measure fees. Some include them in tuition, others separate them, and still others itemize them. Law schools are very much like airlines, which pay a tax based on fares, so they add numerous, sometimes vague, fees (e.g. a “9/11 Security Fee”) to retain income. By separating tuition from fees, law schools appear cheaper than they actually are. As a result, when the 2012 edition of U.S. News is published this year, I will update these data as well.

I’ve organized the data by state in alphabetical order, noting whether the school is public or private. Along with the tuition, I also calculated the percent increase over the consumer price index according to the Bureau of Labor Statistics. This is not the place to discuss whether you think headline inflation is more relevant, or if you think CPI doesn’t mean anything anymore because the government switched to hedonic measurements in the last several years. More inflation is actually a good thing for those with massive non-dischargeable debts.

For private schools, a little treat for you. Using the regression coefficient for each law school’s tuition increases, I projected what the law schools’ tuitions will be five and ten years from now. Unsurprisingly, it’ll get absurdly expensive in the future. Note: I’m assuming tuition is increasing linearly rather than exponentially. If it’s growing exponentially, which may in fact be the case, then the problem is nightmarishly worse. I may recalculate the predictions using exponential regression after the next LSAC/U.S. News publishing cycle gives me an opportunity to update the data, which should be before the summer. So remember, what you see is a conservative estimate.

In Part 2, I share the data.

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