How the Transparency Movement Reinflated the Law School Bubble

Of course I’m click-baiting you! But in place of the vicious criticism you were expecting, you shall receive bitter irony instead. Frankly, I think you’re coming out ahead, so be thankful, you ingrate!

So why did I flag you down?

It appears the Bureau of Labor Statistics is changing its employment projections methodology, specifically its measure of how many workers will be replaced in occupations in its 10-year projection periods—as opposed to the number of positions that the economy will create. Apparently this is a project the BLS has been engaged in for a while, and the comment period is over, so why I didn’t know about it before now escapes and saddens me.

The BLS’s employment projections have long been a go-to source for law school critics. The ~24,000 projected annual lawyer job growth rates they showed every two years contrasted excellently with the ~40,000 law graduates each year (and the even greater number of bar admits). No longer.

Background: Developed in the early 1990s, the BLS’s occupational replacement methodology uses a simple age cohort analysis. For instance if there are fewer employed lawyers in the 55-59 cohort today than there were in the 50-54 cohort five years ago, then you have a rough number of how many people in that age group left the occupation. Do that for all the adjacent cohorts and add together all the negative net changes, and you have the replacement rate. The math behind it is a little bit more complicated and there are some exceptions, like if the occupation is projected to decline overall, but that’s the basic concept.

But the BLS isn’t satisfied with this methodology any more. It suffers from sample bias for occupations with small numbers, and it leans on the assumption that it’s mostly young workers who replace older ones. The bureau is interested in finding the “actual” replacement rate, i.e. one that includes workers transferring to other occupations or leaving the workforce altogether who are concurrently replaced, not just retirees, whom the current methodology tends to capture. This way the projections will include everyone who switches jobs, e.g. fast-food workers for retailer clerks and vice versa, when such changes would otherwise net out under the current methodology. The new methodology is based on Current Population Survey data and regression analysis (which always turns out well) rather than historical trends.

As evidence that the new methodology achieves its purpose of finding more replaced workers where the current one does not, the BLS points to … lawyers because there are external data on employment rates. I’m totally not kidding. It writes (and I editorialize in brackets):

Not all law school graduates become lawyers, but the American Bar Association (ABA) conducts a census of employment outcomes for all law school graduates in order to count the number who find employment in positions that require bar passage (effectively, lawyers). Since ABA began collecting this data in 2011 [Not correct, see below], the number of graduates finding employment in such positions has averaged 29,000 per year. Because some graduates who don’t immediately find such positions may become lawyers later in their career (for example, many graduate become law clerks, a position that does not require bar passage, for a few years before becoming lawyers) [Citation please?], this number [the 29,000 graduates—it’s unclear] should be less than the total number of new entrants into the occupation.

Under the current method, BLS projects an average of 19,650 job openings per year, while the new method projects 41,460 openings per year [!!!!]. Again, no direct comparison between the ABA number and the BLS numbers is possible due to conceptual differences [which, of course, does not rule out indirect comparisons], but the results under the current method are significantly below the actual number of new graduates finding work in the occupation [!]. The new method projects a higher number of openings, which allows for additional entrants not immediately after completion of a law degree.

Okay, data on law graduate unemployment has actually been around for many years, e.g. the NALP and the Official Guide, crude though it was. I’ve written about the strong correlation between falling proportions of graduates finding bar-passage-required jobs and graduates taking JD-advantage jobs or not finding any work. This is evidence of a saturated lawyer market, even if it’s caused in part by slack aggregate demand.

Percent Employed by Status (NALP)

The BLS could also look at lawyer-licensing rates courtesy of the National Conference of Bar Examiners, which it probably should be doing instead of law graduates. So when the BLS says the data are only now available, it’s not doing its homework.

However, the irony—and this is really incredible—is that all those demands for transparency in the employment data, after accusations of misrepresentation and deceit, have perversely led the government to (indirectly) compare the number of graduates in bar-passage-required jobs to its current estimates and use it as evidence that those graduates must be finding bar-passage-required jobs long after graduation.

As arguments from incredulity go, this is a pretty good one. As usual, there are other fallacies.

For one, the BLS is assuming that all occupation changes are positive sum. Everyone who leaves law practice is making the best choice among alternatives (ultimately), so too does everyone who chooses to become lawyers. Thus, departing lawyers need to be replaced. The new methodology automatically rejects the possibility that new entrants force out existing ones and that if more people chose better alternative occupations to law, then fewer lawyers would exit, and everyone would benefit. (Except law professors.) Now, whenever someone leaves the law, there is by definition a shortage, a misallocation of human capital that can only be met by sending more people to law school.

…Especially in light of the eye-exploding 41,460 annual job growth rate, courtesy of the BLS’s new, inscrutable regression approach. It’s certain that some number of lawyers enter practice long after graduation, but assuming 29,000 grads get bar-passage-required jobs, that leaves another 12,500 lawyer jobs each year that must go to earlier graduates despite the swelling numbers of JD-advantaged, unemployed, and other grads who aren’t absorbed earlier.

This leads to an unbelievable replacement rate under the new methodology: If 834,700 projected lawyer jobs in 2022 less 759,800 lawyer positions in 2012 yields 74,900 jobs due to growth, then the cumulative replacement rate (74,900 – (41,460*10 years)) is 339,700 lawyer positions that will “need” replacement over the next decade. If the legal profession has been going through a 44 percent 10-year replacement, then there should never have been a backlog to begin with, and it’s something we should have heard about by now. By contrast the current model shows only a 16 percent 10-year replacement rate.

There’re a few other reasons why the methodology change isn’t a good idea, like aging lawyers, but this post isn’t about that. Rather, it’s a rebuke to everyone who crusaded for transparent employment data based on the rational, debt-guzzling law student assumption. Thanks to them the law schools will soon be saying that the graduate-to-annual-job ratio is (indirectly) in equilibrium right now. The demand for lawyers is there, they’ll say, just after an undetermined period of crippling malemployment … and at a time in their careers when no one is measuring it … except for those After the JD people who found that 24 percent of bar-passers weren’t practicing after 12 years.

Cheekiness aside, it’s likely the BLS (and state governments) will change their projections methodologies accordingly despite law being an unrepresentative occupation with substantial early-career turnover. Be prepared for the dark age of lawyer employment projections.

The Legal Recessions That Weren’t

I don’t read The New Yorker regularly, but I’m of the demographic that does, so it pained me to read the first two sentences of its article, “The Legal One Percent.”

After every recession since the Second World War, the legal profession swiftly and robustly recovered. Not this time.

This is not what the data say. The legal sector (which isn’t the same as the legal profession, but given that the article goes on to cite profits-per-partner data I think that’s what The New Yorker means) has done terribly after recessions since the late 1970s. Although the BEA still hasn’t updated its industry data for the period between 1977 and 1997 per its comprehensive revision, the older data show the overall stagnation.

Legal Sector Real Value Added

It took five years for the legal sector to recover to its 1979 high, and then eight years to get back to where it was in 1990. This is supported by data on household consumption expenditures on legal services, as well as the Labor Department’s measure of employees in legal services.

Household Consumption of Legal Services

Per capita spending on legal services probably peaked in 1990, and it’s probably fallen to its 1960s’ level.

The legal sector and the legal profession have been ailing for quite a while. It’s surprising that their stagnation is still misreported.

Japan’s Law Schools Should Take Lessons From Their American Counterparts

Oh Yomiuri Shimbun, why must you blight the Internet with such nonsense in your editorials on legal education?

[T]he number of lawyers employed by local governments and business corporations has not increased as much as anticipated. A large number of people are unable to find jobs after passing the bar exam.

Some law schools have been increasingly inclined to withdraw from their field of education in recent months. The move has accelerated since last autumn, when the education ministry said it would curtail grants-in-aid to law schools whose graduates perform poorly on the bar exam.

There was a time when law schools bloomed, with their number peaking at 74. But the number of law schools accepting applications for admission next spring is expected to decrease to 54. It is only natural for law schools to quit if their students do badly on the exam.

Clearly Japan’s law schools’ mistakes aren’t emulating the U.S. system but not emulating it enough. Employing the strategies used by U.S. law schools could really make a difference at these institutions because over here, we’ve internalized the following lessons. When graduates don’t pass the bar or don’t find jobs, do the following:

(1) Capture the accreditation system and calibrate it so that if graduates from all schools fail the exam at about the same rate, the schools keep their accreditation. You’re not over-enrolled if you’re just average.

(2) Blame the magazine rankings. (Don’t worry if they blame you back, you both make your money on the (prospective) applicants. It’s just part of the business.)

(3) Shake down your alumni to finance a new, gratuitous, state-of-the-art law school building. That’ll show ‘em.

(4) Blame your graduates for being greedy, entitled, and unwilling to make the tough sacrifices, like opening practices in rural areas. Lots of people in Shikoku need lawyers.

(5) Alternatively, blame your graduates for moving too far from the school and trying to make money where the jobs are, like Osaka perhaps. After all, it’s not the school’s fault for enrolling too many students for the local market; rather it’s the students’ fault for wandering too far from where their degrees have any signaling value.

(6) Advertize your school’s discounted tuition thanks to senior students who are asked to pay full freight courtesy of unlimited government loans. (Japan has those, right?)

(7) Complain that the press and the blogs don’t use any facts—because they don’t.

(8) Use Pyrrhonian skepticism to dismiss government employment projections showing that there is no need for your graduates’ professional labor.

(9) Notwithstanding (8), point to the imminent wave of retiring lawyers whose positions will need to be filled.

(10) In case Abenomics fails, waive away any predicted productivity increases in legal services, low household incomes and formation rates, the apparent income elasticity of demand for legal services, and predictions that the economy is going to stagnate for many years to come. Do not waver: The backlog of graduates will clear!

(11) Claim that your graduates are easily finding jobs after the employment data are collected. Disregard the findings of longitudinal studies like After the JD in the U.S., which found that graduates who enter the profession in good years frequently leave law practice several years later due to massive attrition.

(12) Throw out marginal product theory, the law of diminishing marginal returns, and the sheepskin effect and argue that your school’s degrees are “versatile,” ensuring that graduates will get an earnings premium in any occupation besides law practice because all schooling increases earnings for all positions regardless of the skill required.

(13) Ask rhetorically, “What else will intelligent young people do?” Obviously law is the answer.

(14) Plead that your school is virtuous because it enrolls minority students who do poorly on exams. It doesn’t matter if they never enter the profession or can’t service their debts. (They have IBR in Japan, right?)

(15) Use the crash in applicants to encourage people to apply. After all, it’s not like everyone will seriously heed this advice and make it self-defeating.

(16) U.S. law schools haven’t tried this yet, but yous should: Insist that the profession’s licensing rules are so restrictive that they prop up prices for lawyers’ services, which is why so many of the highest earners in the country are lawyers. Therefore, anyone who graduates from your law school is a lucky ducky. If anything, the country should allow foreign-trained lawyers to practice as it will drive costs down.

(17) And if all else fails, compare the number of attorneys per capita in your country or region to others because that’s an obvious measure of lawyer shortages. Duh.

So Yomiuri Shimbun and all Japanese law schools, the problem wasn’t adopting the American model; it’s not adopting it all the way.

NALP’s Fuzzy Definition of ‘JD Advantage’…

…Is largely the same as the ABA’s, but that’s not the point, which is that you should read:

NALP’s Fuzzy Definition of ‘JD Advantage’

on The American Lawyer. It’s probably the first time I’ve written on this curious topic.

I don’t have any music for you as I’m beating a virus today that’s hampering my productivity. Since my organs haven’t liquified yet, I’m ruling out Ebola.

Peace.

How I Learned to Stop Worrying and Love the ‘JD Advantage’ Category

…Pretty much sums up my response to the National Association for Law Placement’s analysis of the class of 2013’s employment outcomes.

Quoth Executive Director James Leipold:

As the legal services market continues to change at a rapid pace following the dramatic downsizing during the recession, the variety and diversity of jobs that law grads take now is greater than ever. In general, the picture that emerges is one of slow growth, and growth that is a blend of continued shrinkage and downsizing in some areas offset by growth in other areas.

Although the NALP changed its terminology from “JD Preferred” to “JD Advantage” starting with the class of 2011, this year marks the record percentage of JD Advantage jobs.

Percent Employed by Status (NALP)

The good news is that the percent not working (aka the unemployment rate) has fallen to 12.9 percent. The record was 14.6 percent in 1993. I’m confident that record will not be breached, so there’s some good news. Indeed, I think it’s disturbing that the early ’90s recession mauled law practice so badly.

As for the JD Advantageers (seriously, slap a jetpack on them and shoot them into the sky), though, I did a quick correlation analysis for the 2001-2013 period. JD Advantage has a surprising -0.94 correlation with Bar Passage Required and an unfortunate 0.85 correlation with Not Working. This bodes ill for the merits of JD Advantage generally.

As for the correlation between JD Advantage and employer types, again, private practice correlates at -0.94. (Wow.) Business and Industry weighs in at 0.97, but Public Interest comes in at 0.91, which is either good or means that Public Interest has been watered down with people who couldn’t find work in firms.

(I forgot to mention that Business and Industry hit a record 18.4 percent of employer types this year.)

So yeah, strong positive correlations with unemployment is usually something you don’t want when making sense of employment categories. Thus, when Leipold says that the picture is one of “slow growth that is a blend of continued shrinkage and downsizing in some areas offset by growth in other areas,” I caution against seeing growing proportions of JD Advantage outcomes as plausibly representing a positive future for law school graduates.

Leipold, lamentably, disagrees:

It is not true that there are too many lawyers — indeed even today most Americans do not have adequate access to affordable legal services — but the traditional market for large numbers of law graduates by large law firms seeking equity-track new associates is not likely to ever return to what it was in 2006 or 2007, and thus aggregate earning opportunities for the class as a whole are not likely to return to what they were before the recession.

Not too many lawyers? Tell that to the JD Advantage cadre.

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.

On the Am Law Daily: ‘ABA Task Force Report: Part Good, Part Baffling’

You can find my latest Am Law Daily article here:

ABA Task Force Report: Part Good, Part Baffling

Per the discussion on my first cut at the topic, I added a little bit more on the possibility of limited-licensing programs reducing costs. There’re other changes to the original post.

http://www.americanlawyer.com/home/id=1202643728147/ABA+Task+Force+Report+Part+Good+Part+Baffling%3Fmcode=1202617075486&curindex=3

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