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.

Most Americans Don’t Want to Live in Rural America

…Which is why rural America is rural. Deep insight, Grasshopper, but the ABA Journal isn’t so easily persuaded, as implied in its recent feature article titled, “In rural America, there are job opportunities and a need for lawyers.”

I largely addressed this topic last year in a bluntly headlined post, “Law Grads Not Responsible for Lack of Rural Lawyers,” and its primary point still stands: If there is so much demand for (retiring) rural lawyers, why weren’t they replaced ages ago? It can’t be because of a quality specific to recent law graduates—including lack of practical training.

Unfortunately, I think the ABA Journal could’ve pursued the specific question of why lawyers won’t open practices in rural communities more analytically. For example, it accepted that there’s unmet demand for legal work in Wishek, N.D., based only on the word of its retiring sole lawyer. For a community of 1,002 people one wonders why it needs any. In fact, the Economic Census I discussed last week doesn’t have 2012 figures for states, but it does provide them for prior years. In 2007, law firm receipts per capita were $726 nationwide; in North Dakota they were only $255, an indicator that law is not in such high demand in North Dakota. As far as “offices of lawyers” goes, North Dakota, it seems, had a flat number of establishments from 1997 to 2007.

Industry Snapshot ND 1 Industry Snapshot ND 2

(Note that the number of law offices in McIntosh County, N.D., in 2011 is unavailable, but the neighboring counties appear very sparsely lawyered as well.)

The mean average population per law office establishment in North Dakota seven years ago was one firm per 1,893 persons—well above Wishek’s size—and I suspect the median firm is in a larger community. Not that I put a lot of stock in lawyer- or law-firm-per-capita estimates, but if there’s anything the LSTB will be remembered for, it’s those.

Nevertheless, aside from using Census data, the article could’ve investigated this unment demand by asking Wishek’s retiring attorney what his income was over the last five years, let’s say. Was it greater after tax, shelter, and transportation costs than what one could get in a college-type job in Bismarck or the Twin Cities, assuming all law graduates make equal student loan payments on IBR? How much of that income came just from serving Wishek clients? Did he regularly have to drive to represent people, and if so how far? What about his clients’ travels to consult with him? How much of his clients’ problems were due to rural poverty rather than lack of access to representation? Which problem should be prioritized?

More broadly, and this applies to the ABA’s immediate-past president’s apparent position that there’s a “paradox” of unment legal needs and too many law school graduates, there’s a difference between a “shortage” in economics and in common parlance. In economics, a shortage occurs when the price of a good or service falls below its equilibrium level, i.e. it’s so cheap that everyone buys it up before its price rises. By contrast, a shortage as commonly understood—the definition the Journal is using—is when poor people can’t afford to buy something but still need or want it.

The difference is important, and while I have my issues with neoclassical economics’ definitions and trivialization of poverty, its point is to distinguish between situations in which people merely want things as opposed to when market failures prevent them from buying them even though they have dollars in hand. One is measurable (usually); the other is not (usually). Maybe the legal profession relishes treating late-stage capitalist urbanization as a sudden problem rather than a long-term phenomenon, but I’ll take a stab: Even when rural Americans have the dollars in hand, the invisible costs of such a significant relocation cannot be ignored. Personally, I believe plenty of lawyers (even new grads) would be happier living in a rural community than they might think, but it’s still a big risk. It essentially means abandoning one’s connections, be they family or friends, and it isn’t any easier to shift jobs or restart careers in a city if things don’t work out.

Thus, the total cost of inducing people to move ends up being more than the community can really afford. Indeed, people are moving away from these communities, so why should lawyers move to them? It’s like encouraging homeless people to move to North Las Vegas because it has so many empty houses. Other forces are at work.

That having been said, like the South Dakota community discussed in my previous take on this topic, Wishek appears to have solved the problem by paying for office space to encourage lawyers to move there. Paying people to work often creates jobs, Grasshopper.

So, good luck to the two people who have taken Wishek up on its offer. The five-year median household income in McIntosh County in 2012 was $36,327 and per capita income was only $24,134 (source: Census Bureau). The averages are much higher indicating that there are some very well-off people in the area, but no one should mind if they have to take a day off and drive 90 miles to talk to a lawyer.

So, again, whenever the “no rural lawyers bogey” pops up, consider whether the claimants are hyping a long-term problem that’s festered for decades or are just equivocating their terminology and saying that the poverty of poor people is a paradox. It’s self-evidently not.

Economic Census Shows Legal Sector Battered by Depression

But first, it appears the link to my American Lawyer article was bad, so here it is correct.

Now, today’s fun.

The Census Bureau is slowly releasing data from its 2012 Economic Census, a survey it produces every five years. In government data years, it’s like waiting for a total solar eclipse. Because the last Economic Census was in 2007, we now get another look at the kind of damage the Lesser Depression has had on the private legal sector’s specific “Offices of Lawyers” category.

Economic Census--Industry Snapshot (2012)

(Source: Economic Census Industry Snapshots 541110)

Generally, it’s bad. There were fewer people employed in offices of lawyers in 2012 than in 2002. Nor does it help that Census doesn’t adjust the dollar amounts by any inflation measure, so while it looks like the revenues and payrolls are rising, in fact they are not.

Economic Census--Industry Snapshot (2012, 2013 $)

(2013 $, author’s calculations)

I have two observations to make: One, given that employees per establishment fell, it appears that larger firms have been the ones paring back. Two, similarly, like the employment projections I frequently write about, the number of firms and employees is a net growth figure that combines gross outflows with gross inflows. In other words, many people ejected from large firms may have started or joined smaller practices. Consider this a downshift in the sector’s performance.

The supply of lawyers and whatever capital they need exists, but the demand does not and it doesn’t look like it’s coming back any time soon.

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.

Florida Legal Sector Peaks Higher, Troughs Lower Than Country’s

The Tampa Bay Times tells us, “Florida’s Swollen Ranks of Lawyers Scrap for Piece of a Shrinking Legal Pie“—a fair assessment.

As to whether there are too many lawyers as the article says, well, obviously there are as many lawyers as the state can employ at any given time. Whether the state (and the country) produces too many law graduates and licenses more attorneys than can be absorbed is a different matter. I sympathize with attorneys trying to make a living, but I am enjoined from complaining if clients are charged less as a result.

Here’s the relevant line:

Almost half of the lawyers who responded to a Florida Bar survey last year cited “too many attorneys” as the most serious problem facing the legal profession today. That exceeded “difficult economic times” and “poor public perception,” which many blamed in part on relentless TV advertising, such as that by big personal injury firms.

Surveys are important sources of information, but just because lawyers believe something doesn’t make it true. It’s difficult to separate the extent to which the “difficult economic times” and the “too many attorneys” cause lawyer underemployment. In fact, Florida’s legal sector peaked higher and troughed harder than the rest of the southeast and the country.

Real Legal Services (Fla. edition)

(Source: BEA, author’s calcs.)

Although, the surveyed lawyers have a point: It’s also true, as the article points out, that the number of law schools in Florida needlessly doubled over the last 15 years or so. Unhelpfully, the article publishes law schools’ unemployment rates rather than my preference: percent employed in bar-passage-required jobs, full-time/long-term excluding law-school-funded jobs. Here’re Florida’s law schools’ 2013 results:

  • Florida State – 69.6%
  • University of Florida – 66.4%
  • Stetson – 62.0%
  • University of Miami – 60.7%
  • Nova Southeastern – 60.5%
  • Florida International – 59.6%
  • Thomas – 47.8%
  • Barry – 39.8%
  • Florida A&M – 38.5%
  • Ave Maria – 34.6%
  • Florida Coastal – 30.8%
  • Average Florida Law School – 51.8%
  • Southeast BEA Region Average Law School (Excl. Fla.) – 57.3%
  • Average U.S.A. Law School (Excl. P.R., Fla.) – 56.1%

In general, Florida’s law schools are doing worse than the regional and national averages. Perhaps you could call it the Florida Coastal effect. I’m sure someone with more time on their hands than I could write a paper on the impact for-profit law schools have on state employment outcomes and state legal industries.

What surprises me, though, are the attorney counts stated in the article: They’re much higher than the number of active and resident attorneys Florida bar authorities report to the ABA.

Since 2000, the number of licensed attorneys has swollen from 60,900 to 96,511. … Florida had 27,000 licensed attorneys in 1980. Within 20 years, the number had more than doubled.

According to the ABA, in 2000, there were 49,139 active and resident lawyers in Florida, and 68,464 in 2013. I don’t have numbers for 1980, but in 1989, Florida had only 33,251 active and resident lawyers. Anyway, I get 39 percent growth since 2000, not the 58 percent the article implies.

Despite these bleak facts, as always we can rely on the deans to tell us to hail the JD Advantage.

So what’s the advice for those considering law school or soon to graduate? Until demand better meets supply, [LeRoy] Pernell of Florida A&M’s law school predicts that many new lawyers will have to use their education in “nontraditional ways.” Among them: working for businesses instead of law firms.

Some could also wind up in jobs that don’t require a law degree. …

[Christopher] Pietruszkiewicz, Stetson’s dean, advises interning, then working in a public defender, state attorney or U.S. Attorney’s Office.

Hopefully the message for applicants is clear: There are better alternatives than law school in Florida.

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.

Scalia on Law School Sustainability: Concur and Dissent

…Is up on The American Lawyer.

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