Two recent articles taught me economists’ vocabulary for what I was already thinking.
- James Ledbetter, “Strucs vs. Cycs: The Two Gangs of Economists Warring over the Causes of High Unemployment,” in Slate’s Moneybox
- Brad DeLong, “The Varieties of Unemployment,” Grasping at Reality with Both Hands
These articles distinguish between two types of unemployment: cyclical and structural:
- Cyclical: Unemployment caused by collapse in aggregate demand (people stop spending money)
- Structural: Unemployment caused by a “mismatch” between workers’ skills and available jobs (worker oversupply in a specific labor market)
More so than Ledbetter, DeLong believes current unemployment is largely cyclical. Paraphrasing from one of DeLong’s examples on the structurally unemployed:
The size and duration of the excess unemployment…might be substantial and long lasting. It might require significant time to retrain workers and plug them into social networks in which they become good workers. We might see prolonged and high unemployment in [the sector they’re trained in], and in regions that had seen the biggest previous  booms [in that sector].
How does this apply to the legal sector? We’ve seen these concepts before, just with different terminology. Cyclical is to Bottleneck as Structural is to Bubble. (Okay, we’d actually expect workers to realize that paying for training in a structurally failing sector is a waste of money, leading to drops in education costs, but the analogy is close enough for me because workers haven’t realized law is structurally failing yet.) Now you ask, is the crushing job loss in legal services due to an aggregate demand shortage (no one can afford legal services), or is it due to an oversupply of labor in a sector whose workers would better serve the economy in other industries? I agree with DeLong over Ledbetter: because there is no evidence of any single expanding sector in the overall economy, what we’re seeing right now is largely cyclical unemployment.
So now you think I’m a bottlenecker, right?
On second thought, I don’t see enormous utility in the distinction. People will go where the jobs are, and where there’s demand for labor, employers will train the workers because it’s worthwhile for them to do so. The distinction between cyclical and structural unemployment becomes interesting only for three reasons:
- The (lost) opportunity cost of training in one industry and then another. For example, if the healthcare industry is the next big thing, then anyone who embarked on a nursing education straight from high school is going to benefit more in the long run than someone who went to college in the humanities, to law school, to long-term unemployment, to nursing school, and finally nursing. The law student has lost much in a poor career choice.
- The added financial cost of training in one industry and then another. Our nurse paid once, while our attorney took out student loans to enter the legal industry that couldn’t support his degree. Then he had to do so again into healthcare. This extra debt burden is similarly non-dischargeable (though theoretically the nursing degree would be rather cheap given that there’s high demand for nurses).
- The psychic costs of moving to an industry of lower social status. I’m going to say something mean, something that many lawyers my age tend to think more than the profession’s elders: The legal profession’s greatest sin is vanity. Everyone my age had at least one law school professor or administrator describe law as a “noble calling,” and that students should consider themselves lawyers even though they have no experience or credentials. Working on this blog, I frequently read law school faculty or administrators say of recent graduates that if they don’t like the low salary and poor job prospects it’s because they’re not right for the profession, or they haven’t networked enough. Recall DeLong’s phrase “plug [retrained workers] into social networks in which they become good workers,” meaning networking efforts will fail for many workers in a structurally afflicted sector. Law students in particular are also complimented for their intelligence, like they’re the “brightest bulbs in the room” and other platitudes indicating that a life of the mind awaits them. The problem is that law is entitled to some of this importance. Attorneys serve some laypeople in their darkest hours. I’ll think the same thing of the EMT who resuscitates me after my first heart attack, though. Back to the point: lawyers will always hold prestige in our society, so those forced away from the profession due to unemployment, and to lesser status work, will incur another debt that also cannot be discharged in bankruptcy.
How to separate structural from cyclical causes in legal labor unemployment? Stagnant demand for attorneys before the current recession, and indeed before the previous decade, should sufficiently demonstrate that the legal sector has changed in a structural way. I’ve looked through the Commerce Department’s data and can’t make heads or tails of it, but I’ll trust the must-read Wall Street Journal pop-out graph stating:
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 [until 2007], or less than half as fast as the broader economy…
Expect to see me quote this paragraph frequently. Moreover, while the rate of J.D. conferrals hasn’t increased recklessly the way tuition has, it has gone up by roughly 10,000 per year since 1987. As a result, we can safely say that many of the legal sector’s problems predate the recession and are structural in nature. The potential for outsourcing, though I find it slightly overstated, further proves the structural unemployment argument.
Now, to connect structural changes to legal education: Law school tuition is still increasing well above the inflation rate, and certainly beyond the legal sector’s growth rate. Consequently, the unemployment perils attorneys face today aren’t merely cyclical due to the recession. True, much of it is, but just as a landslide exposes a fossilized ichthyosaur, so too has the recession exposed the legal sector’s structural pathologies.
I’ll close with DeLong:
[N]othing converts cyclical unemployment into structural unemployment more certainly than prolonged unemployment.