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 Sociable→Harvard→Wyatt 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.

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.