10 Ways to Falsify Law Graduate Employment Doomsayers

I begin 2015’s first substantive post by invoking the right of listicle clickbait.

A loose end from December is Loyola Law School, Los Angeles professor Theodore Seto’s response to my American Lawyer article on the Bureau of Labor Statistics’ proposed change to how it measures the replacement rate for lawyers. For Professor Seto, I have good news and better news.

The good news is that when he writes that he’s flattered that I’d respond to his article, he need not be. Of course I was going to write on the topic for The American Lawyer anyway, but his first article usefully illustrated the kind of thinking I cautioned against when I broke the story in early November.

The better news is that his closing line raises an interesting question worthy of further consideration. He writes:

But we should all remember (myself included) that the best legal counselors, when faced with new evidence, adjust their advice accordingly. They do not simply attack the evidence.

Let’s not discuss whether I was attacking new evidence. Readers can compare my article to Seto’s for themselves. Instead, if I interpret Seto fairly here (and he says I didn’t do that for his other article, so I tread lightly), he’s implying that I or perhaps others make unfalsifiable claims about the future of law graduate employment—that we unfairly dismiss any favorable news about graduates’ prospects because it contradicts our dogmatic positions that law school is a poor decision in probably most circumstances.

If so, he’s incorrect. My beliefs are falsifiable, and because the topic of falsifiability arose on this blog two more times in the last month, I’m inspired to write on it. So, here’s a list of events one could point to (and would probably need to) to predict that things will be better for grads in 2016.

(1)  The absolute number of graduates in the classes of 2014 and 2015 employed in full-time, long-term, bar-passage-required, non-school-funded jobs rises. No one disputes that employment percentages will improve on account of there being fewer graduates, but the best way to show that graduates are finding jobs is … showing that graduates are finding jobs. Similarly, I’d like to see evidence that grads are finding better jobs. That could be the NALP reporting that grads are shifting into lawyer jobs at law firms larger than the 2-10 bracket, though 2013 toed in the right direction.

You can slag biglaw all you want, but it tends to pay better. Likewise, wage growth in the 25^th percentile for law grads is absolutely necessary if anyone wants to convince me that law school is better than going back to college for a more lucrative bachelor’s degree, but technically that’s a slightly different issue.

* Note: At this time I’m not too concerned that the ABA’s decision to give law schools a tenth month to report their graduate employment data will substantially impair any comparisons to previous years.

(2)  The BLS’s employment projections program estimates a substantial rise in the number of lawyer jobs created by growth (not replacement) between 2014 and 2024. Currently, it predicts that 74,800 new lawyer jobs will be created over the decade, which it typically divides by 10 to give us 7,480 net new lawyer jobs per year. This is far, far too low for any graduating class, particularly because new jobs can be filled by underemployed experienced lawyers instead of new graduates. Moreover, the BLS only reports a net growth rate, not a gross one. Each year some lawyer jobs are lost as others are created, if this phenomenon could be measured, e.g. with something like the Census Bureau’s “Employment Change Tabulations,” a reduction in the ratio of jobs lost to those created would indicate that graduates’ jobs are more stable than the past and that demand for their labor is increasing.

(3)  The baby boomer lawyer retirement wave actually happens. Anyone arguing that the replacement rate for lawyers is going to rise significantly should show that it is attributable to elderly lawyers and not younger ones. The reason is that the replacement rate is fundamentally zero sum: A new attorney can only obtain a position by displacing a departing one. The lawyers leaving had better be grads from the 1970s, not 2005. Otherwise, 2016 grads might not last long in the industry either.

(4)  Employment in the legal service industry (CES6054110001) ascends back to its 2007 peak (1.176 million jobs on average) or better yet surpasses it. In 2014 employment in the legal services sector couldn’t even cut a 1 percent growth rate. The number of jobs would need to grow at a 1.7 percent annualized rate for two years to return to its 2007 level. That’s about 20,000 jobs per year for two years. It sounds plausible, except it hasn’t happened for seven years.

(5)  The Bureau of Economic Analysis’ estimates of aggregate spending on legal services rises. Between 2007 and 2013, the quantity of legal services produced fell by 16 percent. Overall GDP grew by 6 percent. If the legal sector is to return to its 2007 level (never mind 2008 when it was even higher) by the end of next year it must grow at a 9 percent annualized growth rate. That might be asking for much, but the coming two years need to see much more than a piddly 2 or even 4 percent rate to impress me. In 2013, it fell by 3 percent.

(6)  Also, household consumption of legal services recovers solidly. Between 2007 and 2013, it too fell—12 percent—while household expenditures grew by 6 percent overall. (See a pattern here?) Again, very strong growth is necessary to convince me that the class of 2016 will do better than the class of 2013 in absolute terms.

(7)  The U.S. economy improves markedly (and structurally). This is an indirect avenue for falsification, but it ought to affect the events outlined above because I believe demand for legal services is income elastic, meaning low-income people simply won’t spend money on lawyers no matter how badly they may need them. “Latent demand” is not “effective demand.” So, examples of improvement in the U.S. economy that might spill over to the legal profession include: rapid growth in:

• the civilian-employment population ratio for working age (25-54) Americans,
• incomes for young Americans,
• the household formation rate,
• the marriage rate (there’s a topic!), accompanied by a drop in the age at first marriage, and
• first-time home purchases by younger households (we can discuss whether this is sustainable another time).

Proponents choosing this route need to show why, why, why any of these will come about. Will the U.S. attempt to reverse its trade deficit? Will it slash taxes on workers and shift them onto nonproduced assets like land? Will Congress embark on a bold spending program rejuvenating infrastructure and creating jobs? Will it authorize a resident’s dividend and just start handing money out to people? Will the Fed credibly promise to permanently increase the monetary base? Will there be another asset bubble? Falsifiers who do not do this waste everyone’s time.

(8)  For those who disbelieve that demand for legal services is income elastic: Someone explains why poor people don’t hire lawyers. Claiming that lawyers are moustache-twirling monopolists who fix their prices must explain why firms won’t compete with one another and hire the hordes of underemployed law grads who are eager to work in their chosen profession. I suppose it’s possible to prove that the demand is there but new lawyers are greedy, entitled, and unwilling to make the tough sacrifices that circumstances never required of their predecessors, like opening small practices in rural America, which is allegedly a Shangri-La of pent-up of lawyer demand. Alternatively, one can try and prove that student debt is erecting a price floor on new lawyers’ labor. None of these arguments has ever been carefully researched (or made much sense), but hey, miracles happen.

(9)  Someone genuinely proves the JD is not only versatile but also becoming more so. I think most folks agree there are serious problems with how “JD Advantage” is defined. One thought I had for those trying to rectify this was surveying non-legal employers about what they thought law graduates could or do contribute to their businesses that other trained workers do not. Other ideas could be comparing earnings of law grads in non-legal professional careers to their non-legal-educated peers in the same occupations. Maybe all those compliance officers who went to law school do add a lot of value and earn more than someone with a B.S.in accounting, but it needs to be shown. The human capital earnings function (aka the Mincer equation) that’s still being held up as a useful model is a sad start.

(10)  Someone discredits the signaling hypothesis as it applies to legal education. Speaking of the human capital hypothesis, a shiny doubloon to anyone who validly compares the earnings of properly sampled law school graduates with law school dropouts who otherwise successfully completed all the requirements. This is the best way I know of to demonstrate that law school generates an earnings premium and falsifies the occupational effects of higher earnings due to working as lawyers and other professionals. Although proving this point won’t change things for 2016 grads—they’ll get the jobs they’ll get—it will go a very long way toward convincing me that all those malemployed law grads would be utterly unemployed, zero marginal product (or even negative marginal product) workers were it not for law school.

The only trend I know of that falsifies any law graduate employment doomsayer’s narrative is declining productivity in the legal sector. We’re repeatedly told that computers are taking over lawyers’ jobs, but the labor productivity data say otherwise. I’m pretty darn sure I never hopped on that bandwagon, though, and I’m pretty darn surer that I’m the only one who points to the productivity data to justify that position. The snag is that declining labor productivity implies that law students have better opportunities in other industries.

Intuitive readers will recognize that the sentiment expressed in point #7 applies throughout: Anyone out to falsify the doomsayers will need to develop testable, falsifiable, causal explanations for why the situation will improve for law grads. This is the bad news: As nice as the above falsification examples are, if they occur randomly or piecemeal they won’t be very convincing. The legal profession won’t shed all its jobs, and at some point there will be a year of growth in demand for legal services and absolute employment of law grads.

What there won’t be is a sustained recovery in law graduate employment that will bail out the law schools any more than the Grad PLUS Loan Program already has (and I think anyone reading this has a high probability of outliving that blunder). Don’t believe me? Show me why.