Legal Sector

W&S Lawyer Employment Grows Trivially in 2016, Incomes Still Flat

The Bureau of Labor Statistics (BLS) usually completes its updates of its many measures of occupational employment for the previous year by April. Data for 2016 are now available, allowing a comprehensive summary of lawyer employment for that year. For detailed discussion of what the BLS datasets are and how they address lawyer employment, I recommend the lawyer overproduction page [updated!].

For context, according to the Current Population Survey (CPS), the number of people who reported working as lawyers in 2016 shrank 2.3 percent to 1,133,000—about where it was in 2014. The CPS also estimated 745,000 people working as lawyers on a wage or salary basis, a 7.2 percent decline from the previous year (-58,000 lawyers). This change is plausible because in 2015, the number rose 9 percent (+66,000) and could just indicate measurement problems with the CPS. By contrast, the more accurate Occupational Employment Statistics (OES) program found that the number of wage-and-salary lawyers grew by 1.6 percent last year to 619,530 (+9,600 lawyers). The number of employee lawyers in the legal sector grew only a negligible 0.7 percent to 382,730 (+2,550).

Employee lawyers’ incomes were flat again in 2016. The OES estimated a scant 0.7 percent median hourly wage growth, although the CPS registered a -0.7 percent median weekly wage increase. Going by the OES, the last peak for lawyers’ earnings was 2009 (~$125,000 annually); incomes are about 6.7 percent lower (-$8,400) in real dollars since then. Here is an annualized dispersion.

These lawyer employment and income measures are not strong bellwethers for the value of legal education because they include many established lawyers and don’t measure recent graduate outcomes particularly well, especially those of graduates who do not promptly start careers in law. Readers seeking insight into that topic are instead advised to look at my criteria for predicting improvements in law graduate outcomes and the lawyer production page for a clear discussion of the BLS’s Employment Projections program.

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Prior versions of this post:

Good News: Legal Services Industry Grew 2.0 Percent in 2015

Since I started writing here more than six years ago, it’s always been bad news for the legal services industry. Dwindling output, year in, year out. This time, no longer. We have growth: 2.0 percent in 2015.

gdp-and-legal-services-industry-value-added-1000s-chained-2009

(Source: Bureau of Economic Analysis (BEA))

And yes, thanks to an alert reader I can now show the BEA’s complete GDP-by-industry dataset going back to 1963! We can now see that if the legal services industry had maintained its mid-20th century growth rate it would be nearly double its current size. Imagine how much better law practice would be. You might think there’d be a need for more law schools to meet the demand.

Arguably, the government’s definition of the industry or its composition has changed over the decades as it has for other industries, but I doubt it. It’s mostly lawyers’ offices. Undeniably, though, the typical product of the legal services industry has changed. I’d bet that the weighted-average hour of legal work is very different now than in 1975. Even so, it’s still possible to give a dollar figure of how much stuff private practice lawyers are producing.

…And it ain’t much. The legal services industry produced less in 2015 than in 2012, 1995, and 1988. There’s room for a lot of growth. The sector peaked in 2008, and since then it’s shrunk more than 20 percent.

The other caveat is that the legal services industry’s growth this year is mostly attributable to the gross operating surplus (what goes to firm owners, partners, solos) as opposed to employee compensation, which better indicates budding demand for new lawyers. The breakdown is: gross operating surplus, +1.5 percent; taxes on production and imports, +0.5 percent; and compensation of employees, +0.0 percent.

Yeah. You read that right. 0.

However, compensation has shaved off growth since 2007, so maybe a zero year isn’t so bad. Here’s the chart of the industry’s components, which still only goes back to 1987:

components-of-legal-services-industry-real-value-added

Compensation of employees in the legal services industry peaked in 2003 at $121 billion (2009 $). Now it’s $97 billion, a similar 20 percent decline.

Finally, although the legal services sector did well in 2015, the rest of the economy did better: GDP grew 2.6 percent, of which 1.9 percent went to compensation of employees. Things still look better for non-law.

Finally, legal services as a share of household expenditures grew for the first time in thirteen years.

legal-services-share-of-household-consumption-expenditures

At its maximum, households spent $99.5 billion on lawyers in 2003. Now it’s $87.9 billion, down 11.7 percent.

I’ve written elsewhere that the legal services sector can’t shrink forever into nothing. It’s like estimates of the year Japan’s population reaches zero. So we were bound to have some good years. What we need is evidence of sustained growth, especially in employee compensation. Instead, that’s not going anywhere, but at least it’s not falling anymore.

Class of 2015 NALP Data: The Mid-Law Crunch

A few weeks ago, the National Association for Law Placement (NALP) published the national summary report for its Employment Report and Salary Survey (ERSS) (pdf). Unlike last year, the chart lists the total number of graduates and the number who reported employment information, and the NALP updated its ERSS national summary chart for the class of 2014 to include that as well. I chided the NALP for omitting these last year, but that’s not a problem now. Good.

My goal today is to quickly glance at the ERSS for information the NALP might not have reported or missed, and to add to the time-series displays of graduate employment outcomes I provided last year. The NALP’s data are far easier to work with than the ABA’s when it comes to longitudinal trends, so this is where to get it. Nevertheless, I don’t have much to say.

The NALP’s selected findings (pdf) focused on the number of graduates finding private practice jobs, the lowest since 1996. There were undoubtedly fewer than 40,000 graduates that year, so compared to 39,984 this year, this is understandable. What is new, as I discussed in May, is that even though the number of graduates fell, the proportion of them finding better work didn’t improve. Large percentages are still working in “JD-advantage” jobs and nearly 11 percent reported being unemployed. This is not what a law-graduate recovery would look like.

percent-employed-by-status-nalp

no-grads-employed-by-status-nalp

Last year, at least, there was some rise in the proportion of employed grads. This year nothing’s changed. Blame all the grads who failed the bar, I guess.

As for the kinds of jobs grads are getting, I’m seeing a mid-law crunch since 2007 that I don’t believe the NALP has discussed.

no-graduates-employed-by-size-of-firm-nalp

cumulative-percent-change-in-grads-employed-in-law-firm-jobs-by-firm-size-index-2007100-nalp

(Sorry this one’s a little unclear.)

In fact, hiring at firms with 51-250 lawyers shrank the most since 2007, more than 30 percent in each category. Smaller firms have grown—but are now shrinking—and the biggest firms are making a comeback.

I’m not a biglawologist, nor a midlawologist, but if the big firms aren’t annexing the middle ones, then this is a chunk of the profession that’s shrinking. Looking at the After the JD II data, which I know is dated, middle-sized practices tended to have low outflow rates compared to other practice areas. Aside from government work, maybe these were among the best long-term jobs one could get out of law school?

No Libertarians, the ABA Does Not Control The Supply of Lawyers

Writing for Forbes, University of Chicago law professor Todd Henderson explains to us “Why Lawyer Salaries Are Skyrocketing.” Although he attributes most of the cause of the big-law salary hike to the libertarian red-tape boogeyman, Henderson opens the article with long-falsified supply-side reasoning.

On the supply side, the American Bar Association operates a state-approved cartel, which uses a licensing regime to artificially limit the supply of legal services. In a recent white paper, the White House came out against occupational licensing in general, and breaking the ABA cartel would be a good first step in addressing the staggering growth in lawyer pay.

The last time I recall encountering the “ABA attorney shortage” claim in any depth was two years ago when Michael Lind on Salon told us that that the ABA controls the supply of lawyers. Henderson’s argument though more predictably libertarian is nevertheless surprising because only a month ago The New York Times explored law-graduate underemployment in depth. The natural question is, how can Henderson discuss an attorney shortage while graduates a state away from him struggle to find work at far less pay?

In recent years bar-passage rates have played a role in graduate underemployment to some extent, but not all of the 5,004 unemployed or unsurveyed class of 2015 graduates failed the bar. Another 5,400 graduates were in JD-advantage jobs, which frequently includes positions that could be filled with people with less education. These graduates should be pushing lawyer pay down, and this is prior to any discussion of whether big law salaries should track inflation.

Then of course, there’s the fact that payroll lawyers’ incomes have been flat for quite a while.

10th to 90th Percentile Dispersion of Annualized OES Lawyer Incomes

From a business perspective, law firms could also take the same amount of money and substitute more new associates for the same (or less) pay to cover demand for their services. That is, if demand for their services is really an issue.

Then of course, there’s the ABA’s accrediting power, which a Department of Education panel threatened with a one-year suspension not because it’s refusing to accredit more law schools but because it’s accrediting law schools with insufficient regard to graduates’ employment outcomes.

Cleary other forces are responsible for the ~$20,000 big-law pay raise. I insist I’m not a biglawologist and other voices such as Steven Harper are vastly more credible than I am on the subject, but anyone who thinks ABA rules are choking lawyer supply doesn’t have much credibility when it comes to regulatory boogeymen either.

Change in Graduate Outcomes Driven by Small Jobs

My second cut at the class of 2015 employment data:

Comparing the law-school classes of 2015 to 2014 (and excluding our three Puerto Rico law schools), there were 3,772 fewer graduates, a decline of 8.7 percent. Four employment categories constituted nearly 90 percent to this change: bar-passage-required jobs (52%), JD-advantage jobs (13.1%), law-school-funded jobs (14.3%), and unemployed grads seeking jobs (9.5%).

Changes among the employment types accounted for 85 percent of the 3,772 fewer graduates. The four largest drivers were 2-10-lawyer practices (25.9%), business-and-industry jobs (23.6%), government jobs (11.6%), and public interest jobs (7.5%).

Finally, I looked at the distribution of graduates among the employment categories and statuses by their Gini coefficients. Some of these are more informative than others given the small number of grads that fit into some of them, e.g. the two dozen employed – undeterminable grads. There’s nothing unexpected here. Aside from solos and unknowns, outcome inequality at law firms increases with firms’ sizes. Federal clerkships are still doled out like income in a landlocked, kleptocratic, military dictatorship. Public interest jobs aren’t so easy to come by either, which casts some doubt on the willingness of grads to take them given their student loan burdens.

In all, I’m surprised so little of the decline is attributable to fewer unemployed grads. Instead, it appears that small-law and non-law jobs took much more of the hit. The change in how law-school-funded jobs are tallied distorts these results somewhat, and I look forward to years in which the employment criteria remain constant. At least the categories and statuses (mostly) added up correctly.

Here’s an analytic table I base these opinions on.

EMPLOYMENT CATEGORY NO. OF GRADS GRADS PCT. OF TOTAL PCT. CHANGE IN GRADS DISTRIBUTION OF CHANGE IN GRADS GINI COEFFICIENT
2014 2015 2014 2015 2015 2015 2014 2015
Employed – Bar Passage Required 26,794 24,832 62.0% 63.0% -7.3% 52.0% 0.30 0.32
Employed – JD Advantage 5,913 5,420 13.7% 13.7% -8.3% 13.1% 0.36 0.37
Employed – Professional Position 1,787 1,634 4.1% 4.1% -8.6% 4.1% 0.49 0.53
Employed – Non-Professional Position 600 537 1.4% 1.4% -10.5% 1.7% 0.57 0.54
Employed – Law School 1,577 1,037 3.7% 2.6% -34.2% 14.3% 0.73 0.79
Employed – Undeterminable 21 25 0.0% 0.1% 19.0% -0.1% 0.93 0.94
Employed – Pursuing Graduate Degree 693 649 1.6% 1.6% -6.3% 1.2% 0.44 0.50
Unemployed – Start Date Deferred 313 285 0.7% 0.7% -8.9% 0.7% 0.64 0.63
Unemployed – Not Seeking 553 494 1.3% 1.3% -10.7% 1.6% 0.54 0.57
Unemployed – Seeking 4,103 3,744 9.5% 9.5% -8.7% 9.5% 0.43 0.47
Employment Status Unknown 841 766 1.9% 1.9% -8.9% 2.0% 0.67 0.68
Total Graduates 43,195 39,423 100.0% 100.0% -8.7% 100.0% 0.27 0.29
EMPLOYMENT STATUS
Solo 902 653 2.1% 1.7% -27.6% 6.6% 0.51 0.53
2-10 7,657 6,680 17.7% 16.9% -12.8% 25.9% 0.34 0.33
11-25 1,875 1,737 4.3% 4.4% -7.4% 3.7% 0.37 0.39
26-50 1,036 942 2.4% 2.4% -9.1% 2.5% 0.42 0.44
51-100 799 807 1.8% 2.0% 1.0% -0.2% 0.46 0.46
101-250 1,090 952 2.5% 2.4% -12.7% 3.7% 0.50 0.52
251-500 1,082 1,059 2.5% 2.7% -2.1% 0.6% 0.66 0.66
501-PLUS 3,968 4,008 9.2% 10.2% 1.0% -1.1% 0.78 0.77
Unknown 247 254 0.6% 0.6% 2.8% -0.2% 0.80 0.83
Business Industry 6,608 5,718 15.3% 14.5% -13.5% 23.6% 0.35 0.36
Government 5,038 4,602 11.7% 11.7% -8.7% 11.6% 0.32 0.33
Public Interest 2,160 1,878 5.0% 4.8% -13.1% 7.5% 0.50 0.51
Federal Clerkship 1,275 1,222 3.0% 3.1% -4.2% 1.4% 0.67 0.70
State/Local Clerkship 2,056 2,007 4.8% 5.1% -2.4% 1.3% 0.57 0.58
Other Clerkship 37 125 0.1% 0.3% 237.8% -2.3% 0.93 0.86
Education 772 635 1.8% 1.6% -17.7% 3.6% 0.46 0.49
Unknown Employer Type 90 206 0.2% 0.5% 128.9% -3.1% 0.84 0.94
Total Employed by Type 36,692 33,485 84.9% 84.9% -8.7% 85.0% 0.29 0.30

That’s all.

CLASS OF 2015 EMPLOYMENT REPORT

[UPDATE: As with last year, it appears the ABA took down the employment spreadsheet by late Friday afternoon, making this post … an exclusive. There may be substantial revisions to come.]

At last, something to write about! (And time to do it too!)

On Friday, the ABA updated its Employment Summary Report Web site, which provides employment data for each law school class going back to 2010. Many if not all law schools have uploaded their individual reports, and some intrepid researchers have already dug into them, but I prefer to wait until the easy-to-use spreadsheet comes out. Note: There may be revisions to these data, but this first, preliminary cut gives a good sense of the class of 2015’s employment outcomes. Also, I diligently account for all accredited law schools, so researchers should recognize that Concordia Law School must be inserted manually. Indiana Tech has no data.

39,423 people graduated from 204 ABA-accredited law schools outside of Puerto Rico roughly between September 1, 2014, and August 31, 2015. The employment information is good as of about March 15, 2016.

Here’s the employment status distribution.

Class of 2015 Employment Status Distribution

Surprisingly, many of the employment status categories’ percentages are identical to last year, even though the absolute numbers have fallen. I almost thought I was looking at the 2014 data by mistake. Notably, the employment status tables added a section for “Employed – Law School/University Funded” jobs. It’s probable that a good chunk of these jobs were classified as “JD Advantage” until now, further clouding the validity of that category.

The display tables appear below the fold to conserve blog space.

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Wage-and-Salary Lawyer Employment Slows in 2015, Incomes Flat

The Bureau of Labor Statistics (BLS) usually completes its updates of its many measures of occupational employment for the previous year by April. Data for 2015 are now available, allowing a comprehensive summary of lawyer employment for the year. For detailed discussion of what the BLS datasets are and how they address lawyer employment, I recommend the lawyer overproduction page [updated!].

For context, according to the Current Population Survey (CPS), the number of people who reported working as lawyers in 2015 grew 2.5 percent to 1,160,000. The employment projections program (EP program) placed the number of lawyer positions at 778,700 in 2014. The discrepancy between these two measures has existed for a long time and has yet to be explained. Although the CPS is considered more reliable, the EP program estimate is appropriate for discussing future lawyer employment. The CPS measures the number of people in an occupation, but the EP program estimates the number of positions in that occupation, including people holding multiple jobs. Both measures include part-time lawyers and self-employed lawyers in all industries.

The CPS also estimated 803,000 people working as lawyers on a wage or salary basis, an implausible 9.0 percent growth from the previous year (+66,000 lawyers). By contrast, the more accurate Occupational Employment Statistics (OES) program found that the number of wage-and-salary lawyers grew by 1.1 percent last year to 609,930. The number of employee lawyers in the legal sector grew only a negligible 0.4 percent to 380,180.

Lawyer Employment by BLS Measure

Employee lawyers’ incomes were flat in 2015. The OES estimated a scant 0.6 percent median hourly wage growth, although the CPS registered a 4.2 percent median weekly wage increase. Going by the OES, the last peak for lawyers’ earnings was 2009; incomes are about $10,000 lower in real dollars since then. Here is an annualized dispersion.

 

10th to 90th Percentile Dispersion of Annualized OES Lawyer IncomesThese lawyer employment measures are not strong bellwethers for the value of legal education because they include many established lawyers and don’t measure recent graduate outcomes particularly well, especially those of graduates who do not promptly start careers in law. Readers are instead advised to look at my criteria for predicting improvements in law graduate outcomes for insight.