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November 14, 2012

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James Grimmelmann

I'm curious why you regard the supply of legal jobs as essentially exogenous. The supply curve seems unlikely to be vertical.
Can you say more?

Bernie Burk

Hi James, I'm afraid I may not be following your question: Exogenous to what? The supply of legal jobs is certainly exogenous to just about anything that any law school, or the legal academy collectively, does. Law Schools don't create law jobs; they create young lawyers. Buyers and sellers of legal services create law jobs. That's one of the basic points of the post. Am I missing your point?

Bernie

Dean

"The really interesting questions are which schools are going to be most and most quickly affected by these forces and how."

I would think any school outside the top 100 that prices itself as if it were a top 14 is probably at risk of closing. Even moreso if the school is not associated with an undergraduate institution that can help fund it.

Kendall Isaac

Excellent post (I was growing weary of reading about civil war monuments)! It is nice to go back to the basics of supply and demand when assessing the economic state of a legal education. I agree that while the price of admission is high (perhaps excessively), lowering the cost will increase demand. However, if schools continue to limit the amount of seats available, they can most certainly achieve both "ideal" objectives of lower (or at least not ever-increasing) cost and supply. Lowering cost while simultaneously controlling seats available (and the insatiable appetite to generate revenue via additional cheeks in seats), can more quickly make a legal education reasonably affordable and valuable.

James Grimmelmann

Bernie, I should be more detailed.

I don't think about the "supply" of legal jobs. I think about the demand for legal services. That's not a fixed quantity. It's a curve: different people will pay different amounts for legal help. (E.g., a middle-class tenant might pay $2,000 to solve essentially the "same' landlord problem that a poorer tenant would pay $100 to solve.)

What's more, they can meet that demand in a variety of ways: different kinds of legal help are substitutes. (E.g. I could hire an aggressive scorched-earth litigator or I could hire a problem-solving transactional negotiator.)

On this story, the number of legal jobs grows and shrinks based on where the supply and demand curves meet; indeed, the nature of those jobs changes based on both supply and demand. What this means is that changes in the supply of lawyers can affect how many of them are employed and in what kinds of jobs. Flood the market with highly skilled graduates and we'd expect the number of employed lawyers to rise but their salaries to drop.

Now, one might argue that these effects will be small, and have reasons to back up that belief. But it's not clear to me why the effects should simply be disregarded entirely.

Anon508

I don't know why the legal ed community consistently accepts the idea that there are too many lawyers for not enough jobs. Wrong. There are too many lawyers chasing big-law jobs. THAT market is saturated. However, there are huge swaths of law practice that are vastly underrepresented. Consider the gigantic number of criminal defendants that have had charges dropped against them because there are no defenders to take their cases (one example occurred in Western MA a few years back - a sheriff was ordered to free 1/3 of the county jail because there was no one to represent the accused at trial). There are thousands (millions?) of elderly folks without an estate plan, there are millions that make their biggest legal transaction - a home purchase - without the benefit of counsel.

The problem is that the legal community forgets that there's more to law practice than working for a firm with 500 lawyers. How about if we get serious about training lawyers to do what's needed and, more so, help them to recognize that there's a gigantic middle-class market of potential customers that would love to employ legal services if only the rate were $50/hour instead of $500?

CBR

I still think cost--and especially debt--matters more than the original post suggests. If a student can graduate with no debt, it may well make sense to take a chance on law study--maybe they won't get a law job, or maybe they will decide they don't want a law job after a few years of study--but without a significant debt burden, I think it's reasonable to "risk" a few years of law study even if their lives end up elsewhere. With $100,000+ in debt, that risk is too much to ask of a student.

I also agree that there is unmet demand, and that's of course a much harder problem to solve. I'd love to see an expansion of legal aid, but I don't see that happening in the current economic and political climate.

It does seem that there ought to be a way to match underemployed law graduates with undeserved clients. Obviously, there are several problems: (1) low-income or middle class clients don't have the disposable income to support new grads; (2) new grads aren't usually practice ready; and (3) possibly most importantly, new grads don't have the resources, network, or business development skills to make a go of solo practice. Still, it may be possible to solve some of these problems. Law schools could and should do more to make law students practice ready. If the ABA allowed liberalization of investment rules (letting the private sector invest in the provision of legal services, as has been done in recent years in England and Australia), we might be better able to bridge the gap between "too many lawyers" and "too much unmet legal demand." It's not the most attractive practice option, but many have hypothesized that WalMart et al. would set up low-cost "legal shops" aimed at a middle class clientele who need wills, divorces, etc. Again, not a solution to the debt problem and probably no one's dream job, but probably a net benefit to society.

Bernie Burk

In response to James Grimmelman's 11/15 9:28 a.m. post: Hi James, Now I understand your question, and it is a very fair one. Here is an almost succinct answer, which I will concede up front I cannot back up systematically with empirical evidence, but which anecdotal evidence from my research and experience seems to confirm.

It would be a mistake to talk about one market for legal services; more accurately, there are several markets for different kinds of services targeted at different kinds of buyers (clients). One thing these markets appear to have in common is that demand for legal services is very price-inelastic below current price-points. Thus, while in many markets lowering the price per unit for a commodity would increase the number of units purchased, in others large changes in price would result in small changes in demand. The latter appears to be true about most markets for legal services.

Among the poor and the middle class, potential clients essentially have no or very little disposable income to devote to legal services. To the extent these clients buy legal services at all, the great majority are paid for with insurance or by contingent fee, with minimal disposable income devoted to other services. Because there is little or no money to devote to such services, and because those not covered by insurance or available by contingent fee generally rank low on the consumers' hierarchy of needs, lowering price is not likely to materially increase demand. Flood the market with practitioners as you suggest, and you get a flood of unemployed or proportionally underemployed lawyers. Something very much like that is actually happening right now, and you can see the result.

On the high end (legal services for larger companies and rich people), these consumers are already acquiring most or all of the legal services they need. As a result, if you lower the price they pay, they will pay less, but probably not buy much more.

To illustrate, compare this situation with the market for dentistry. If you magically lowered the price for dentistry across the board, there would be a portion of the lower-to-middle income market that needed but had not previously been able to afford a dentist that would enter the market and buy some dentistry now that it was cheaper. The reduction in price would marginally increase demand to some degree. But rich people (and people with good dental coverage) are already buying pretty much all the dentistry they need. If you lower the price, they probably won't buy much more dental work.

At the high end, the market for legal services appears to be similarly price-inelastic. At the middle and in the lower ends of the income spectrum in the markets for legal services, the demand appears (unlike the related market for dentistry) to be price-inelastic below current price points, the difference being that more dental work than legal work is likely to get bought by a person of limited means who experiences a marginal increase in income. A toothache demands more immediate attention than an estate plan.

So your question points to an important feature of the markets for legal services that you are quite correct is built into my comments. Thanks for pointing this out.

Bernie


CBR

I would quibble at the high end: with declining dental prices, I think you see more people purchasing cosmetic dentistry options. And at the high end of legal services, I think price declines still lead to an increase in consumption, seen most clearly at the "nuisance settlement" stage. With $400/hour legal services, it's worth settling a meritless legal claim rather than filing a 12(b)(6) motion. At $50/hour, it's worth seeking a judicial resolution. I talked about this in the context of outsourcing in a recent article (http://papers.ssrn.com/sol3/papers.cfm?abstract_id=1705505 )--when companies outsource legal work at lower prices, they do tend to increase consumption.

Bernie Burk


Anon508, Thank you for this refreshingly fact-free analysis. Let me provide some context for a couple of your comments. It is demonstrably untrue "that the legal community forgets that there's more to law practice than working for a firm with 500 lawyers." In fact, fewer than one in ten practicing lawyers in the United States today works for a firm with more than 500 lawyers, and even at the apogee of BigLaw hiring, only three in ten new law graduates went to work for private firms with more than 100 lawyers.

Your suggestion that all the unemployed law grads in the country could be absorbed into public defender, legal aid or private firms serving the middle class is similarly untethered to reality. The public defenders whose numbers you wish to increase are assigned to people who cannot afford a private lawyer of their own (remember the Miranda warning: "if you cannot afford an attorney, one will be appointed for you"). More public defenders will be appointed only when State Legislatures appropriate the money. That isn't happening in the current economy, isn't likely to, and is of course completely beyond the recent law graduates' control.

Similarly, the best proof we have that there is no unserved market for consumer legal services for the poor and middle class is the fact that there are tens of thousands of underemployed law graduates in the United States. Unless you are prepared to postulate that all of them are irretrievably lazy or stupid (and that's certainly not what I think) they would be flocking by the thousands to make their living in these markets if they existed. This is not to say that there are not great unmet needs for legal services among lower, lower-middle, and middle-class consumers, there is just no money to pay for it.

I have taken a rather hard stand here, because your views are widely shared, Anon508, and they are terribly unfair in blaming the victims of a rather sudden and drastic change in the markets for legal services. This is rather like suggesting that the many Americans currently unemployed in the Great Recession don't really want to work. The Great Recession is not the Great Vacation, and neither is the current contraction of the market for lawyers.


Dean

I have to agree with CBR on the cost issue. It may not be What Matters Most, but it is a very close second. It's important, as Professor Burke is arguing, to right-size legal academia so that we are only producing roughly the same number of new lawyers as there are new legal jobs each year. But it is also important to right-price legal education.

If I remember the statistics correctly, last years grads came out with around $125,000 in debt, and for next years class the average is expected to be closer to $150,000. With debt like that, there are really only two options: getting (and keeping for at least 5-7 years) a Biglaw job; or, getting a PI job that qualifies for your schools LRAP and IBR loan forgiveness. Both of these options are extremely competitive and only a small percentage of law graduates will get these jobs. For most of the rest of the graduates, law school will leave students worse off than they were before. Sometimes ruiniously so.

So yes, we need to reduce the total number of law grads, but we also need to start pricing legal education in a way that correlates to the likely salaries of our graduates.

Tom

James Grimmelmann: "I don't think about the "supply" of legal jobs. I think about the demand for legal services."

Well, the demand for the legal services of New York Law School grads appears to top out at around 35% of the current crop of students, a slightly worse than 1 in 3 chance that any of them will actually get to be lawyers.

"Flood the market with highly skilled graduates and we'd expect the number of employed lawyers to rise but their salaries to drop."

So the expectation is that flooding the market will drop salaries, yet your school charges $47,800/year?

Anon508

Bernie Burk,

Well, there's no beating responding in a condescending and arrogant way, so if you can't beat'em, might as well join'em. So, let's talk facts, this from a NY study:

"Informal surveys of court managers have revealed that most litigants (Family Court, approximately 75%;
Housing Court, approximately 90%) appear without a lawyer for critical types of cases: evictions; domestic violence; child custody; guardianship; visitation; support; and paternity."

Why do 9 out of 10 people going to court for little things like whether they get custody of their kids do it on their own? The majority say because they can't afford an attorney (60%). Still think we don't need more lawyers who are willing to work for a non-big law rate?
Here's the source: http://www.courts.state.ny.us/reports/AJJI_SelfRep06.pdf

Now, helping poor people get legal advice is one issue. But I didn't - and don't - suggest that all grads should be absorbed into public service jobs. Not feasible, and frankly, not what all grads want to do. But what we MUST do is recognize that the attitude of "I can't afford a lawyer" isn't just endemic among the poor. It's middle class people too that simply can't, or won't, pay $500 an hour for a lawyer but would pay $50. How many people do Legal Zoom to create a will? Use online resources to incorporate a business?

The answer is IN THE MILLIONS. Why? Because that's their only option. Law students aren't trained to be entrepreneurs, they're trained to seek big firm jobs. And, if they're not viewed as good enough to get one, they're pointed at medium or small firm jobs.

My proposal is relatively simple. Before we declare the job market saturated and legal ed dead, how about helping some grads recognize they can have wonderful livings helping people that could actually use their services and are vastly underrepresented?

CBR

Anon508, I think your comment could be interpreted as a "let them eat cake" statement. If law grads could make a living and pay off their debt by serving the middle-class market at $50 an hour, I think many would be happy to do so. I mean, a posting for an attorney at an annual salary of $10,000 (less than minimum wage!) got plenty of applicants from a good school--see http://abovethelaw.com/2012/06/law-school-writes-in-defense-of-jobs-with-salaries-below-minimum-wage/ . Students are desperate for jobs of any sort that will provide an entree into the practice of law.

Because of student debt, plus the factors I mention above (lack of training, lack of business development network, lack of a sufficient number of clients who could pay even $50 an hour), I just don't see serving the $50/hour market as a solution to the oversupply problem that Bernie is talking about. I do think that there is room to move in that direction (especially if there were to be a capital infusion and business support from private investors that could help match lawyers with clients), but even that wouldn't be enough to allow graduates to pay off $150,000 in student debt from law school. I see student debt as a bigger problem than the lack of jobs, but the lack of jobs is still a big problem without an easy solution.

Bernie Burk

Anon508, I AM talking facts. You're still not. Where in the survey you cite is any evidence that the huge proportion of the persons appearing pro se who say they can't afford a lawyer could afford even $50 per hour? And by the way, the lawyers who actually serve the populations reflected in that survey generally don't charge anywhere close to $500 per hour. I have no idea where you got that number.

You're also misinformed to assert (again without evidence) that most law schools train lawyers exclusively or even predominantly for BigLaw. That's simply wrong. From the top to the bottom of the proverbial law-school "food chain," students are offered courses that prepare them for all lines of work with all kinds of populations. The fanciest and most expensive law schools in the country offer clinical work in poverty clinics. Most law schools, whether grand or modest, offer a wide range of courses focused on the needs of workers, consumers and the poor. Career services offices at scores of law schools all over the country are educating students about about small firm, solo, government and nonprofit legal work opportunities, and they were doing so for years before the current difficulties, because they acknowledge the reality that at the majority of schools the majority of students don't take BigLaw jobs, and never have. While practical training at virtually all law schools still leaves a great deal to be desired, that's not the reason for today's problem. The problem is the job market.

The essence of your rant is that the tens of thousands of unemployed or underemployed recent law grads who are suffering today are too lazy, too stupid, or too greedy to take thousands of low-paying but real-work positions that are sitting out there just waiting for them. So greedy, in fact, they prefer not to work at all, or do occasional, stultifying, spot document-review projects for that $50/hr you say real people would pay them, or less. That's absurd. You are blaming the victims of a rapid and surprising economic transformation, and no, you don't have any meaningful, concrete empirical evidence that supports that exceptionally meanspirited view. You are welcome to continue to air your views in this space, but continuing to assert the same things does not make them any more factually grounded. Oh, and feel free to identify yourself anytime you like.

CBR

And while I disagree with Anon508 about most of what he/she wrote, I do actually agree that there is an underserved middle-class population that would pay $50 hour for legal support. I have written about how middle class litigants are turning to electronic service providers to meet this need (like LegalZoom, as Anon508 mentioned). And interestingly, Indian outsourcing companies are starting to provide pro se support in this price range. (See, e.g., http://www.sunlexis.com/testimonials.html ). So I wouldn't discount the existence of an underserved low-end market, and I think there is significant benefit to filling that unmet need; I just don't see it as a solution to the student debt problem, and I think the transaction costs of finding and meeting that market are too big for a solo graduate to take on. But these are big issues, and a real crisis for the legal profession and for legal academia. I think we owe it to our students/graduates/profession to have an honest debate about the scope of the problems and potential fixes, even--and maybe especially--in the areas where we disagree.

BoredJD

The amount of debt students graduate with does affect the ability of young lawyers to open their own practices, as some in the anti-reform crowd would have them do. Starting a law practice is already difficult enough for recent graduates. Add in another 100, 150, 200K of debt, and what is usually a losing proposition may become a financially ruinous one, or an impossible one if the debt means the graduate is unable to secure capital to have a reasonable shot to succeed. Such a high fixed cost undercuts the main weapon recent graduates have in the solo market- the ability to charge lower fees and still break even and put food on the table.

Additionally, high tuition may have an indirect long-term effect on the employability of all lawyers because the legal profession will bleed valuable social capital. I assume that part of law's cartel status is derived from the profession's capacity to self-regulate, and that whatever other adjectives are used to describe lawyers, "generally incompetent" and "poor judgment" are not among them.

The explosion in tuition and debt has chased many college graduates into other graduate programs or the entry-level workforce. This is not only a result of a lack of jobs, but a lack of jobs that pay enough to service the enormous amount of debt. This effect has been more pronounced among higher LSAT/GPA students, who are more likely by virtue of their undergraduate school and GPA to have other options besides law school. Without wading into the debate over whether LSAT/GPA and UG institution have any correlation with being a competent practitioner, this means that the public perception of law students is going to change for the worse. Law students will be perceived as people who literally had no other options (i.e. unemployment), people who suffer greatly from cognitive bias, risk-takers, or folks with extremely high UG debt seeking the security of three more years of loan deferment.

While such an outcome may be unlikely or the costs deferred well into the future, the potential downside (increased automization of legal services and the relaxation of unauthorized practice laws to allow quasi-lawyers to perform routine legal tasks) is huge. Current tuition practices by law schools, however, seem to have little or no benefit to the profession, and have already seriously damaged the narrative that the practice of law is really accessible to all.

Bernie Burk

CBR and Dean, Thanks for your thoughts. Only time and further empirical investigation will tell, but with all respect I am inclined to think that the factors on which you're focusing are unlikely to move the needle on these issues. I don't think the problem is predominantly that students are not "practice-ready." Students who spent three years studying the law and now have little else to do could acquire practice skills at low rates or even for free if they had any reasonable prospect of making a living. The problem is that there are painfully limited resources available in the populations with need for legal services to pay for them, so no living to be made.

For this reason, I've long been of the view that opening up law practices to outside investment has no utility for these kinds of problems. (For the record, I'm not opposed to it either, but I just don't think it matters.) Who wants to invest to create a law firm that will serve clients who can't afford to pay for the work? Can I short that stock?

I also don't think that the solution to having more lawyers than law-jobs is to make more lawyers. I appreciate that, as illustrated in my discussion with James Grimmelman above (and thanks again for his very thoughtful comments), this view depends to some degree on the belief that the markets for legal services are currently relatively price-inelastic. CBR relies on my analogy to dentisty, and suggests that the legal services markets, at least at the high end (larger companies, more complex and premium-priced services), are more price-elastic than I think. That's possible, of course, but I don't think so, and I don't think that the dentistry analogy suggests that it is. Recall I pointed out that, if you lowered the price of dentistry, the wealthy and well-insured would probably not buy much more dentistry than they consume right now, because they're already getting pretty much all the dentistry they need. CBR suggests that they might well buy more cosmetic dentistry, so there is some elasticity there. It's an interesting point, but (for me at least) it's difficult to think of legal services for larger companies and high-net-worth individuals that would analogize easily to cosmetic dentistry (or to use a medical example, cosmetic surgery) in this comparison--services that are nonessential, elective, and relatively low in the hierarchy of the consumer's needs.

I am not suggesting that these markets are COMPLETELY price-inelastic, of course. But I am suggesting that making more lawyers will make more unemployment than it will make employment. There is already plenty of oversupply in the market to force prices down to the extent they can be. I don't think we need any more.

Bernie

Anon508

I agree with what CBR says about the under-served middle class population (and I'd add that there remains a giant a wide swatch of underserved poor). As for whether teaching students to solicit business from those groups, I'm not sure if it is a complete solution...but I know it'd at least help SOME students to be trained to think this way.

As for Bernie Burk, it's Friday afternoon and I've got better things to do than be antagonized and have my statements twisted. Suffice it to say that my analysis was not intended as anti-student. My argument is, instead, that PROFESSORS are failing them by not teaching them to focus on the relevant, and in-need clientele.


Anon_JD

The assumption that "that there's a gigantic middle-class market of potential customers that would love to employ legal services if only the rate were $50/hour instead of $500" is, to put it kindly, simply wrong.

There are already lots of cut rate solos advertising extremely low rates for things like no-contest divorce, simple wills, etc etc. Even with such low rates, there is still intense competition.

But when you are talking about $50/hour for more complex matters like criminal defense, etc, you have to understand that this only works IF you assume your overhead costs and the cost of taking that case is less than $50/hour. To put it simply, if I charge $50/hour (assuming I even will collect that at the end, NOT an automatic assumption with cash strapped clients!), but it will cost on average $40/hour to take such a case, its not worth it to practice law period.

In any case, the number of suppliers of legal services for $50/hour (where it makes sense to do so) still is greater than the number of people willing to pay $50/hour. It is only people in academia who are out of touch who think there is these huge unmet demand for legal services if only they charged $50/hour instead of $500/hour.

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