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June 05, 2013

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Jeffrey Harrison

Markets are not precise and often over adjust. Could happen in this case too. I would not encourage anyone to go to law school who is thinking he or she will make 100K a year anytime soon but doom and gloom can be overstated as well.

dupednontraditional

I'm not sure I'm fully appreciating Seto's methodology, but in any event I took the equation, rearranged it into classic "y=mx+b" format (once I saw that Seto was trying to describe a line through the modified data), and ground it out in Excel. I also went back across the entire span of the data.

My concern here is the effect of retainage in the system. Clearly people enter the legal field and exit over time. It's not like any one year is an input-output function independent of other years.

Seems to me everything is hinging on 2016 and the assumption that the delta between demand and supply is -2.28. When I use the data from 1981 to 2013, I get a "total" oversupply of 1.64, which indicates to me that there has been systemic overproduction of JDs for decades. I don't see how 2014-2016 can, in reality, vastly swing this total down to -1.33, which is what I get when I add in the 2014-2016 theoreticals to the mix from 1981-2013.

Stan

Duped, I think the problem with your analysis is that youre assuming that Seto started with data, ran his analysis, and then made a conclusion.

Instead, I am betting that he started with a "great time to go to law school" conclusion, and worked backwards.

The reason I think this is his incredible statement, "Demand for legal services, however, probably increases as population increases." This is patently untrue for a myriad of reasons that have been debated ad nauseam in this forum and elsewhere.

As such, I am hopeful yet doubtful that this will be a constructive discussion. Two factions will emerge: one will be those who think the economy isn't that bad and that now is a great time to apply (ie law prof's & admins) and the other side will be everyone else who's livelihood isn't tied to 50,000+ yearly LS applicants.

BLRT

I suggest people interested in responding to the story do so on the tax prof blog or wherever it was originally posted. There is no reason to discuss it here. Dan has added nothing.

dupednontraditional

Absolutely, Stan. I just thought I'd give it the old "good-faith" effort, and, lo and behold...

BLRT, I'll cross post and see if anything comes up.

CHS

What was added on TaxProf?

Confused

CHS,

What do the words "or wherever it was originally posted" mean to you?

TaxProf also does not censor comments that fail to conform to his personal beliefs the way some other blog moderators do.

CHS

Settle down. I assumed BLRT had actually looked at TaxProf before suggesting that people post there "or wherever it was originally posted", as opposed to posting here. "Dupednontraditional" evidently took BLRT to suggest it was better to comment on TaxProf, because he/she actually did cross post there. Had the message been to comment only on the site where the piece appeared, there would be no reason to mention TaxProf at all. Or BLRT could be saying it was okay to post on TaxProf--or the original site-- because TaxProf would not likely "moderate" comments with which he disagrees. In any event, blogs often link to other posts, and people comment on the issues presented in the post-originally-from-somewhere-else.

Anon

Careful Jeffrey Harrison, market based arguments are not warmly received around here. Besides isn't the oversupply now a market over-reaction?

MacK

Seto's assessment - and for that matter Dan Filler's approving posting of it is remarkable in inherently admitting something that Dan and Seto had until now been desperately denying - that there was a substantial fall in the number of law school matriculations in progress - and that there is an oversupply of JDs.

At the same time, Seto makes a mess of things. The key hole in his analysis is the assumption that until recently supply (JDs awarded per year) was in fact in equilibrium with demand for new law graduates. As has now been relentlessly detailed by numerous careful studies (as well as the missing lawyer phenomenon) that has not been an accurate assessment since perhaps the 1990s. Only a small proportion of the demand-supply mismatch can be attributed to the recession. (The non-equilibrium in the JD supply is a function of the market distortion of a student loan system devoid of underwriting standards.)

Where Seto may be accurate is in his prediction that on current numbers matriculations will be of the order of 39,900 - though it could easily be lower (the impact of law schools' desperate efforts to get applications in the current cycle (waiving application fees, chasing marginally interested applicants) will likely be a lower yield of matriculants from the number of applications, especially if the recovery continues to strengthen through the summer. What does this mean for law schools? Well one good prediction is that in any given metro area with multiple law schools, the bottom ranked law school will be in trouble as students shuffle up to the higher ranked school(s), or the lower ranked school needs to offer very heavy discounts to attract students. It may also lead to competition for transfers in senior class ranks (as schools like Phoenix law are discovering) and further efforts to prevent the losses of 2Ls and 3Ls and tuition dollars. Remember a fall of 8,000 law students means the equivalent of around 20-40 law schools' first year classes (assuming 200-400 per entering class.) The assumption of the pollyanna's is that the fall in matriculations will be evenly distributed across all law schools - but it seems more reasonable to think that those with the perceived worst value offering will take the biggest hit.

The next couple of years are going to be a wild ride for law schools - and September will be very interesting.

cas127

Any discussion of attorney supply and demand that does not directly address the fact that the BLS reports about 650,000 working lawyers, while the ABA reports over 1.3 *million* JD grads over the last 40 years...is *woefully* incomplete.

Until somebody can give a reasonable accounting for over 650,000 "missing" lawyers (they can't all be student-loan-driven suicides...can they?) then any suggestion of lawyer "undersupply" is *absurd*.

Enough with the anecdotal hypothesizing, legal profession - get into the Age of Empiricism and do some digging.

MacK

One additional issue that Seto is missing. A trend that I am observing (and my assessment may be anecdotal) is that a lot more lawyers are delaying retirement - and practicing into their late 60s even to their late 70s. Certainly I see a growing proportion of lawyers in their 50s and 60s who are not able to contemplate retirement - who lack the retirement savings, whose pension savings have suffered from a poor stockmarket for the last decade and a half or so, or who have children in their 20s and 30s who have "failed to launch" and need financial help. Indeed soaring tuition has also had its impact on 50-60 year old lawyers' retirement plans, as their kids are in college and law school.

The non-retiring are a serious source of competition in the marketplace for young lawyers - law being a game where "age and cunning" can regularly beat "youth and vigour."

MacK

cas127

The missing lawyer phenomenon is certainly a big issue, though the count of missing lawyers may in fact be higher. One issue is that it seems to me that more lawyers were willing to leave the profession who graduated before the recent tuition run-ups and the rise in indebtedness. As those who graduated from the 90s onwards "racked-up" more debt, they may have found it much more difficult to abandon the investment that they have in their legal career. Meanwhile, a growing number of 50-60-ish lawyers seem to see retirement as an unlikely possibility given their financial position.


Well

MacK --

I don't follow the last. I graduated in the early 2000s from a fancy schmancy private school with not-sticker-but-close debt. I used my five year biglaw stint to pay it down to $150/month level. (I haven't paid it off since because it's less painful to pay the nominal monthly payment than to part with $25k to exhaust it.) I continue to practice law not because of financial reasons; I do so because I kind of like it. And I've since been with the government (great hours and awesome work but bye-bye savings) and back to biglaw (much worse hours and a bit less interesting work but great pay).

Anon

"numerous careful studies"

Cites to peer reviewed econometrics journals please?

Confused

"Dan Filler's approving posting of it is remarkable in inherently admitting something that Dan ... had until now been desperately denying - that there was a substantial fall in the number of law school matriculations in progress." Citations please.

NYC schools

@Confused - IMO, it is widely known and accepted that there has been a substantial fall in the number of students matriculated by law schools (at least in NYC) over the last few years. Schools have experienced year-on-year declines of 20% or more and just graduated classes that are 50% larger than their incoming classes.

@MacK - As I understand the issue, most schools are shrinking their class sizes somewhat AND dropping their enrollment standards. For example, most NYC schools are dropping about 2 LSAT points + 20% of their classes. Thus, in some ways, people suggesting that enrollment drops are equally spread are correct, but in other ways, they are wrong, since it is the bottom of the barrel schools (e.g. Touro, Pace) that will likely need to move to open enrollment (if they hadn't already).

Of course, whether these schools MUST close depends on a number of factors (size of their endowment, expense structure, etc.) that we simply do not know.

MacK

NYC Schools -

I agree with your points. Endowments - especially where a law school is part of a larger institution are a particularly opaque issue (as in how much of the endowment is law-school dedicated, how much the University's general fund - for a few schools like say Harvard this is fairly clear, but for many others it is much tougher to gauge. Also, the liquidity of the endowment is an issue - is it cash, bonds and shares - or buildings (and if the latter revenue property or school buildings.)

I think some enrolment drops are probably spread, but that some schools are also being hit hard - especially in multi-school metros. I think all schools are somewhat different, some can cut enrolment and tuition, some simply cannot. The same applies to the possibility of law schools closing - so you have private-for-profit schools, which if they start losing money will likely close almost overnight. Then there are law schools that have historically been cash cows for a larger university - if they have a lower reputation than the parent institution and look like being a medium/long term cash drain they will face hard decisions as they burn through their liquid endowments - but the University as a whole has the ultimate decision making power. Stand alone schools will burn all the money they have before closing because their leadership would in doing so be voting to abolish themselves.

We will have to wait and see what the real story is. This fall may be interesting.

Confused

@NYU schools - Yes, it's widely known that law school student enrollment is declining. Where has Dan Filler denied this?

Steven Freedman

@ MacK

I'm a pretty avid reader of this blog and can't recall Dan Filler desperately stating something on any topic. Can you cite an example of where he has "desperately denied" anything related to this subject?

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