Reconsidering the Conventional Wisdom on the Legal Job Market - Part II

This is the second of three posts on the current state of the legal job market.  The first discussed the preliminary results of a study I did of employment of recent graduates from my law school and explained why nine-month job data does not tell the whole story on employment.  This post discusses the idea that the market for legal services is undergoing a profound structural change.  The next post will discuss the Bureau of Labor Statistics projections for lawyer employment.  [Update - the third post is here.]  The whole series is collected in this document.

The Structural Change Issue. 

Another piece of the current conventional wisdom is the argument, generally associated (at least in US law circles) with Bill Henderson, that the legal job market is undergoing profound structural change.  My reaction to this argument has taken an interesting trajectory.  I was initially deeply skeptical of the argument.  The more I thought about it, the more I started to think that there was something to the structural change idea.  My current thinking is that some structural change is occurring in the legal job market, but that this change has been gradually occurring for many years.  I therefore think that this structural change is something that legal educators should think deeply about, and I agree with some of what Professor Henderson has to say about the subject.  I am skeptical, however, that the structural change has much, if anything, to do with the current state of the legal job market.  I am also a bit skeptical of how deeply the structural change will penetrate into law practice.  Professor Henderson has written a lot on this subject that deserves a more thorough analysis than I can give it in this post.  For now, I want to focus on these last two points – whether structural change is responsible for the current state of the job market, and how deeply structural change will impact law practice.

The structural change argument has a few components to it, but for me the most interesting part of it is the claim that technology, specialization, and process engineering are making legal work increasingly standardized and systematized.  Professor Henderson, discussing the work of Richard Susskind, writes that “Susskind asserts that legal work is gradually migrating from bespoke (e.g., court room practice), to standardized (e.g., form documents for a merger), to systematized (e.g., a document-assembly system for estate planning), to packaged (e.g., a turn-key regulatory compliance program), to commoditized (e.g., any IT based legal product that is undifferentiated in a market with many competitors).”  (Blueprint for Change, at 479).  As legal practice becomes more routine and commoditized, compensation for lawyers will come under pressure.  The structure of legal services will change as well, with lawyers (or, more broadly, legal service providers) working for specialized firms that look more like service providers in other industries than contemporary law firms.

Although I think it has limits, I think it is true that at least some change of this kind is occurring in the legal industry.  I do not think, however, that it is particularly new.  One example of this kind of change discussed by Professor Henderson is the rise of firms that provide contract attorneys for discovery work.  My first big assignment as a law firm associate in 1997 was to supervise a major document review and coding projects (ah, the glories of Biglaw!).  At one point, I had 60 contract attorneys working for me. We were using technology to make the review process more efficient.  This technology has improved over time, but technological change has also created a dramatic increase in document review work.  Even in 1997, the increased use of e-mail was creating many more documents for review than had been created in the past when written communication was exclusively on paper.  In the document review world, technological change has probably created more work in the last 20 years (by exponentially increasing the number of documents to be reviewed) than it has eliminated (by automating parts of the process).  It is also worth noting that while certain aspects of document review can be performed by trained monkeys (and thus can be automated), other parts require the work of human beings exercising judgment.   More importantly to the subject of this particular post, I don’t see change in the document review world in the last few years that is different in kind than change that had occurred in the prior 15, making it unlikely that any changes in this area are the cause of the present relatively poor job market.

Another example noted by Professor Henderson is the rise of internet form providers such as Legal Zoom.  Form documents have been available on the internet for a while, so I’m skeptical that Legal Zoom et al. have much to do with the current job market.  I’m also skeptical of how deeply the widespread availability of forms, no matter how good they are, will change the existing practice of law.  To be clear, I do think forms are changing, and will continue to change, the practice of law.  I’m not sure, however, how deep this change will go. 

Forms have been a part of legal practice for as long as I’ve been a lawyer.  Over time, the forms have become more sophisticated.  Most residential real estate transactions today involve the use of form purchase-and-sale contracts.  These forms aren’t perfect, but tend to be pretty good.  The widespread availability of good forms, combined with the availability of reasonably competent professional advice from real estate agents, has led to the reduction of the role of attorneys in residential real estate transaction.  This is a pretty good example of the type of structural change Henderson and Susskind are talking about.  An area of law where lawyers used to play a large role is now dominated by non-lawyers.  This kind of change is also reflected in the real estate title search and closing processes.  As I noted above, a fairly large number of our graduates included in my study are working in-house at title companies.  These people are working as lawyers, but are doing so in specialized, non-law firm environments.  I think this kind of structural change has been going on for a while, and will continue to develop in the future.

I think, however, that this kind of structural change, especially reliance on forms and non-lawyer professionals has its limits.  I should first note that the reduced role of attorneys in the residential real estate context is not an unambiguously good thing for consumers.  Real estate transactions are incredibly complex.  They present a host of risks to the parties, especially the buyer.  Most buyers would benefit from the advice of an attorney as part of the process.  For my Real Estate Transactions class this semester, I obtained a random selection of deeds that had been recorded in our local Recorder of Deeds office for us to review.  One of the deeds, for a home built and sold by a sophisticated developer, had an innocuous-looking provision that shifted a good amount of title risk from the seller to the buyer.  I would never have advised a client to accept this deed.  Considering the probability of a problem occurring, however, the price of this risk was fairly small.  Given the amounts of money involved, it is often rational for a party to a simple residential real estate transaction to proceed without counsel.

When the amount of money at stake increases, however, the wisdom of proceeding without counsel becomes more doubtful.  Even if a form is available, forms are subject to negotiation and change.  Any time the parties can negotiate the terms of their agreement, the parties would benefit from counsel.  Put another way, any transaction where (a) the terms are negotiable and (b) there is sufficient value to justify the cost of an attorney will involve what Susskind calls bespoke legal work.  As I noted above, Professor Henderson refers to “form documents for a merger” in the second step of systemic change.  Any merger of more than trivial value will be subject to negotiation, whether or not the parties start with set of form documents.  The work that lawyers do on this kind of transaction will be customized to the particular facts of the deal.   To be sure, in some areas of transactional practice, certain forms are widely accepted, and where repeat players are involved the amount of negotiation for a particular deal might be limited.  In these contexts, law firms compete on price by using specialized lawyers who can get things done quickly and efficiently.  Law firms were doing this when I was in private practice, and I’m sure that the trend towards specialization will continue in the future.

In sum, I think that specialization and technological progress are changing law firm practice to a degree.  I’m sure that competition between law firms will lead to further specialization, technological innovation, and process engineering improvements in the provision of legal services.  I’m skeptical, however, of how deeply these changes will penetrate into legal practice, because so much of legal work is fact or transaction specific, making a good deal of it what Professor Henderson refers to as “bespoke.”  I also think that these changes have been gradually occurring over a long time, and have very little, if anything, to do with the current state of the legal job market.

I will close on this subject with three further thoughts.  First, I see very little reflection of systemic change in the alumni study described in my prior post.  Most of the people included in the study are doing work in traditional legal settings.  Only 0.8% of the graduates are working for agencies that provide contract attorneys.  [In the comments to my prior post, Tyler noted that the number of attorneys doing document work might be regional, and suggested that if one of the major document review providers opened a facility in central PA, that the numbers would be higher.  That very well might be true.]  The one exception is the apparent shift in real estate practice reflected in the number of graduates working in-house at title companies. 

Second, I think it is a mistake to focus on loss of work in any one sector of the legal job market.  A few years ago, for example, tons of attorneys were doing work on securitizations.  Now, many fewer are doing securitization work.  It is not at all unusual for work in particular sectors to expand and contract.  There is something of a cliché of big firm M&A lawyers switching to bankruptcy workouts when the economy turns bad.  Some areas of practice go the way of the dinosaurs, while others spring up.  The shale gas boom and the implementation of the Affordable Care Act, for example, have provided a lot of work for lawyers that didn’t exist a few years ago.

Third, I am old enough to have lived through several economic cycles.  In both booms and busts, there is a tendency to talk as if the current situation will be permanent.  During the last boom, there was a lot of talk about how technology-created increases in productivity would lead never-ending growth.  During the ‘80s, there was a lot of talk about how the US economy was never going to recover, and about how Japan would dominate the world economy in ‘90s and beyond.  I think we need to be very careful in both booms and busts not to become overly convinced that our current situation is the result of permanent change.

Comments

[Brian Tamanaha]

Ben,

Your comments make sense, as far as they go, but the "systemic change" thesis has more behind it. (I'm agnostic on this issue because I don't think it really matters in the sort term whether the change is cyclical or systemic, since the job situation is unlikely to turn around in the next several years either way.) It does not refute the theory to point out, as you do, that many of these trends were in place before the 2008 crash; the crash, which was tied to broader economy, layered on top of these underlying trends, producing a combined effect that magnified the consequences. The developments Henderson and Susskind point to are trends and efficiencies. Nothing you have said suggests that these underlying trends will be reversed. "Structural" or "systemic" change is a metaphor, which does not require sudden change, but does suggest fundamental changes that won't be reversed.

The corporate legal market will bounce back some day, soon one hopes, but there is no reason to think that law firms will return to prior staffing and salary patterns when that happens. Multiple managing partners have stated in recent years that efficiencies have been put into place that will not go away, which point toward reduced hiring of new law grads at former high salaries going forward (clients refuse to pay high billing rates for new associates). Your analysis focuses on Henderson and Susskind, but it's folks in corporate legal practice who are now saying that the corporate legal model is undergoing fundamental changes.

On the low end legal market you focus on LegalZoom, but the much bigger change in the market is coming from a larger share of work being taken over by paralegals or "legal technicians," who can competently handle divorces, immigration, incorporating a small business, drafting a will, etc., not to mention real estate transactions (which you focus on).

The key problem is the mismatch between the cost and the type training we require of someone who wants to become a "lawyer" (a generalist education that takes three years and costs $150,000 plus), versus the kind of training required to competently fill out and file immigration forms (for example). The former law grads who you say are now working in title companies did not need a general legal education to handle the kind of work this entails.

Finally, on both the low end and the high end, when you talk about demand for legal services, you must take into consideration how much people are willing and able to pay for legal services. I mentioned corporate clients refusing to pay high rates for 1st years, but this matters just as much at the low end. If people had to choose between paying $500 for a paralegal to prepare their divorce versus $1,500 for a lawyer, many will opt for the former, not just because it is cheaper, but because they simply don't have the money to pay the latter. You might respond that the lawyer should charge less, but this raises the critical issue: given the extraordinary cost of a law degree, does this make economic sense for law graduates.

Your analysis suggests that legal work is not really going away, or that new legal work will appear to replace areas of practice that disappear (of course there is no assurance of this), but this discussion is incomplete without focusing on the actual market for those services--whether lawyers sell their services at a price clients are willing or able to pay. If lawyers must reduce their price to meet the market price, that necessarily reduces their economic return on the degree. Then we must talk about the cost of the degree. I gather you will take this up soon.

[Ben Barros]

Brian,

Thanks for these comments. You are correct that showing that these changes are long-term does not refute the thesis that the legal market is undergoing structural change. Showing that they are long-term does, I think, refute (or, at least creates a counter-narrative to) the suggestion that the current state of the legal job market is due to structural change. Your point about legal technicians being the important component of the low end of the market strikes me as right, and I will follow the developments in Washington state with great interest. I remain a bit skeptical about how deep this will penetrate, but it bears watching. We should keep in mind that protectionist policies of state bar associations can place some limits on this trend. (Not that that would be a good thing). I will also be interested to see how permanent the changes will be to corporate law practice. I've talked to various people in big firms, and views differ. By temperament, I am skeptical of claims of permanent change, but I am open to the possibility that I am wrong. I'm very skeptical, by the way, of the clients refusing to pay for first year associates issue being permanent. I think it is a fashionable thing for GCs to do now, and they can get away with it because they have the negotiating leverage over the firms in this market. In a more robust market, either the GCs wouldn't be able to get away with it, or firms would make up that cost somewhere else.

I agree with you that the cost of the degree issue is crucial. I will indeed take that up at some point soon.

[Steven Freedman]

In Brian's comments, he states the job market is unlikely to turn around in the next few years. Based on recent ABA data, I wouldn't completely write off the possibility of a turnaround in legal employment.

The most recent ABA numbers show a significant uptick in legal employment for law graduates from 2011 to 2012. For instance, the number of students finding full-time, long-term bar pass required jobs increased 8% from 24,149 to 26,066. If you add full-time, long-term JD advantage positions, the numbers increased 10% from 27,705 to 30,453. (http://www.americanbar.org/content/dam/aba/administrative/legal_education_and_admissions_to_the_bar/reports/law_grad_employment_data.authcheckdam.pdf)

That's a pretty big one year jump in employment opportunities for law grads. While it's just one year and it's too soon to know whether this growth will be sustained, it is an encouraging sign for the future. It also supports Ben's contention that part of the recent employment difficulties stem from short-term cyclical effects and not long-term structural changes.

[Stan]

Steven, those would be encouraging numbers indeed if they came close to approaching the number of new graduates produced each year.

Unfortunately, over 50,000 new graduates enter the market each year. So even if if 30k instead of 27.7k found jobs, "encouraging" might not be my adjective of choice.

Anecdotally, I graduated in 2011 and I can name just 7 of my 300 classmates that are able to service their debt comfortably on their own. All 7 were on law review with me. I can name another 10 that are doing fine because they had the foresight to have rich parents. Everyone else is underwater.

Again, no disrespect intended towards you or anyone else, but to describe the current state of the legal market for new grads as anything less than catastrophic seems overly optimistic to me.

[mcusa]

While we can debate Legal Zoom and Big Law efficiencies, all we really have to do is look at economic date to confirm that the legal profession is in a long term structural decline. In 1991, legal services were about 2.0% of the economy and in 2011 it was 1.2%. That's kind of case closed.

http://lawschooltuitionbubble.wordpress.com/original-research-updated/a-profession-in-decline/

[Steven Freedman]

Regarding the number of law school graduates, last year's Class of 2012 graduated 44,495 JDs (not 50,000). Those graduates entered in 2009 when law schools enrolled the second highest number of students ever, only to be surpassed by the entering class of 2010. Thus next year the number of grads will increase slightly. That's making it tough for recent graduates, as comments here suggest.

But the number of graduates will change significantly once we get past the 2013 graduating class. That's because beginning in 2011, law school entering classes have been shrinking, a trend that will certainly continue this year due to declining applications. In fact, we're likely to see the number of graduates shrink well below 40,000 by 2015 or 2016. While that may be cold comfort for current grads, it will definitely help future students.

[Steven]

Can anybody argue that current trends are pointing to a situation that will be good for graduates as opposed to merely better than something really horrible? That seems to be the theme of this series of posts, that things are merely horrible for graduates instead of really horrible. And that means what exactly? Keep raising tuition and opening more law schools?

[Jeff Matthews]

I see a theme developing within this article-series. It goes something like this: "I don't believe it, but I don't know."

[Ben Barros]

Jeff, that disregards the actual evidence that I discuss. It is true that I tend not to spout off about stuff without evidence, and tend to be cautious about making categorical statements. I also try to separate factual analysis from informed speculation. It escapes me why that would be a problem.

[Jeff Matthews]

It's a problem because we can do the same: "We don't believe you, Ben, but we don't know." How does this advance the issue?

To cut to the chase, there is a simple statistic in play here, which, from what I gather, is undisputed. For each graduating class, there are on the order of 44,000 students and 20,000 jobs (you might have more accurate numbers). So, what happens the first year with the 24,000 or so who don't have jobs? What about after we "rinse and repeat" for several years? Where do these people go?

Or is there something odd about the way "job" is defined? I consider self-employment a "job," but perhaps BLS does not. Anyone know and care to clarify?

[Steven Freedman]

Looks like my link to the ABA data didn't copy all the way. The ABA data, which shows 2012 law grads found more than 30,000 full-time, long-term bar pass required or JD advantage jobs is available at http://www.americanbar.org/groups/legal_education/resources/statistics.html

When you get there, click on "2012 Law Graduate Data"

[Jeff Matthews]

Steven, that data indicates that 32,000 of 46,000 2012 grads have landed full-time, long-term employment requiring passage of the bar. This is 70% after 1 year, and it includes 1,050 solos (and an undisclosed number who probably joined another unemployed friend to start their own, little micro-firms). That's not good. It certainly does not disclose income. But for 30%, it is safe to say that the income is substantially below par.

Check out the first graph (and the rest of the article) which shows the declining contribution of the legal services sector to the GDP since 1977. http://www.americanlawyer.com/PubArticleTAL.jsp?id=1202591158008&slreturn=20130406182056

As I have maintained, many of the scambloggers and deniers both erroneously act as if this issue is one that just happened over the last decade or so. The entrenched deniers still blame it on the 2008 Great Recession, despite the numerous indicators that the path has been set in motion for a long time.

It will not be undone because of some creative legislation or regulation. In short, I still remain convinced that Joe Public is becoming less and less able to afford a lawyer, and in fact, he is losing net worth and hence, not needing a lawyer in the first place. The data on Joe Public is widely available.

[Ben Barros]

Steven, those are nine month numbers from the ABA, right?

Jeff, when people actually cite evidence, and are careful about their claims, we can try to find out what the real situation is. If you follow Steven D's point on this thread, you will see that your 44,000 number is not correct going forward. And if you follow his point on the immediately comment, and my data from my prior post, you will see that your 20,000 number is also wrong. Where did you get that one, by the way?

And who is "we" in your prior comment? Are you on a team? Or were you being figurative?

[Ben Barros]

Sorry, Steven F's. Typing on phone...

[Ben Barros]

Jeff, our comments crossed. Can you explain why, precisely, you think the relative decline in percentage of GDP for the legal sector is relevant? Sincere question here, but I don't really see it standing alone. The US economy is very complex. Also, no one that I know is denying that there is a problem with the affordability of legal services for ordinary people.

[BoredJD]

I guess if the best you can say is "I'm not sure right now if the bad economy is structural or cyclical" then that's not exactly a strong argument in favor of going to law school, especially when law schools will presumably still be around in a few years.

In addition to what others have mentioned, to me the most important question is not "is the contraction in the entry-level legal market structural or cyclical" but "is (assuming I can get into a school that places decently into these kind of jobs) the contraction in the entry-level legal market in jobs that pay enough to service my debt structural or cyclical." And I haven't seen much evidence that the large or medium firm market or the public service market are rebounding. Most of the growth seems to be in the type of small firm jobs that pay 40-60K.

[Jeff Matthews]

Sure, Ben. Bear in mind, I've done well enough as a lawyer. My life's been easy. I didn't get rich, but I managed to accumulate some wealth and have no debt over the course of 20-years of practice. Had I not blown some money consistently, I might have ascended into the "rich" category (at least by liberal standards). I only state this because I am not one of these "unfortunates" who thinks law school was a raw deal for me. It took me about 6 years to break into what I'd call "get ahead" money, and so I suspect this will be the path for many up-and-coming lawyers as well.

To be honest, I am throwing some statistics out there which might catch a person's eye, such as yours. I agree, however, that any single statistic is not capable of revealing the whole story. That is why, in one of the latter comments to your Part 1, I suggested to look at the trends in the GINI, inflation-adjusted median family income, median family debt and income disparity. These long-term trends are readily available.

When you start putting that puzzle together, it reveals what you say nobody disputes.... to quote you: "no one that I know is denying that there is a problem with the affordability of legal services for ordinary people."

That statement you are making lends a bit of, "Oh, well, we all know that, but let's get back on topic."

I maintain that that is THE topic. Big firm vs. small firm vs. corporate vs. public sector vs. tuition and attendance, etc. are all a proverbial pimple on an elephant's rear-end. The big issue is demand and wherewithal. No other factor is of consequence. It all falls apart when we don't have a large consumer class with wherewithal.

I would not discount this issue. I think America is due for a realignment with respect to the attitudes to be instilled in future generations if there is to be a more widespread enjoyment of the fruits of our economy. I think this is going to have to start in grade school. In the 1980's, we all learned about how "greed is good," "trickle down creates shared prosperity," and all those hollow promises. This all came about when I was in my late teens and early 20's, and I bought into it hook, line and sinker, as did a great many people. But we can see with 20/20 hindsight that this cultural attitude simply is not working.

Just as to a carpenter every problem requires a hammer to solve, the same occurs in the legal profession. We ignore the elephant in the room and think these are "lawyer" and "legal academia" problems. Legal academia can be a part of the solution to the extent a greater debate occurs. But tweaking tuition rates and law school attendance is not sufficient. Teaching "real lawyer skills" (the complaint of the scambloggers) is not going to create a market. Things like that have marginal effect at dealing with the underlying systemic problem, and in essence, they kick the can down the road.

[Steven Freedman]

I would follow up by saying that I don't think I'm a "denier". Today there's definitely an imbalance in the number of graduates with the number of jobs. I don't deny that. But I'm also not a "things stink now and they will never change or only get worse -er". Right now there is no denying that times are tough. What Ben's and the ABA data shows is that 1) the employment issue is more complex than simply looking at 9 month data, and 2), there is some compelling evidence that the situation is improving.

The analysis is pretty simple, compare the number of law grads with the number of available jobs. Right now every fair minded person would have to agree that there is an imbalance and there are not enough jobs for grads. This certainly varies by region and school, but the overall picture isn't great.

The key point here is that this imbalance is dissipating. Last year there was an 8%-10% increase in employment (FT/LT). And soon we're going to see significant declines in the number of law school graduates. That means there's going to be a lot more balance in the legal market in the coming years. You might not think that's good news - but most of the rest of us do.

[Ben Barros]

BoredJD, I agree with some of that. The argument for going right now is that (a) you can get a lot of money from schools right now (or get into a higher ranked school than you could have before), and (b) entering classes have shrunk so much that competition on the job market on graduation will be much less. For a bit of perspective, the data in my prior post was based on graduating classes of a bit more than 120. In two years, we will probably graduate around 80 students. If you really want to be a lawyer, shouldn't you go to law school now and be smart about the money? Isn't one of the lessons of the current market that chasing prestige isn't always worth it?

What are the counter-arguments?

[Ben Barros]

Jeff, thanks. I think your points reinforce cost concerns about legal education and higher education more broadly. Though you are raising a broader concern about reduction in client base that is broader than cost.