What's New About the New Normal

I’ve just posted my most recent article on SSRN (here).  It’s called “What’s New About the New Normal:  The Evolving Market for New Lawyers in the 21^st Century.”   The paper focuses on the market for entry-level law-related jobs, which even the most casual observer of the profession knows has been deeply depressed, and has had very significant effects on the lives of recent law graduates and the legal academy.  At a time when a lot is still changing and nothing has really settled down, the paper asks precisely what is new about what some refer to as the “New Normal,” and now normal we can expect it to remain as the effects of the Great Recession slowly dissipate.

The article uses the placement data accumulated by the National Association for Law Placement  (“NALP”) and the ABA Section of Legal Education and Admission to the Bar (“ABA”) to derive quantitative measurements of the proportion of law graduates over the last thirty years who have  obtained initial employment for which law school serves as rational substantive preparation (“Law Jobs”).  With this (somewhat) normalized longitudinal data in hand, the paper reaches three hopefully useful conclusions:

First, in comparing entry-level hiring patterns since 2008 with those in earlier periods, a significant development emerges: While other sectors of the market for new lawyers have changed only modestly during the Great Recession, one sector—the larger private law firms colloquially known as “BigLaw”—has contracted six times as much as all the others. Though BigLaw hiring has historically accounted for only 10%-20% of each aggregate graduating class, it is responsible for over half the entry-level Law Jobs lost since 2008.  And because BigLaw historically has hired a disproportionate number of the candidates most attractive to most employers, this contraction has sent a new cohort of highly accomplished law graduates previously absorbed by BigLaw into the competition for non-BigLaw jobs, disrupting common understandings regarding where new graduates with particular ranges of credentials could expect to find work.  These findings suggest that the changes in and to BigLaw are driving the changes in the entry-level Law Jobs market.

Second, the first conclusion raises the question what we can expect from BigLaw going forward.  The paper directly addresses the prevailing controversy over whether the currently depressed levels of entry-level hiring are predominantly attributable to a cyclical (recession-induced) reduction in demand for legal services in general and for BigLaw services in particular, or whether there have been basic structural changes in the way that legal services are being staffed, priced and produced that suggest that most of  the current reduction in demand for new lawyers is here for the foreseeable future.  The paper identifies several significant technological, competitive and economic developments that have generated structural changes in the way that the services traditionally provided by BigLaw are being produced.  All of these developments seem likely to diminish BigLaw’s need for junior lawyers, both immediately and in the longer term.  They were gathering force during the 2000s, but emerged in high relief as a result of the stresses imposed on BigLaw firms and their clients as the economy descended into the Great Recession during 2008.  The arguments that the current contraction in the entry-level Law Jobs market is  predominantly caused by cyclical economic phenomena (including, to the limited extent it is mentioned there, Michael Simkovic’s and Frank McIntyre’s recent, impressively thoughtful and detailed paper on “The Economic Value of a Law Degree”) don’t address any of the structural factors the paper identifies, whether to argue that they don’t exist or that they don’t matter for this purpose.  The paper offers the prediction that entry-level BigLaw hiring, and thus the market for new lawyers overall, will remain depressed below pre-recession levels well after demand for the services BigLaw has traditionally provided recovers, and will lag substantially behind the pace and extent of any increase in demand for BigLaw’s services.

Third, and concluding on a somewhat brighter note, the paper suggests that the contraction in entry-level hiring is part of a dynamic market process that may in some important ways be self-correcting.  In particular, the contraction in the entry level Law Jobs market has apparently caused a substantial reduction in the number of applicants to law school, which is already resulting in smaller entering classes of law students.  It won’t be more than a few years before graduating classes are correspondingly smaller as well.  With significantly fewer new graduates chasing even a persistently limited number of entry-level jobs, the lawyers produced by the shrinking legal academy should expect to fare better in the Law Jobs market than their predecessors who graduated in the last few years.  This is not to understate the hardships visited on the “Lost Generation” of law graduates who found themselves released into a badly oversubscribed job market, nor is it to understate the hardships that are already befalling the faculty and staff of the law schools now finding themselves forced to accommodate a shrinking applicant pool.  But it does provide some reason for optimism regarding the prospects for the smaller classes of new law graduates we can expect to see entering the job market in the next few years.

I will have more to say about the implications of this analysis for the legal academy in future posts, and also intend to speak further about how this paper and Simkovic’s & McIntyre’s recent article, which to be clear I consider an important, informative and valuable contribution to the literature, do and do not address one another. 

Again, the paper is here for those who are interested.  It is still very much in draft, so thoughtful and engaged comment is especially invited.  Those habitually inclined not to be thoughtful or engaged (and I wish more of you knew who you were) are encouraged to check your bull at the entrance to the china shop, though I’m realistically resigned about whether you will.

Bernie

Comments

[Anon]

I agree that some signs of reduced class sizes are a positive development. However, I still have considerable concern about law schools' response to systemic change in legal hiring. Right now, there seem to be two approaches to addressing reduced numbers of applicants (other than simply attempting to ignore the problem), sometimes employed together: (1) reduce class sizes and (2) lower standards. The first is likely a helpful change for improving graduates' employment prospects, although I'm not sure how permanent those changes are intended to be. The second, however, is both bad for students' job prospects and may be corrosive to the legal profession, as less able attorneys enter practice.

I also question the extent to which some schools (for example, a lower-ranked private law school without an affiliated undergraduate institution) would be willing to reduce class sizes (cutting profits) or even go out of business, rather than simply reducing their standards as low as they can without losing accreditation.

That raises a related concern, in that reduced class sizes may not be the optimum solution on their own. Instead, reduced class sizes should be accompanied by the closure of some law schools, and that may be where some of the greatest difficulties arise.

[MacK]

This is a very impressive paper. Strong points are the care with which it addresses the potential weaknesses in the data available (especially NALP) and the consequences for the reliability of the conclusions reached. It is a very worthwhile read for anyone taking part in the debate.

My own sense of the situation, though (lacking any of the rigour of Bernie Burk's analysis), is that the rise of BigLaw in the 80s-the 00s was a long-lived aberration driven by the ability of firms to engage in leverage, particularly the leverage of billing large numbers of very junior untrained lawyers. A key factor was the advent of large-scale-document work both in due diligence and litigation, partly because of 1970 revisions to the discovery rules of the FRCP and because word processing simply led to the creation of much more paper - the first case I worked on had 15 million pages of production (I still remember the arguments because one party used cheap rubber bands that broke in its production sets, causing files to get mixed and eyes to get "snapped.")

Thus a question (and not a critique), and perhaps digression, is the extent to which this is the "New Normal" or perhaps a reversion to an earlier model of elite-legal practice. To explain it would possibly be helpful to review a book, Virginia Kays Veenswijk, Coudert Brothers: A Legacy in Law: The History of America's First International Law Firm (Dutton 1994). Admittedly somewhat of a (possibly sponsored) hagiography of of a firm that was essentially defunct 10 years after it was published, it does tell the reader quite a lot about how elite law firms recruited before the boom. Coudert, inter alia, was New York's Catholic corporate law firm (Strook, Strook & Lavan was the main Jewish corporate firm), in an era when many of the major firms would not hire catholics or jews. Coudert though grew heavily, by seeking out very experienced an highly regarded lawyers who then allowed it to offer their services to clients, often picking up the "Irish, Italians and little russian jew boys" that Henry Drinker (who wrote the ABA ethics rules and founded Drinker Biddle) thought ought to be kept out of the profession. A similar firm was Donovan Leisure, founded by Wild Bill Donovan (also defunct.) Only Cravath has had a history of creating partners solely from students hired at graduation from law school.

As both a client and a private practice lawyer, what I have observed is a much closer focus by at least corporate clients on who is doing the work - both at the volume end (who is reviewing the documents) and at the advisory, tactical and strategic end - who is running the matter, making the decisions. At the volume end, as Bernie has observed, they do not want junior associates or even associates at all - at the other end, they want experienced, indeed very experienced counsel. This of course raises a tricky question - where are law firms going to go for the next generation. My own guess is that the higher end forms will from time to time raid boutiques and mid-level firms for senior associates and partners - but also by paying new law graduates a lot less, amounts that are economically justifiable for new JDs whose time often cannot be billed. That may drive a harsh
adjustment is in train for law schools - while those at the bottom of the employment rankings may close, those at the upper end may also have to take account of the lower early career earnings for their graduates .

A little detail - not paying $160,000 to start to 23-25 year olds will perhaps reduce the number of students going into the legal profession for the wrong reasons.

A few minor editorial points - the pastel shades of the graph lines in Figs. 5 and 6 make them hard to distinguish - light green and lighter green, mauve and lighter mauve.

[anon]

Great post and comments thus far!

[Orin Kerr]

Looks like a very interesting paper. And MacK, that is an excellent comment. That comment reminds me a bit of the description in Bruce Allen Murphy's book "Wild Bill" of William O. Douglas starting as an first-year associate at Cravath in 1925. Murphy writes: "New associates were crammed two to an office no bigger than a large closet and expected to bill 300 hours a month. Since not every hour in the office can be billed to a client, this meant that each junior attorney was expected to be working in the office for 80 to 90 hours a week." Douglas's salary at Cravath: $1,800 a year, at a time that an average manufacturing wage in the United States was around $1,300 a year.

[John Thompson]

"But it does provide some reason for optimism regarding the prospects for the smaller classes of new law graduates we can expect to see entering the job market in the next few years."

And to think it only took about a hundred thousand ruined careers to get here. Kudos, all around.

[Mitch Winick]

A very thoughtful analysis that helps inform the discussion about what to do moving forward. It would seem that if one agrees with the compelling BigLaw market analysis, one of the next topics for discussion should be about SmallLaw or LocalLaw.

Approximately 42% of the US population lives in communities of 200,000 or less (http://www.fhwa.dot.gov/planning/census_issues/archives/metropolitan_planning/cps2k.cfm). Consider this in the perspective that NALP has also reported growth in small firm jobs during the time of the BigLaw retrenchment. Although many merely discount this as the negative fallout of fewer BigLaw jobs, I am not sure that we know that this assumption is correct.

Isn't it equally possible that there continues to be a healthy demand for SmallLaw/LocalLaw new lawyers who can make a comfortable living outside of the urban centers, raise a family, and be community leaders. If a more comprehensive analysis of this market potential could be illustrated, then the discussion shifts from jobs to the cost of legal education. How can we deliver well-educated and practice-ready young lawyers to fill the need for $60,000 starting salary jobs? The primary answer cannot be an educational model that requires $150,000 tuition and $250,000 in non-dischargable student loans.

This is the next difficult, but necessary, discussion that the academy needs to seriously consider.

[MacK]

Mitch:

I think there is perhaps a better distinction than BigLaw and SmallLaw - and that is the difference between the types of legal services firms offer. There are a lot of "boutiques" offering what are in effect BigLaw class legal work - i.e., serious intra-corporate litigation, M&A, international legal advice. Many are in the range of 5-30 lawyers. These firms tend mostly to be partner level lawyers with a support team, who may work with BigLaw when they need the extra capacity. Then you have what the English describe as high-street solicitors - that is to say law-firms that do wills, estates, small litigation, criminal-defense, etc. The major difference is that one group of firms tends to represent those with large economic numbers at statue and larger budgets to do the work. The other tends to represent middle class individuals and small local business - those who ultimately cannot afford to pay a lot for legal services.

This latter type of work has been deemed very offensively "shit-law" by some of the more moronic recent law graduates and law students (and maybe a few professors, who knows.) I find that description particularly offensive because it ignores the very-important nature of cases to the client - for most people, a loss of $10-100,000 is financially catastrophic, something that they could take years to recover from. The problem is that law schools are turning out lawyers who, in part because of their debts, are only equipped to do the high-cost legal work - in a system that is increasingly designed to only allow legal work to be done competently in the high-cost way. Law schools tuition models also assume that the vast majority of law graduates will be doing this sort of high-cost legal work.

The level of competition and the fee pressure at the low-cost end of the market has created a situation where it is increasingly hard for lawyers doing that work to train new graduates - they do not have the time to do it, or ability to pay a new JD a significant salary. At the high-cost legal work end of the scale, the pressure to keep costs down and avoid using inexperienced 1st and 2nd year associates is similarly leading to the problem of who trains the new graduates. Driving the whole issue is the debt that so many graduates carry.

The result I think is that the model at both ends is finding it increasingly difficult to sustain "$150,000 tuition and $250,000 in non-dischargable student loans." I also think that it is increasingly hard to sustain so many BigLaw firms practicing the Cravath model - or the high leverage game that led to the outsized per partner earnings of the 80s-00s, and as you point out SmallLaw too.

[BL1Y]

Mitch -- $60,000 would be very good starting pay for someone doing small town trench work. The reality is closer to $40,000.

MacK -- I've heard the term "shit law" (hereinafter SL) used a plenty of times, and used it quite a bit myself as well, but I've never heard it used to refer to doing T&E work, or serving middle class business owners. That's just MidLaw or SmallLaw, not SL.

SL tends to be personal injury, drugs crimes, DUIs, domestic violence defense, debt collection, and divorces that started as Jerry Springer episodes. SL offices tend to be true generalists, willing to take anything that walks in the door, and compensation is ridiculously low even with years of experience. Neurotic, abusive clients, neurotic, abusive bosses, intellectually unstimulating work, little prospect for advancement, and occasionally that pay check -- small as it is -- will bounce. Do these clients still need someone to represent them? Yes. But I'm not going to begrudge anyone for complaining about how bad that work is. Most people in jobs they describe as SL would love to work for a midgrade T&E shop.

[MacK]

BL1Y - all I can say is that there was a time when the law was not as stratified as it is now, and many lawyers worked their way up from small clients to big clients. I knew quite a few in that category - most of whom continued to take small clients even when they became big names.

[Mitch Winick]

BL1Y -- I expect that starting lawyer salaries are really hard to compare once you start looking at the wide variations of what would be classified as small-town. Here in coastal California (Salinas/Monterey/ Santa Cruz) where admittedly the cost of living is considerably higher, paralegal pay is at least $18-20/ hr ($38K- $40K), new contract attorneys are paid $20-$30/ hr ($41K-$60K), and starting associate pay in private practice, DAs, and public defender offices ranges from $50K-$60K (plus benefits).