New Study on the State of the Entry-Level Law-Jobs Market and its Implications (Part III: The Future of the Entry-Level Law-Jobs Market)

This is the third in a series of what I intended to be four posts on my new study of the entry-level Law-Jobs Market (though I’m now thinking about a fifth).  Part I laid out the current state of the job market, and you can find it here.  Part II was about “JD Advantage” placements, and you can find that here.  The full paper is available here. 

In the first post in this series, I showed you that the entry-level Law-Jobs market appears to have finally levelled out after a decade-long decline, but that the number of entry-level Law Jobs is now 25.7% lower than it was in 2007, and at levels not seen since the early 1990s.  The proportion of the graduating class getting a Law Job (the Law-Jobs Ratio) has recovered, but that’s only because of the crash in the number of people attending law school.  In short, there are way fewer entry-level Law Jobs than there were ten years ago, but even fewer people graduating from law school.

Now it’s time to discuss where the entry-level Law-Jobs market is going.  I’ll give you my best guess after the jump.

The starting point in this discussion has to be observation that, out of all the sectors of the entry-level Law-Jobs market there is one, and only one, that is growing at any significant pace.  The number of Law Jobs in every other sector is roughly flat or sinking.  The growth sector is Very Large Law Firms (500+ lawyers), which currently consumes about 12.5% of the graduating class.  Here are the graphs I showed you in the first post:

The question we need to ask ourselves is why any of what we see today would change.  The rising tide of a strong economy has already flooded and, if anything, is starting to ebb.  That is, the recession ended years ago; unemployment is at record lows and has been for some time.  Yet during a period of strong growth, the number of new Law Jobs continued to fall, and now—as the economy appears to be starting to ebb—has leveled out.  A strong economy and strong capital markets have not driven any expansion in the entry-level Law Jobs market. 

Why is this?  Because structural changes in the way that complex legal services are staffed and priced have driven down demand for junior lawyers.  These forces include downward competitive pressures on pricing for the substantial portion of complex legal services comprising gathering and organizing documents and information (often referred to as “legal process” work), as well as for complex legal services more generally; the re-sourcing of legal process and other repetitive or client-knowledge-specific work in-house at the client, or to less expensive labor either inside or outside private law firms (“insourcing,” “downsourcing,” and “outsourcing,” respectively); the growing large-company client refusal to pay for inexperienced associates or their training; and a growing shift in the demographics of larger law firms in which nonpartners stay at firms longer than in prior decades.  I’ve discussed these phenomena in prior work and won’t elaborate here, but if you’re interested, see this paper at pp. 581-99.

All of this is happening for completely rational economic reasons, and those reasons’ influence is still increasing.  Why then, you might fairly ask, are Very Large Firms the only ones that, as a group, are growing?  The reason is likely twofold:  First, these firms are so large and have so many offices that there is a substantial need for new hires each year just to keep up with attrition.  In addition, many of these firms are, because of their sheer size and geographical reach, perhaps the one remaining domain of legal employers where a “leverage”-oriented model (throwing many expensive bodies at large problems) may be resisting the economic pressures just described relatively more stubbornly than the others.  Significantly, law firms that are (in my taxonomy) merely Large (51-500 lawyers) have generally been hiring fewer new lawyers per year since 2012.  (See the first graph above.) 

And remember, these are generalizations.  There are some Large Firms that operate on a Very Large Firm leverage-dependent model.  Cravath and Wachtell Lipton are probably two examples.  And there are some Very Large Firms that have a different business model from the international behemoths.  Labor and employment giant Littler Mendelson (“local everywhere”) is probably an example.  But overall, the numbers show, the generalizations hold.

In an otherwise strong economy, demand for law firms’ services generally remains stagnant. Sophisticated observers of the legal services market have documented flat demand for at least a decade.  There have been modest (single-digit) increases in some law firms’ revenues, but these appear to be attributable principally to rate increases, not increased demand.  And obviously it is increased demand for services that drives more hiring, not increased prices for the same amount of work. In fact, most Medium and Large Law Firms unfortunately appear to have been overstaffed for a long time.   

So what can we expect in entry-level employment?  Well, small and medium-sized law firms and non-law-firm employment appear to be leveling out too, and have historically shown themselves to be less dependent on the ups and downs of the economy, and more responsive to basic economic and population growth.  (If you want a more detailed explanation by sector, check out my new study here in Part IV.)  Overall, I would guess that growth in entry-level hiring is settling into a broad pattern roughly following these more fundamental developments, and can be expected on average to grow 1%-2% per year.  For what it’s worth, the federal Bureau of Labor Statistics predicts even slower growth in overall legal services employment (which includes nonlawyer staff), about 8% total from 2016 to 2026. 

Bottom line:  The good news is that the long, steep decline in entry-level hiring is probably over.  The bad news is that the steady, rapid increases from the 1980s until 2007 aren’t likely to return. 

Next time, I’ll discuss what this means for the legal academy.

--Bernie

Comments

[Steve L.]

Great series, Bernie. Another question is why public sector hiring has not expanded with the growing economy. I hope you will address that in a future post.

[Bernie Burk]

I really appreciate that, Steve. Your question--why public-sector hiring has not increased with the growing economy--is a good one. My best guess is that there are three reasons. One is that public-sector spending generally, and on lawyers especially, is broadly unpopular at all levels of government. So it likely gets short shrift in budget discussions. The second is that, with the combination of government employers' wishes for more experienced and therefore efficient practitioners (which also helps limit training costs) and the general slack in the employment market likely inducing more government lawyers not to leave government for the private sector each year, there is less need for hires fresh out of school than before the recession. And third, since the job market crashed after 2007, a practice has developed of placing unemployed new graduates into unpaid or school-funded "internships" with government legal departments of many kinds, which gives those students experience in return for their services, and satisfies a fair amount of what might otherwise be need (or at least tolerance) for hiring entry-level lawyers in those agencies.

I confess I have no more than anecdotal evidence for the first two, but those phenomena have been confirmed in general and industry press reporting.

Does that make sense to you?

--Bernie