The current oversupply of new associates has sent law firms scrambling to implement short-term adjustments, such as secondments and deferrals. But the legal profession needs more than temporary half-measures. The new-associate recruitment market is fundamentally broken, and it has been for some time. Incremental changes are not going to address its underlying problems. The market needs a structural fix -- a centralized matching authority, like the one that the medical profession has been using for more than half a century.
Firms make most of their new-associate offers to their summer interns. Thus, associate recruitment mostly happens at the intern-selection level. Summer internships operate as a bilateral matching market, in which law firms rank the candidates they interview and the candidates rank firms with which they wish to intern. The labor market "clears" in a decentralized manner. Law firms choose schools from which to interview, interested students at those schools apply to particular firms, the interviewing firms offer summer internship positions to specific students, and the students decide whether to accept the offers.
This decentralized clearing of the labor market leads to predictable inefficiencies, to the detriment of both firms and students. First, it creates bad matches. A firm waits for a top-ranked candidate to decline its offer before making an offer to a second-ranked candidate, who by then has gone elsewhere, perhaps to their second-ranked firm. The same dynamic occurs on the other side of the market: A candidate who is wait-listed by their first-ranked firm risks that forgoing a second-ranked firm could leave them without an offer from either. Candidates hoard offers, and firms make "exploding offers" that push candidates to decide very soon after receiving them.
Second, the job market can "unravel." A second-tier firm tries to preempt first-tier firms by approaching students earlier and making them time-bound offers. First-tier firms respond by also moving their recruitment dates up. This spurs second-tier firms to move their recruitment dates further up. The same dynamic occurs among law schools. A second-tier school opens its campus recruitment window just a little earlier than first-tier schools, hoping to encourage firms to make more internship offers to its students than they would otherwise. Recognizing that they are being preempted, first-tier schools also move up their recruitment windows, encouraging a second-tier school to move still earlier.
The consequence is that recruitment occurs long before jobs begin. Currently students are recruited at the beginning of their second year of law school, almost two years before starting their jobs. This situation causes three main problems deleterious to both the firms and the candidates: Firms have to recruit based on limited information, the labor market becomes inflexible and summer internships lose meaning.
At recruitment time, students have been through only one year of graduate school. Many have no full-time work experience. Other than from the interviews themselves, firms judge candidates' abilities principally through extrapolation from the reputation of their law schools and their first-year grades. Since these are exceedingly important determinants of where the students will get their first jobs, both law school admission and first-year academic performance become even more stressful and laden with meaning for law students. Over the next two years of law school, students will learn their strengths and weaknesses, interests and passions. But neither the students nor the hiring firms are able to use those insights and information; job assignments have already been made. Instead, many of the students, secure in the knowledge of where they will go upon graduation, pay less attention to second- and third-year courses.
As demonstrated by law firms' current predicament, recruiting two years before jobs begin introduces rigidity into the labor market. If the economic environment changes dramatically, firms, unable to easily adjust their new associate numbers, face a supply-demand imbalance: undercapacity, if times are better than expected; overcapacity, if times are worse (as is the case now). In difficult times, firms have to renege on implicit commitments to new hires (such as reducing the ratio of summer candidates to whom they make job offers or postponing start dates) or force current junior and midlevel associates to bear the brunt of the stress (such as through layoffs).
In the current system, internships lose their value. Properly conducted, internships are opportunities for firms and prospective associates to try out one another, evaluate such soft elements as the firm's work environment and culture and the intern's work ethic and collegiality, and eventually gauge the fit between the firm and the intern.
Law firm summer internships currently do not perform this filtering function. If a firm considers not offering a position to an intern, it likely no longer has access to second- or third-ranked choices, since they would probably have been offered jobs in the firms at which they interned. Thus, a firm will choose to extend an offer even to a less-than-ideal intern. Similarly, a student may not be happy at the firm with which they interned but hesitates to reject an offer because they will be forced to interview only with firms that have not been able to fill their job openings with interns. Thus, summer internships have become formalities. Firms try to not cause prospective associates to worry too much about their jobs and interns try not to create unnecessary waves.
These problems can be addressed by creation of a centralized matching authority. Under such a system, participating firms would still interview candidates for summer placement. At these interviews, candidates and firms would still be free to discuss any aspects of the internships. But the firms would not make offers directly to students, nor would students finalize placement at the time of the interview. Instead, firms would give the matching authority their preference ranking of candidates, along with the number of seats they have available. Students would give the matching authority their preference ranking of firms. On a preannounced date, the matching authority would match the firms with the candidates, taking into account both sides' preferences.
The matches would be made through an algorithm. These have long been in use and shown to work well in other settings. The best-known is the algorithm employed by the national medical residents matching program. Since 1952, a centralized matching bureau has annually assigned medical school graduates to their first jobs as residents. The algorithm, with some modifications, remains in use to this day, with very high levels of voluntary participation from both sides of the market, placing 20,000 graduating physicians in their jobs every year.
Careful studies of the matches have demonstrated that the algorithm does not favor either side of the market and allows few possibilities for strategic behavior by participants. An antitrust case that argued that centralized matching depressed resident salaries was dismissed by a federal district court in August 2004. Also in 2004, Congress passed legislation clarifying that the matching program does not violate antitrust laws. With use, the matching algorithm has become increasingly sophisticated, allowing the matching bureau to take into account considerations such as paired geographical preferences of couples who enter the labor market at the same time.
For centralized matching to be effective in the legal profession, major schools and firms must sign on. Once major schools and firms have agreed to centralized matching, other schools and firms can choose to join the regime, or, if they stay away, risk signaling lower quality to the market. Nonparticipation can be reduced if participating schools and firms commit to giving priority to other participating firms and schools.
It is crucial that members of the matching authority understand the concerns of both sides of the labor market but be independent of each. The matching authority should have the right to investigate allegations of cheating and punish those who it finds to have broken the rules. To retain independence, the matching authority should be financially self-sufficient, funded by fees from member firms and small fees from candidates who request matches.
Because matching would be done by a centralized authority on a particular date, problems associated with decentralized matching would disappear. Inefficient matches would be avoided. If a candidate or a law firm is unable to get its first-rank choice, they can seek a second-rank choice before moving further down their preference ranking. Market unraveling would be prevented by the matching authority disciplining schools or firms that encourage or make offers ahead of the match date. Rule-breakers could be fined or suspended from the matching regime.
Once unraveling is prevented, recruitment could be rolled back to dates closer to the summer internships. Firms would have more information on candidates. Students would focus on learning in the early part of the second year and develop a deeper appreciation of their own interests and strengths before recruitment begins.
If centralized matching is beneficial to market participants on both sides and addresses most of the problems of decentralized matching, why has such a system not emerged already in the legal profession? There are three reasons: concern with centralization of power, the challenge of instituting collective action and resistance to change.
Some market participants recoil from the idea of centralized matching because they conflate centralized markets with centralization of power. Centralized matching does not take choice away from individual students or firms. Instead, it provides a common platform for the labor market to function efficiently. In that regard, it is akin to a stock exchange, which allows people to execute trades according to their individual preferences but within the ambit of explicit rules that increase the efficiency and robustness of trading.
Centralized matching requires collective action. Most of the major market participants have to agree to a centralized matching regime to make it work. Individual schools and firms feel unable to move to such a system on their own. Because of this inertia, the existing system prevails, even though individual market participants have to live with its inefficiencies.
Replacing the current system with centralized matching might make recruitment officers at firms and placement officers at schools feel threatened, even though it would allow both recruitment offices and placement offices to focus on what their primary goals ought to be -- for the former, finding and ranking the best candidates and encouraging them to choose their firm, and for the latter, advising students on application and interview strategies and prioritization of preferences. However, because centralized matching obviates the need for their involvement in the match process itself, individual recruitment officers or placement officers might perceive it as diminishing their roles and resist its introduction.
A transition to centralized matching, therefore, is unlikely to be triggered by a bottom-up process or through the initiative of individual law schools or law firms. It requires the shared commitment of leaders of law schools and law firms. Centralized matching will become a reality only if they concur that it is superior to decentralized matching and are prepared to establish a matching authority with the requisite capability and authority. Is it time to institute this radical but much-needed change?
Ashish Nanda is Robert Braucher Professor of Practice, Faculty Director of Executive Education, and Research Director at the Program on the Legal Profession at Harvard Law School.