"The poor job market for new veterinarians is not the much-publicized fiasco that it is for new lawyers," The New York Times‘s David Segal wrote in a story published on February 24. Although the article’s focus on the travails of an outlying, foreign-located, for-profit veterinary school undercuts Segal’s comparison, its publication does provide a good opportunity to look at just how badly the "much-publicized fiasco" that is the market for legal services is doing.
The Bureau of Economic Analysis (BEA) updated its GDP-by-industry accounts last November, and the picture the numbers paint for the private legal sector isn’t pretty. In fact, the first thing you might notice is that the 2.3 percent upward turn in the sector’s real value-added that I wrote about last year has been revised downward to -2.2 percent, and the new 2011 rate is in negative territory as well (-1.7 percent). The legal sector, it turns out, is not benefiting from the U.S. economy’s upward slog. In fact, the industry’s real value-added has now fallen below its 1988 level.
Here’s a chart comparing the U.S.’s and legal sector’s real growth rates.
According to the Bureau of Labor Statistics’ (BLS) Current Employment Statistics, the number of aggregate weekly hours put in by offices of lawyers and their nonsupervisory employees is up slightly, but it’s still lower than in 2008.
On the bright side, the rate of increase in the cost for legal services has slowed in recent years. The high numbers in 2007 and 2008 shown below were probably due to a combination of an increase in recession-related corporate work and smaller, cheaper practices’ failures pushing up average prices.
While it’s tempting to believe the price increases above the inflation rate over the decades is due to lawyers greedily raising their rates—or, as many people wrongly believe, the need to keep up with hefty student loan payments—it probably has more to do with income elasticity of demand for legal services. Put simply, people are more likely to spend their last dollars on legal services, not their first. People too poor to buy real estate don’t need wills; people who don’t get married don’t pay for divorces; and people who get arrested and can’t afford a lawyer use a public defender. Fabulously wealthy corporations, by contrast, can always spend money on lawyers, just not enough money to employ everyone who has a J.D. As I’ve written before, those who want more affordable legal services for the poor are well advised to either pay for it out of their taxes or fight poverty directly. Forcing lawyers to do more pro bono work or shaming them into opening doomed practices simply will not work.
Returning to the topic of demand for legal services, the question remains as to how much of the Great Law Depression is due to cyclical factors and how much is due to structural changes to the profession. To the extent it’s cyclical, a lot of people who’ve graduated from law school in recent years would have had jobs but don’t, and to the extent it’s structural, a lot of people never would have had lawyer jobs no matter how well the economy was doing. The same goes for the vet school grads, doctors, science, technology, engineering, and math (STEM) specialists, etc.
Depending on how much the price level of legal services has increased since the Great Law Depression began in 2006, here are a few projections of the legal sector’s production:
The high-end estimate assumes the economy is at full capacity (nominal potential GDP, as estimated by the Congressional Budget Office) and that the price level for legal services exceeded the GDP deflator by only 2 percent, which is similar to the price increase in the legal sector in 2011. The middle line replaces that 2 percent figure with the actual price level for legal services to include the spike in prices that happened after 2006. And the third line assumes that the legal sector grew at the same rate as the overall economy (nominal GDP), retaining its price level. I suspect the actual level is somewhere between the first and second projections, so the shortfall would lie between 15 and 30 percent of real value-added.
As for the total compensation for wage and salary jobs in the legal sector, it’s not been very good either:
Fortunately, according to the BLS’s Establishment Survey[http://bls.gov/oes/tables.htm], which is an accurate and precise measure of the employment and incomes of wage-and-salary workers in all sectors of the economy including government, law firms are hiring more lawyers and paralegals than in 2010, but their wages haven’t increased much.
The slight uptick in median legal sector wages in 2009 was probably due to layoffs of low-wage lawyers rather than a product of raises given to remaining employees. The downward trend since 2009 indicates that low-wage lawyers are being rehired at a faster clip than high-wage ones, which is possibly due to small firms regaining their footing. It could also be the growth in staff attorneys rather than higher-paid associates.
Overall, legal sector employment remains stalled, but the BEA managed to find more self-employed workers in the industry in 2011 than in 2010.
(National Income and Product Accounts, Table 6[http://www.bea.gov/iTable/index_nipa.cfm])
According to the BEA, "persons engaged in industry" is the sum of "full-time and part-time employees" and self-employed workers, which indicates that the uptick in persons engaged in industry in 2011 is mainly in self-employed workers. I’m not sure how reliable this estimate is, but it’s not a good sign for future law school graduates that the number of persons engaged in industry is still 66,000 less than in 2006.
As bad as vet school graduates have it —or how bleak the picture may be for other graduate and professional students—it’s no coincidence that the market for lawyers receives so much media attention these days. Demand for lawyers’ work has been stagnating for more than two decades, and it’s unclear when the bottom will be in sight.
Matt Leichter is a writer and attorney licensed in Wisconsin and New York, and he holds a master’s degree in International Affairs from Marquette University. He operates The Law School Tuition Bubble, which archives, chronicles, and analyzes the deteriorating American legal education system. It is also a platform for higher education and student debt reform.