Thank you for sharing!

Your article was successfully shared with the contacts you provided.

Economics tells us an industry that experiences a drop in aggregate demand, adds production capacity, and increases the market overlap among competitors will suffer price erosion and profitability decline. Big Law fits this profile. Yet, in talking with law firm partners, you don’t get the sense that any such “disruption” is happening. Perhaps economics has bypassed law? A closer look seems warranted.

The Data

Big Law is a cyclical business. Thus, it’s important when looking at Big Law performance to do so in the context of the overall economy. Figure 1 shows how revenue-per-lawyer (RPL) has varied with U.S. gross domestic product (GDP) since 1994 (the first year of reliable data gathering). The early years of the timelines are not surprising: a very strong linkage between the economy (U.S. GDP) and Big Law revenue per lawyer (RPL). However, the two uncouple after 2007-09: while the economy has recovered, RPL has not resumed its upward trajectory and remains below its 2007 level. As RPL is a proxy for price realization, these data show (1) that the market’s price trajectory has changed dramatically and (2) price erosion has occurred because pricing is both below where it was in 2007 and well below where one would expect it to be at this point in the business cycle.

In analyzing cyclical businesses it’s important to look not at short or arbitrary time periods (e.g. five or 10 years) but to look at comparable points in the cycle. Accordingly, the following compares market data across two cycles: the first is between the law world peaks of 2000 and 2007, and the second between the peaks of 2007 and 2016, (if not actually a peak, 2016 is certainly close to a peak). The analyses adjust for inflation using the consumer price index.

This content has been archived. It is available through our partners, LexisNexis® and Bloomberg Law.

To view this content, please continue to their sites.

Not a Lexis Advance® Subscriber?
Subscribe Now

Not a Bloomberg Law Subscriber?
Subscribe Now

Why am I seeing this?

LexisNexis® and Bloomberg Law are third party online distributors of the broad collection of current and archived versions of ALM's legal news publications. LexisNexis® and Bloomberg Law customers are able to access and use ALM's content, including content from the National Law Journal, The American Lawyer, Legaltech News, The New York Law Journal, and Corporate Counsel, as well as other sources of legal information.

For questions call 1-877-256-2472 or contact us at [email protected]


ALM Legal Publication Newsletters

Sign Up Today and Never Miss Another Story.

As part of your digital membership, you can sign up for an unlimited number of a wide range of complimentary newsletters. Visit your My Account page to make your selections. Get the timely legal news and critical analysis you cannot afford to miss. Tailored just for you. In your inbox. Every day.

Copyright © 2021 ALM Media Properties, LLC. All Rights Reserved.