The Legal Employment Market, Student Debt, and Legal Education Reform

There has been a great deal of press recently about the sorry state of the legal jobs market, student debt, and the irrelevance of legal education (see, e.g., here).  A lot of the thinking on these issues has struck me as incredibly ga-ga and muddled and as reflecting unrelated and pre-existing agendas about legal education, student debt, and the role of lawyers in society.  The jobs market, student debt, and legal education are all distinct, if related issues.  But it's important to untangle them and see where the problems are and what can be done about them.   

(1) If Supply > Demand, then Prices Will Fall...

The legal employment market is a services market, nothing more, nothing less.  It doesn't particularly matter that the services performed are legal.  It's a market.  And that means it is subject to the inexorable laws of supply and demand.  I don't know of a good measure of demand for legal services, but it is clear that aggregate demand is either not growing as fast as it once did or perhaps shrinking.  There are lots of reasons for this including in-housing and out-sourcing.  The reduction in demand is not itself a problem.  The problem is that the supply of lawyers is outstripping demand.  Some of this is greater longevity and the decline of mandatory retirement, but a lot has to do with the expansion of the number of JDs being produced annually.  Simply put, law schools are flooding the market with supply and that's a problem when demand doesn't keep pace. 

(2) What's New Are Problems in the High-End of the Market

The legal employment market, however, is not a single market.  To oversimplify, it has a high end and a low end.  The supply-and-demand problem at the high-end of the market is reversed at the low-end of the market.  There are lots of consumers who need legal services and cannot afford them.  This is a problem and one that those of us who work in consumer bankruptcy and consumer finance are very familiar with, but it's not a new one.  The problem that has recently emerged in the legal market is about the high-end of the market, not the low-end one.  These are different problems and point to different solutions. 

(3) Reduce Oversupply and Prices Will Stabilize

For the high-end of the market, there's really nothing that can be done to stoke demand.  (Ok, a true Machiavellian would be pushing for lots more complicated regulation in order to increase demand for legal services.)  As long as supply outstrips demand, there will be downward pressure on compensation.  At a certain point, however, as compensation declines, a legal education becomes a comparatively less attractive investment, particularly because it is a leveraged investment. Taking on lots of debt to pay for law school is a bad idea if employment prospects are such that debt service will be onerous or impossible.  And that will affect law schools.  Virtually all law schools are funded primarily by tuition. Some have endowments that pick up some slack, but tuition is the economic driver, and it might not be possible to keep up tuition levels or at least increase them at past rates.  The result will likely be some law schools failing.  It won't be pretty--on a human level it will be painful for many people.  But from the perspective of the legal employment market overall, it will be a good thing.  Fewer law schools graduating fewer JDs would reduce supply and thus keep up high end lawyer salaries.  Alternatively, if states just got more restrictive on their bar admission requirements, the oversupply of lawyers would be mitigated.  All of this is to say, the market should correct.  It might take a while, but the closure of some law schools or political pressure from lawyers to tighten up bar admission standards is likely to reduce supply and stabilize compensation. 

(4) Legal Education Reforms Will Not Create Jobs

Many of the responses to the problems in the legal jobs market focus on changing legal education to give law students more practice skills and/or reduce the length of legal education so as to reduce student debt.  Both ideas strike me as incorrect responses to the job market problem.  

 Ok, let me put this in all caps:  CHANGING LEGAL EDUCATION WILL NOT CREATE DEMAND FOR LEGAL SERVICES.  LEGAL EDUCATION REFORM WILL NOT CREATE JOBS.  It's not clear how it possibly could.  Law school graduates could emerge from 3L year like Athena from the head of Zeus, fully formed lawyers in all their glory, and that wouldn't result in greater employment.  Instead, the only thing that education reforms (more practical courses, externships, etc.) can possibly do is provide graduates of one school a leg up on graduates of other schools in competing for a slice of the legal employment pie.  It won't grow the pie.  

(5) Reducing the Length of the JD Education Will Not Result in Lower Education Costs

What about reducing the length of the JD educational program from 3 to 2 years?  It's not clear to me why that would translate into a 33% reduction in the cost of legal education.  If students' post-JD salaries are the same irrespective of 2 years vs. 3 years of education, their demand for legal education should be unchanged.  Indeed, going from 3 to 2 years should actually increase demand for legal education because there will be an extra year's worth of earning time.  If demand is unchanged (or even increases), why would the cost of legal education go down?  Schools have lots of fixed costs (faculty salary and benefits, physical plant, utilities), and these don't depend on 2 vs. 3 years.  Unless we think the legal education market is comprised of eleemosynary institutions, reducing the length of the JD should have no effect on the cost a JD.  (Admittedly, few law schools are run with Bain-like efficiency.  But when it rains gravy, even if they don't bring a kettle, they bring a cup, not a fork.)  

(6) Legal Education Reforms May Help Create Supply for the Low-End of the Market...But That's Not the a New Problem

There is still the problem of the low-end of the market, i.e., legal services for the middle class and poor, where demand outstrips supply.  Again, it is not a new problem, and it has nothing to do with the current Chicken Littleism about the legal employment market.  It's just a separate problem, and it is not one that is contributing to the current concern over law school economics. In terms of serving the low-end of the market, there is plenty of room for creative thinking about legal education reform, and in particular different types of law licensing.  It's a topic that I can't hope to cover in this blog post, other than to emphasize that law schools can't and don't need to shift from serving the high-end legal market to the low-end legal market as a solution to the current problems in the high-end of the market.  

All of this is to say that legal education reforms need to stand or fall on their own merits.  The changes in the legal employment market place should not provide an excuse for pre-existing legal education reform agendas.  

Comments

[Tamara Piety]

At last! Some clear headed observations about this issue instead of the relentless echo chamber of mostly half baked, impressionistic reactions, and sometimes downright contradictory muddle of criticism and suggestions for reform that confuse these issues.

[James in Texas]

Different types of law licensing, well reasoned thought. It should not matter the time required to teach law if there is comprehension. For some, learning could be two years, for others three years, some never. Learning of "what" should be that of concern. Law taught should impress an ethical duty that truth be brought forward to be judged upon not judging that of trickery word crafting. Applying appropriate process and procedures bringing forward truth in a lawful manner is paramount and from evidence such is taught by most scholarly.

[Bankruptcy Judge]

Two observations:

1. I deplore the move to reduce J.D. programs from three years to two, as if the third year were a waste of time. If anything, law school should be increased to four years. Turning out lawyers with "Law Lite" degrees is not the answer to the problems afflicting the legal profession. (And yes, I'm talking about you, Northwestern.)

2. If there are any 3Ls emerging from law school like Athena "in all her glory" from the head of Zeus, I'll be looking for a new law clerk this fall.

[mt]

I think there is a lot of merit in most of this post but Part 5 makes no sense. You're being too abstract and generalized. You're also, I think, conflating the student perspective and the institution perspective. Students are not demanding three years of law school for their intrinsic value. They are demanding the credential that gets them a job. Regulation makes that cost three years. If regulation makes that cost only two years, then the student demand becomes for two years. And supply will shrink to meet that demand. Right now, schools have to have a certain staff and infrastructure to provide three years of education. If they only have to provide two years of education, staff and infrastructure will shrink to meet the demand. Anyone could go through a law school curriculum and pare it back to a two year curriculum. And I don't just mean theory and interdisciplinary courses that have no real world tie, but if students are going to get a year of real world training to replace their third year of lawschool, the practice-oriented courses could go as well.

Look, with de minimis exceptions for true intellectuals, the whole higher education industry is basically an outsourcing by employers of the training and sorting function. Rather than train and sort employees on the employer tab, employers get prospective employees to invest in their own training and higher ed sorts them both by rank and by aptitude for particular tasks. Higher ed workers perform this service for the economy in exchange for the opportunity to do what they really want which is research think write etc.

If employers - in this case, law firms - were to take over 1/3 of the training and sorting cost from students and higher ed, by eliminating the third year of law school and having two years of practice before one takes the bar, it will be a major boon to all law students, although some mechanism needs to be in place for the transition classes.

[Connor]

A couple thoughts:

1) The high end of the legal market is alive and well. But all the firms compete for the same group of students. I, and everyone else I know with an electrical engineering or similar degree, received 5+ offers from big law firms, while our similarly situated peers without such degrees were not so fortunate. I get the sense there is a shortage of students with this background (indeed, some firms are still paying for law school and recruiting engineers straight from undergrad, having them work part time while attending night school). Law schools can increase the employment prospects of their graduates by recruiting competent engineers to attend school.
Not only that, but a lot of the innovation that will change the way we practice law will be developed and pioneered by engineers and computer scientists. This could be facilitated by making sure there's a sizable contingent of such talent that also has a legal education.

2) Law school should be two years, tops. I am a 2L now, and this year has given me time to work on an interesting research project (and I managed to find something that incorporates my technical background quite nicely). Next year, there is a good chance I will be working part time for my firm while I finish up school.
There are about three courses I genuinely care about this year, but law school suffers from the unfortunate problem that none of these courses require prereqs. Antitrust, for instance, doesn't require even an introductory knowledge of economics. I could get a lot more out of this if it were easier to sign up for courses in other disciplines (and it would make my research a lot easier if I had some formal instruction, instead of having to teach myself how expectation maximization algorithms work).

There may be a glut of lawyers, but there is still a shortage of high end lawyers. And part of that has to do with the rather arbitrary way in which firms select most new hires (is someone below median at Harvard _really_ that much better than someone in the top 5% of a lower tiered school?); no matter how good the lower tiered school student is, she just won't be viewed as being part of the same talent pool--that's messed up.
The judiciary is not entirely blameless in that; they often select clerks this way, too.

[Larry Rosenthal]

All six points in this post may well be correct, but the conclusion stated in its final two sentences does not necessarily follow. In a tighter market for legal services, law firms are less able to absorb training costs for new lawyers; costs that they were often able to pass on to clients in the bubble years. Thus, to the extent that a law school undertakes curricular reforms that make its graduates cheaper to train and that enhance the cost/benefit ratio of hiring those graduates, the school confers a competitive advantage on its graduates in a tight market that was of less significance when market conditions were different. In that sense, current market conditions potentially enhance the case for curricular reform.

[Jules - Bermuda]

Point 4; Hell yes!!!!