Is the Legal Academy "Big But Brittle" in the New Economy?

In ABA Weighs Required Disclosure of Law School Job Stats, More Rigorous Reporting, Debra Cassens Weiss reports that ABA President Stephen Zack says potential law students lack awareness about lawyer jobs and salaries, and the association is considering ways to correct this misimpression. This because rising law school enrollment is not a rational choice in view of current labor market conditions. See, for example, Karen Sloan's NLJ article Law school hopefuls undaunted by dim prospects. Is the ABA going to audit the data reported by the legal academy?

Wash Univ -St. Louis Law prof Brian Tamanaha recently charted the number of applicants who actually enrolled in law school and the total law related employment -- attorney and non-attorney -- from 2001 through 2009. Tamanaha observes that "while legal employment has fallen dramatically since 2007 (with a further decline in 2010), law schools, after remaining flat in 2008, increased by 5% the number of students admitted (and enrolled) in 2009" in The Irresponsibility of Law Schools. Note the title's implication. David Welker did in a comment to Tamanaha's post:

Law schools, all things being equal, SHOULD admit more students during a recession. The opportunity cost of law school for students who would otherwise be unemployed is very low. It makes sense for people who, in normal economic times would have a job and thus face a higher cost to furthering their education, to go ahead and get more education during a recession.

That comment assumes that the JD remains a golden ticket, that the on-going changes in the legal labor market and law firm-client relationship are temporary, not structually transformative. In Big But Brittle: Economic Perspectives on the Future of the Law Firm in the New Economy, [SSRN] Bernard A. Burk (Arthur and Toni Rembe Rock Center for Corporate Governance) and David McGowan (Univ. of San Diego School of Law) make the case that Welker's opportunity cost argument is wrong.

A law degree has enjoyed a long and widespread reputation as a “golden ticket,” and a disproportionate number of law students reportedly still believed in 2010 that, even though they doubted the prospects of their peers, they themselves would somehow win the employment lottery, or at least break even.

But the lessons of hard experience will eventually seep into the market. To the extent that market is economic and rational—and we believe that it is more than enough of both to matter—the phenomena we have discussed likely imply that there are more law schools than an increasingly competitive environment will support. Contraction in the number of schools seems probable and likely would be efficient. How far such contraction extends will be a function of the value schools find ways to deliver in relation to the particular needs and pricing of the legal labor markets. We see that dynamic playing out in two general ways [namely, applications to law school should fall and among those still committed to pursuing a legal education, there will be increased scrutiny of the value proposition particular institutions offer.]

Burk and McGowan's article is not a "BigLaw is Dead" analysis but the authors convincingly argue that reductions in transaction costs and in the cost of key inputs, primarily IT related, are helpful in explaining the trends in the staffing and pricing of legal services in recent years. BigLaw is changing and it is transformative with "profound implications for practicing and aspiring lawyers, as well as the law schools that prepare them for the increasingly competitive and increasingly global markets for their services." (Quoting from the abstract). If, as the authors predict, law school applicants will become economic and rational, one can expect applications to law school will decline.

Impacts on Law Profs and Their Current Employers. As noted above, the authors expect some law school closures. Imagine laid-off law profs sitting next to their former students performing document review work on a contract basis. Those applicants still committed to joining the legal profession will more carefully scrutinize the value particular law schools offer according to the authors:

There are a few superelite schools, perhaps as many as 20 but maybe fewer than 10, followed by a rapid flattening in the eyes of prospective consumers. Once we move out of the echelon of institutions where prestige swamps any other variable (and presumably also in distinguishing among super-elite institutions), students choosing a law school will look to other qualities. Their future relative importance is difficult to predict, but they can be broken down into benefit and cost factors in the value calculus.

Burk and McGowan predict that (1) cost considerations will become more important, and (2) the quantity and quality of entry-level placement will receive increasing weight for schools not among the super-elite, for those who want to attend law school. Burk and McGowan also predict that law profs can expect flat salaries and higher teaching loads if they are not standing in breadlines with their former students.

Needless to say, price pressures on tuition will reduce resources available for other operating costs. We suspect that faculty salaries and support will be particularly vulnerable to such pressures in the nearer term because they are generally adjustable in smaller increments and over shorter time horizons than other big-ticket items such as facilities. As legal education becomes more competitive, outside the more elite schools teaching loads may increase in order to offer a more robust curriculum (if that proves to attract students or employers) or accommodate larger numbers, while salaries stay relatively flat.

As an economic analysis, "big but brittle" is an apt characterization of the legal academy in the new economy. It makes sense. The authors' forecasts may be dead on. Some law schools may close. Faculty salaries may stagnate and teaching loads may increase. This, however, assumes that law school applicants will become rational actors who are sufficiently well informed to make economic decisions based on a cost-benefit analysis. But when employment prospects are based on "cooked" data reported by law schools and law schools compete with each other to move up a peg or two in US News rankings with no hope whatsoever of reaching elite let alone superelite top 10 or even top 20 status by increasing expeditures per student -- most easily done by hiring more faculty while reducing their teaching loads -- one has to wonder whether, to borrow from Tamanaha, the legal academy will behave responsibly or remain irresponsible over the nearer term. [JH]