Paradigm Shift Ignored: On Reasons Why Law Schools Admit So Many Students When Their Employment Prospects are So Dismal

Commenting on the EMSI estimate of the surplus of law school grads on a state-by-state basis which was reported on LLB at Cut the Glut: State-by-State Empirical Labor Market Model for Law School Grads, in The Coming Crunch for Law Schools (Balkinization), Brian Tamanaha writes

Why are law schools enrolling so many students when employment prospects for graduates are so poor? Because they must. In the past two decades law faculties have gotten bigger. AALS tallied 7,421 full time faculty in 1990, and 10,965 in 2008. Some of this overall increase comes from newly accredited schools, but most of it is faculty expansion: student-faculty ratios have been cut almost by half during this period.

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Law schools will soon suffer the consequences of this expansion. The chart below [see Balkinization post] tracks the number of applicants against the number of first year students from 1990 to the present. As it shows, law schools exhibit a one-way ratchet: when applications drop, enrollment remains steady; when applications rise, enrollment goes up.

Hat tip to Brian Leiter's Law School Reports ("The numbers are not pretty.").

Stephen Bainbridge, UCLA's William D. Warren Distinguished Professor of Law chimes in:

You have a mature industry with about 175 or so producers collectively having massively excessive production capacity relative to demand. The industry nevertheless continues to produce at full capacity. What happens next?

The price the industry members receive for their product should fall. In response, industry members should cut their prices until demand and supply equilibrate. But then what happens to the excess productive capacity?

Obviously, some of the weaker players should close up shop through bankruptcy or liquidation. But many managers are reluctant to pull that trigger. So in many industries we observe a wave of mergers intended to consolidate the industry into a smaller number of players, each of whom then downsizes while staying in business.

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In an ordinary industry, such a fall in demand would trigger the wave of consolidation described above. But legal education is no ordinary industry. First, law schools get paid by their inputs rather than being paid for their outputs. A fall in demand for our outputs thus does not put direct price pressure on law schools. Instead, we only feel supply-demand pressure if the number of inputs falls. In other words, law schools suffer financially not because their graduates can't find jobs but because they have too few applicants to fill their spaces.

For more, see Consolidation in the law school industry. Hat tip to TaxProf Blog.

Obviously the EMSI estimate is producing a lot of commentary and analysis in the legal academy blogosphere, the above being only a sample of the near real-time law prof blogosphere reaction. But this doesn't mean change in the legal academy will come anything soon despite clear evidence of a paradigm shift in legal services.

In Law Job Stagnation May Have Started Before the Recession—And It May Be a Sign of Lasting Change (ABAJ), William D. Henderson and Rachel M. Zahorsky write

According to payroll data collected by the U.S. Census Bureau, the multidecade surge in law firm employment hit a plateau in 2004. Between 1998 and 2004, total law firm employment grew by more than 16 percent, or 169,000. Yet between March 2004 and March 2008, several months before the Wall Street meltdown that initiated an unprecedented wave of law firm layoffs, the nation’s law firm sector had already shed nearly 20,000 jobs.

This is a drop in the bucket for an industry that employed more than 1.1 million workers in 2004. But the flattened number of law firm jobs occurred at the same time major law firms in large urban areas were in a bidding war, taking entry-level salaries from $125,000 to $145,000 to $160,000. The public dialogue in the legal press and blogosphere was so fixated on the rising profits per partner at the nation’s top 100 law firms that the broader, systemic patterns went largely unnoticed—at least until the financial fallout descended in the fall of 2008.

By overgeneralizing how well the big firms were doing, we failed to notice a slow but fundamental economic shift affecting the majority of lawyers, who are solo practitioners or in small-to-medium-size law firms.

[JH]