Wednesday, September 2, 2009

Drawing the Right Lessions from the Bleak Entry-Level Legal Job Market

[by Bill Henderson, co-posted to the ELS Blog]

As the fall progresses, many law students and law school administers will be trying to assess the direction of three market trends: (1) the number or percentage of summer associates who receive offers of permanent employment; (2) the prevalence of deferrals among those lucky enough to be offered jobs; and (3) the volume of summer offers coming out of this year's OCI process. Nobody expects cheery numbers.  But as the market information comes in over the next few months, law schools will be in a better position to assess the new landscape. 

In a nutshell, here is the issue:  Since the last major legal recession of the early 1990s, elite law schools adapted their business model to the seeming certainty of virtually guaranteed high paying jobs for their graduates.  This meant increasing tuition, hiring more faculty, reducing teaching loads, and generally loading more debt onto students.  For at least the last 15 years, the sizzling corporate legal market made this high-cost model financially viable, even though the only thing these models maximized (or strongly incentivized) was faculty scholarship.  Because corporate counsel are fundamentally changing how they value and buy outside legal services, there may not be enough high-paying entry level jobs to support the very high cost of legal education, even at elite schools. 

Yet, unbelievably, due to the weighting of per pupil direct expenditures, schools with higher cost structures generally fare better in the US News rankings.   Among elite schools, direct expense (financed with high tuition, high student debt, and large endowments) is the input that keeps the elite schools at the top of the pecking order -- Yale's is three times the average, and Harvard, Stanford, NYU, and Columbia are more than double.  Of course, less elite law schools wishing to become more elite--i.e., pretty much every school with a few exceptions-- have tried to keep up by modeling themselves after elite schools, including a "scholarship-first" strategy.  Thus, the cost structure at virtually all law schools has climbed far in excess of the earning capacity of the median law school graduate. See Morriss & Henderson, The New Math of Legal Education, ABA Young Lawyer (July 2008). Yet, due to deficiencies in (a) information, and (b) how information is analyzed, the status quo rolls on.  

I can think of at least four reasons for these information inefficiencies. 
  • Naivete.  The modal student entering law school is not homo economicus. Rather, he or she is young, inexperienced, and overly impressed with branding--largely through US News--and the opinions of peers. IQ does not shield the young from overconfidence and the reflexive desire to impress others through the acquisition of positional goods.  Indeed, sometimes intelligence in the absence of commonsense can make matters worse.  
  • Poorly Priced Credit.  Banks have lent students funds without a sharp eye to repayment risk. The terms of loans are largely the same regardless of law school attended, geographic market conditions, and law school performance.  Yes, historically law students have repaid their loans.  But that is the same sloppy logic that created the housing bubble.  The only way the math works is if the vast majority of law school graduates, despite low or no starting salaries, experience a steady, multi-year surge in income.  This is a foolish assumption for anyone who understands the current state of law firm economics.  Of course, just like most home mortgages, student debt over and above the Federal Stafford Loans, often get bundled together, turned into securities, and sold.
  • Law Schools are Self-Interested and Locked in a Positional Competition.  This is not a criticism; it is a statement of fact.  Law schools work very hard to manage their market position, including their US News rank, because students and alumni can be completely demoralized with a significant decline. It does not matter if the decline in quality is illusory; stakeholders will declare the patient sick.  This may surprise naive law students, but law schools cannot be counted on to be an objective broker.  We need a regulator to level the playing field and force us to be transparent.  Which brings me to my fourth point ... .
  • Failure of Self-Regulation.  The ABA Section on Legal Education and Admission to the Bar bears some responsibility here, but not become it has accredited too many law schools -- the antitrust implications of barring market entry are real.  Rather, the Section has become too focused on the comfort of its law school members.  If the Section collected and published detailed employment outcome information in a way that facilitated school-to-school comparisons--yes, just like US News--the information would trickle down to potential law schools.  It is not helpful to say that 15% of a school's graduates work in business -- they need to know how many of those 15% are waiting tables, driving a cab, or selling insurance.  Re jobs in private practice, how many are working as contract attorneys?  Nobody really knows, and the issue is not on the Section's agenda.  If these data are published, some law schools would probably go out of business.
With corporate firms experiencing sluggish demand and tremendous downward pressure on fees, changes in hiring patterns (both the number of jobs and their remuneration) are going to exert tremendous pressure on law schools to rethink their business models.  To my mind, the proper response is for law schools to really think through how they can maximally enhance the human capital of law school graduates.  (Others might think the proper response is offer the same quality at a lower price, which is the situation confronted by most law firms these days.) 

Here, the greatest risk is drawing the wrong inferences from the historical record and confusing market signals with professional education that truly enhances the decision-making and judgment of young lawyers.  For the last several decades, entry level-lawyer remuneration--a tempting market-based metric of value-added--has been based on a combination of branding and sorting of raw inputs.  In other words, it is not the curriculum at Harvard or Yale, or the massive scholarly output of the faculty, that drove the demand for their graduates.  Rather, it was the Ivy-League brand (think Pavlov's dog) buttressed by statistics that these schools had admitted students with very high IQs.  In turn, firms used this information to signal their superior collective credentials to their clients.  At end of the day, pedigree definitely has CYA value for many general counsel.  But the Bi-Modal distribution suggests that this signal became dramatically overvalued. See Henderson, The Bursting of the Pedigree Bubble, NALP Bulletin (July 2009).

So the open question goes to the very heart of professional education:  what type of law school curriculum and teaching methods are really worth the price paid by today's students?  Even if law schools instituted a moratorium on the writing of law review articles for an entire academic year, our collective brain power may be inadequate to answer this question.  But I guarantee that the answer requires a strong engagement with practicing lawyers and recourse to empirical methods -- not necessarily to publish articles (that is a mere second order effect) but to refashion and retool what and how we teach. The schools that rise to this challenge are, in the long run, going to fare better than those who continue to be believe that more faculty law review articles will raise the school's ranking, thus enticing more employers to hire their students.

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I really enjoyed the post. Wouldn't the prevailing approach in the academy be to keep one's head down and try to ride out the downturn? Are there any entrepreneurs out there?

Posted by: John Steele | Sep 3, 2009 7:46:56 AM

Overall, I don't disagree, however, I think points 1 and 4 are in tension. First, the claim is that most law students aren't acting in a perfectly rational manner and/or without perfect information. Then, the claim is that the answer is not real regulation, but the publishing of better statistics.

It would seem to me, at least, that, if point 1 holds, then no matter the quality of the stats, people will still end up with too much debt and too few job prospects. It would be great to know how many 1st year calls end up as contract attorneys, but do you think any budding pre-law student would ever imagine it could be them?

Posted by: Eric Grigg | Sep 3, 2009 9:41:32 AM


As always, well-done and much food for thought. Three minor points/queries: Engagement with practicing lawyers sounds correct, but what exactly do you envision? Busy lawyers may or may not have much to tell legal academia about how to teach law students better other than to say "give them some practical skills/experience, not just case-analysis skills", or "teach them excellent writing skills" (in my opinion as a lawyer who practiced 12 years before full-time academia, something law schools don't do well because it's too labor-intensive). But we already know this, so what exactly do you think that engagement with the practicing bar should look like?

Also, why not focus a little more on hiring law faculty who have significant legal practice experience, say 5 years or more? I know why that won't happen, but think that it's too bad the legal academy continues to de-value the deep skills and judgment that actual practice experience can provide, since I think it can enrich the classroom greatly.

Last, why empirical training? I'm a big fan of empirical training because I have an intellectual interest in it in my academic work, but am not convinced it makes one a better lawyer. But I'm open to being convinced!


Posted by: Bill Gallagher | Sep 3, 2009 11:12:42 AM

Your final paragraph made my day.

Legal education needs some serious reform. I think there needs to be more engagement in the classroom--professors should not just lecture, but should hold discussions. There should be more hands-on simulations: writing complaints, answers, motions, etc. And there should be a reinstatement of the old apprenticeship model. You're 100% spot on when you say this will require "engagement with practicing lawyers and recourse to empirical methods."

Posted by: GJELblogger | Sep 3, 2009 11:45:50 AM

Bill, I agree with the comments that note your usual thoughtfulness. I don't think your last sentence necessarily applies all the way up and down the rankings. I will focus, for better or worse, on what even Brian Leiter agrees can't be cooked in U.S. News, the peer reputation score, and assume for the time being that it is meaningful; it is in fact a substantial driver in the total U.S. News score. If the school's goal is to move up in the rankings (on the not unreasonable theory, per Russ Korobkin, I think, that rankings are indeed a meaningful coordination device), I suspect it's the case that a school in the middling top 100 is going to get more bang for the buck by being innovative in teaching methodology. That's because it's a bell curve out there, even if the rankings are ordinal, and small moves in faculty quality likely won't move you a tenth of a point. But if you are at the far end of the bell curve (i.e. lower third tier or fourth tier), making a splash on faculty hiring and retention, such that you get noticed, is likely more meaningful. That is, it's probably easier to move a couple tenths of a point, and that does scoot you up the charts.

Cases in point on programs I know almost nothing about - your point may be well-taken for Washington & Lee (I think it has an innovative third year program), but I'm not so sure it's correct for University of Detroit-Mercy (which I know has an innovative program). UDM got a splash - did it (or will it) actually move up the food chain?

Posted by: Jeff Lipshaw | Sep 3, 2009 1:49:45 PM

When I was a student going from an undergrad engineering curriculum to law school, I noticed that law school gave less feedback and gave it less often than in my prior field. Most education experts say timely feedback is very important for improvement. Yet in most law school classes, the first and only work a student submits is a final exam or a term paper. Writing classes offer some feedback, but still only several times a semester.

Finally, there seems to be an inconsistency between writing instructors on what constitutes the best writing technique, for example, what balance of trade-offs results in the most persuasive argument. Regardless of how many writing classes or law school papers a student writes, it is still quite possible that a law firm supervisor will consider that student's writing skills to be inadequate, until that student learns exactly what techniques the supervisor views as good writing. At a certain level, it seems that some skills are better learned on the job.

Perhaps the best way law schools could offer more value would be to reduce the length and cost of their programs, so students could start gaining on-the-job experience earlier and incur less debt. Many programs, institutes, and multiple layers of associate/assistant deans could be scaled back. Professors could be asked to teach more than one course so fewer professors would be needed, thus decreasing the cost of operating the law school. Many (non-law) graduate programs charge far lower tuition; students there typically have more close contact with professors.

Posted by: Practice of Law | Sep 3, 2009 10:34:34 PM

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