Friday, June 28, 2013
NALP recently released the employment outcome data for the class of 2012. The good news is that the absolute number of JD Bar Passage Required jobs went up from the prior year. The bad news is that a significantly larger class of entry-level lawyers were competing for those jobs. The class of 2011 totaled 41,623, versus 44,339 in 2012 (+2,716, or +6.5%). And note, the class of 2013 is likely to be even bigger -- roughly +1.6% based on the size of the entering 1L classes in the fall of 2010 (see ABA enrollment data).
Setting aside the year-over-year flucuations, the trendlines suggest a relatively large and persistent shortfall in the number of full-time, professional law-related jobs. I assembled the graph below from NALP data [click on to enlarge].
[Methodological notes: NALP used the JD-Preferred category until the class of 2011, when NALP and the ABA collaborated on the creation of the JD Advantage category. According to NALP, the jobs in the two categories are "largely the same." See NALP, Detailed Analysis of JD Advantage Jobs (April 2013). The figures for 2012 are estimates of full-time employment calculated from (a) NALP's just released figures for 2012 class size and the percentage breakdowns by job category, and (b) the percentage breakdowns of full-time versus part-time from the prior year, which also relied on the new JD Advantage definition. In short, basic algebra.]
A reasonable expectation of a 3-year, $100,000+ financial commitment is that nine months after graduation, the entry-level lawyer has secured a full-time professional job. See Legal Whiteboard, June 26, 2007. Those outcomes are reflected in the blue-red-green bars above. Since 2007 (the first year that NALP collected data on full-time versus part-time employment), the percentage of jobs fitting these criteria has fallen from 85.0% to 73.9%. So the overall size of the purple bar -- part-time jobs, nonprofessional, unemployment, etc. -- has grown from 15% to 26.1%.
Unfortunately, the pain does not end there. With a limited pool of full-time professional jobs and the number of graduates trending upward, the law of supply and demand kicks in. Consider this arc of median entry-level salaries of employed graduates: $65,748 for class of 2007, $72,000 for 2008, $72,000 for 2009, $63,000 for 2010, $60,000 for 2011, $61,245 for $2008. So, in short, the odds of landing a full-time professional job have gone down, and so has the starting pay. Yet, tuition and student debt continue to edge up. These unsustainable trends have made law schools fair game for criticism by the media and law student bloggers.
That said, a market correction is clearly underway. A considerable number of prospective law students are deciding (rationally) not to apply to law school -- from 98,700 when the class of 2007 enrolled in the fall of 2004 to an estimated 58,424 for the fall of 2013. Likewise, law schools, to the extent they can afford it, are enrolling fewer students. From the high water mark in the fall of 2010 (49,700), law schools only enrolled 41,400 1Ls in the fall of 2012, and the numbers are sure to be even lower this fall. See Jerry Organ's estimates, Legal Whiteboard, May 20, 2013. To weather this storm, law schools are running significant deficits or drawing down their endowments.
So, can we conclude that the market correction will be complete when the relatively small class of 2017 enters the job market four years from now? I certainly think the smaller number of graduates will help. But I would argue that two things have fundamentally changed:
1. Revenues versus credentials. Law schools are struggling with the need to balance their desire to hang onto respectable LSAT/UGPA medians with a need to generate sufficient revenue to cover their operating costs. If a law school favors revenues this year, its US News rankings could drop, affecting its applicant pool in future years. On the other hand, the combination of shrinking 1L classes and lavish scholarships -- a strategy being pursued by dozens of law schools -- is unsustainable over the medium to long term. A decision to enroll fewer students this year is a three-year commitment to lower revenue. If the smaller entering class is repeated next fall, the budget pain doubles. Do it three years running, and the revenue shortfall triples. Many law schools are not trying to outrun the bear; they are trying to outrun other law schools in their regional market. Some law schools may not make it out of this trough.
2. Competition over full-time, professional law-related jobs. If there is one silver lining that has emerged from this troubled period in U.S. legal education, it is the willingness of the ABA to collect and publish more granular employment outcome data at the law school level. In turn, U.S. News has incorporated these data into its rankings formula. Instead of propping up our rankings by hiring our own students or benefiting when they got jobs nine months out working as a retail manager or a cab driver, under the new 2013 U.S. News rankings formula, only full-time, long-term jobs that are JD Bar Passage Required or JD Advantaged are given "full weight."
It is this second point that is going to push change in how law schools do business--we now have an employment outcome in which the ranking payoff is now fully in allignment with what law students want--full-time, professional law-related jobs.
Specifically, the employed-at-nine-months input to the U.S. News rankings formula is currently given 14% weight. According to the U.S. News law school rankings methodology, the magazine is weighting 22 of the 35 employment outcomes collected and published by the ABA. Among these 22 factors, we don't know the internal weighting. What we do know based on the "full weight" given to JD Bar Passage Required and JD Advantage jobs, is that the highest employed-at-nine-month scores will go to law schools with the highest percentages in these two categories. This is a completely new world for law schools -- one that incentivizes what law students care about when they make the decision to enroll.
Part II to follow ...
[Posted by Bill Henderson]