Sunday, October 12, 2014

Is the Legal Profession Showing Its Age?

The figure below suggests that a growing number of students are attending law school but not going on to become lawyers.  This conclusion requires some explanation, which I will supply below.  Alternative explanations are also welcome, as I’d like to find a plausible narrative that foreshadows a brighter future for the licensed bar. [PDF version of this essay]

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I generated this figure based on data from various editions of The Lawyer Statistical Report, which is periodically compiled by the American Bar Foundation (ABF).  The ABF's gets the underlying data from Martindale-Hubbell, which is a comprehensive directory of the licensed bar.  As of 2005, the sample was roughly 1 million lawyers who work in law firms, solo practice, in-house legal departments, government, and the judiciary.

The big surprise here is that the proportion of young lawyers (under age 35) has been declining for several decades.  And not by a little, but by a lot.  During this period, the median age went from 39 in 1980, to 41 in 1991, to 45 in 2000, to 49 in 2005.  See ABA Market Research Department.

I would be tempted to attribute a demographic shift of this magnitude to a computational error.  But that is unlikely because the underlying data were calculated at four different points in time, yet the results come together to produce a single, steady trendline -- a trendline that shows a licensed bar that is steadily aging.  

Another possible factor to consider is whether there are any significant data collection or sampling issues that skew the data in a manner that dramatically undercounts younger lawyers. For example, Martindale-Hubbell is largely irrelevant to today's younger lawyers.  So, in solo and small firm practices, where they are making the business decisions, we might expect plummeting subscription rates.  But subscribing and requesting the publication of additional biographical information (in the hope of garnering referral business) is not the same thing as being listed. Martindale Hubbell attempts to track lawyers who did not subscribe to the directory, as the near-universe level of inclusion increases the directory's value.  

To illustrate this point, consider that in 2000, the Lawyer Statistical Report (which relies on Martindale-Hubbell data) counted 909,000 lawyers.  According to the ABA, the total number of lawyers licensed in the US (compiled from state bar roles) was 1,022,000, and that almost certainly includes some double counting of lawyers licensed in more than one state.  While I have no doubt that younger lawyers are becoming harder to hunt down because of cell phones and home-based offices, the gap of missing lawyers is just not big enough to fully account for the sharp drop-off in younger lawyers. 

I have shown this chart to various law firms, legal departments, law faculty and bar association audiences.  Through this process, I have developed two working theories that are not mutually exclusive:

  1. Increased exits from law practice based on gender integration
  2. Slowing absorption of law graduates into the licensed bar

Theory 1: Gender Integration

One explanation is gender integration.  In short, over the last 40 years, more women have entered the legal profession; and as an empirical matter, they are much more likely to exit the workforce in order to focus on childcare.  Thus, more gender integration over time would cause a proportional decline in the younger lawyer cohort.

So let's examine the data.  According to the figure below, which shows number of male and female 1Ls enrolling by year at ABA-accredited law schools [Click-on to enlarge], the high water mark for male 1L enrollment occurred over 40 years ago -- in 1971!   The high water mark for female enrollment in percentage terms was 2000 (49.4%). In absolute numbers, the high was the class entering in the fall of 2009 (24,305).  

Temp12

Presumably, the higher the percentage of female graduates, the lower the percentage of lawyers under the age of 35.  In 1968, a 22 year old female 1L, if she graduated from law school and stayed in the legal profession, would be part of the younger lawyer cohort in 1980. Yet, her 1L cohort included only 1,179 females (7.4% of all 1Ls).  By 1993 (12 years before 2005), the number of female 1Ls had increased to 19,059 (nearly 44%). So exits based on childcare factors would likely be increasing.  

I can readily accept gender integration as a partial, but not a complete, explanation.  Why? Because female exits are likely to be siphoning off a substantial portion of the over 35 cohort, as this group is still having and raising children.   It seems implausible that female lawyers are leaving in droves before age 35 (reducing the younger lawyer cohort) yet returning in droves thereafter (swelling the over 35 cohort).  Further, according to the figure above, the absolute number of law school graduates is increasing during this entire period.  Sheer numbers are likely a partial counterbalance to the impact of gender-related exits.

Theory 2:  Slowing Absorption of Younger Lawyers

It is important to keep in mind the magnitude of the overall slide in younger lawyers -- from 36% in 1980 to 13% in 2005.  One would think the trendline would be moving in the exact opposite direction -- that larger graduating classes would be replacing the much smaller number of law school graduates from 40 years earlier who were retiring or passing away.  But such a youth movement does not appear to be happening, at least based on data through 2005.

I think the most likely explanation is that the rate of absorption of law school graduates into the licensed bar has been steadily declining over time.  This explanation, which would affect men and women equally, is directionally consistent with the percentage of entry-level jobs in private practice, which has been declining since in the late 1980s. See figure below.

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The slower absorption theory is also directionally consistent with the shifting demographics of large law firms, which now have more partners than associates.  See figure below.

NLJdemographics

Despite the higher number of partners compared to associates, it is worth noting that large law firms are not becoming more generous in sharing the partnership pie.   

Rather, the real sea change is the decline in the number of traditional law firm associates, who have been slowly supplanted by staff attorneys, permanent of counsel lawyers, and nonequity partners. Indeed, over 40% are large law firm partners (defined at AmLaw 200 / NLJ 250) are nonequity. Three decades ago, this category of partner was relatively rare.  See Henderson, An Empirical Study of Single-Tier Versus Two-Tier Partnerships in the Am Law 200, 84 NC L Rev 1691 (2006).  The growth of nonequity partners reflects a new kind of law firm leverage that relies on senior lawyers. The annual ALM/Major Lindsay & Africa study of partner compensation reveals that equity partners make dramatically higher incomes than nonequity partners and that the size of the pay gap is widening over time. See Ross Todd, A Widening Partner Pay Gap, American Lawyer, Sept 29, 2014.  

The primary advantage of nonequity partners and other senior lawyers, like permanent counsel, is that training costs fall to near zero. Cf. Elizabeth Olson, Corporations Drive Drop in Law Firms’ Use of Starting Lawyers, Study Finds, New York Times, Oct. 10. 2014 (showing drop over time in use of first year associates because clients are refusing to pay for training costs).

To my mind, however, the most persuasive support for the lower absorption theory is the simple delta between the growth in the licensed bar--which has clearly hit a plateau--and the size of graduating classes from ABA-accredited law schools--which, until recently, had been steadily increasing. The figure below shows these macro-level trendlines.

Slide1

If younger lawyers were replacing older lawyers and also growing to keep pace with the broader economy, the under 35 young lawyers cohort would be getting bigger or at least remain relatively constant in size.  But instead, as the first figure in this essay showed, the younger lawyer cohort has gotten smaller.  Arguably, the simplest explanation for these patterns is that it has gotten much harder over time to parlay a JD degree into paid employment as a licensed lawyer.  So, faced with a saturated legal market, law school graduates have been pursuing careers outside of law.  

What Does This Mean?

The analysis above suggests that the JD Advantage / JD Preferred employment market started to take shape several decades ago, long before these terms were put in place by the ABA and NALP.  Yet, we really don't know about these careers.  To construct a more useful, informative narrative, we'd have to systematically study the career paths of our alumni.  That task is long overdue.  

I started teaching at Indiana Law in 2003.  Since I first saw the declining trendline for the young lawyer cohort, I have been thinking about the roughly 1,600 students who have taken my Corporations, Securities Regulation, Business Planning, Project Management, Law Firms as a Business Organization, and Legal Professions classes.  

  • What percentage are working as licensed lawyers?  
  • For those doing something different, where are they working?  
  • Has their legal education opened doors for them? 
  • Did those doors lead to interesting and remunerative work?

The After the JD Study is based on law school graduates who passed in the bar in the year 2000.  The Wave III results provide some clues to how at least one cohort of younger lawyers fared during their first ten years in practice.  

  • Roughly a quarter of the class of 2000 is no longer practicing law (remember the base sample excluded those who never took or passed the bar).
  • The migration out of practice is generally in the direction of private sector business.  
  • Ten years out, the median pay for full-time work is more than $100,000 for both men and women.  No tears need to be shed here.
  • Roughly three-quarters report being satisfied with their decision to attend law school. 

These statistics are generally encouraging, but some caution is in order, as the entry-level legal economy was quite different in 2000.  

Because of the law school transparency movement, we lack commensurable data between 2000 and 2013.  That is an important piece of information right there, as changes in collection and reporting standards were caused by student protests, including several lawsuits surrounding allegedly misleading employment data. Yet, we can cobble together some potentially useful comparisons:

Even if NALP's full-time legal positions in 2000 is a more expansive category than the ABA's full-time bar-passage jobs in 2013, the gap is startling -- over 20 percent!  Further, we have additional evidence of a major shift in the job market, as law firm summer associate positions have declined in size by more than 50% since in the early 2000s. See Henderson, Sea Change in the Legal Market, NALP Bulletin (Aug 2013).   Between 2008 and 2013, there has also been a drop in median starting salaries, from $72,000 to $62,500. See NALP, Employment for the Class of 2013 – Selected Findings

Demand Drops, but Supply Marchs On

Cumulatively, the trendlines presented in this essay suggest that we are on the tail end of a multi-decade structural shift in the legal economy.  So what comes next?

Law schools were recently taken to task in an editorial by the Young Lawyers Board of Philadelphia Legal Intelligencer.  See If Unchanged, Legal Education will Remain a Business in Decline, Legal Intelligencer, Sept 25, 2014.  According to the young lawyers, "One reason graduates have difficulty obtaining employment is that most of them need to be trained in how to practice law, and clients are unwilling to pay for training new lawyers. Law schools need to step up and train students on how to practice law."

I am very sympathetic to the young lawyers, but I think they are missing something essential.  A law school that improves the quality of its skills training reduces the training costs to prospective employers.  That is a good thing, but it does not change the underlying demand for legal services. And it appears that that demand is eroding on several fronts:  (a) wealthy corporations are balking at the price of outside counsel and looking for credible substitutes, (b) ordinary citizens are struggling to afford a lawyer at all, and (c) a new segment of the legal economy is emerging that is financed by nonlawyers and heavily focused on data, process, and technology, which taps into skill sets not traditionally taught in law school. See Henderson, A Counterpoint to "The most robust legal market that ever existed in this country", Legal Whiteboard, Mar 17, 2014.  

Conclusion

My own conclusion is that neither the organized bar nor the legal academy has a firm grip on the changes that are occurring in the legal marketplace.  This uncertainty and confusion is understandable in light of the magnitude of the shift.

Nonetheless, these market shifts create special urgency for legal educators because we can't teach what we don't understand.  The thesis of the Young Lawyers Board is surely right -- if unchanged, legal education will remain a business in decline.  Much of legal education today is premised on a 20th century professional archetype--an archetype that is, based on the data, becoming less and less relevant with each passing day.  Thus, we are under-serving our students.  And frankly, they are figuring that out.  

Change is hard for people and organizations they work in.  And law professors and law schools are no different.  The retooling of legal education will likely be a slow, painful process that will take the better part of a full generation to complete.  I am trying to do my part.

Yet, the brunt of the demographic shift falls on the licensed bar, which is getting older and thus weaker with each passing year.  This is a problem that belongs to the ABA, the state bars, and the state supreme courts, not the legal academy.   [PDF version of this essay]

http://lawprofessors.typepad.com/legalwhiteboard/2014/10/is-the-legal-profession-showing-its-age.html

Data on the profession, Structural change | Permalink

Comments

I see boomers entering the over-35 category in the 80s and then not exiting yet. Meanwhile they've made life less pleasant for the young at their firms (longer hours, longer tracks, non-equity tracks) so that people leave for business. Meanwhile (I think) the average age of law grads has risen, so that they are in the under 35 category for less time. I was only a lawyer under 35 for 3 years. You might need to factor these things in.

Posted by: Corey | Oct 12, 2014 11:23:22 PM

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