Too many law students emerge with staggering debt and grim job prospects. The authors say it's time for bar associations and the legal academy to respond by doing something we haven't done enough in recent decades - working together to strengthen the profession.
More than 2,000 students received JDs from Illinois' nine law schools in 2012. Hundreds more entered the legal market from the 14 law schools in contiguous states. Some will join the more than tens of thousands of holders of JD degrees that American Bar Association (ABA) figures show as not currently working in jobs that require JDs - for the class of 2011, only 54.9 percent of graduates had such a job nine months after graduation. Many will have staggering debt loads. The average educational debt for graduates of private law schools last year was $125,000; for public schools the level was $75,700.
Are these problems? Yes and no. A large educational debt is not a problem if it opens the door to a career with an income adequate to pay off the loans. However, it is a problem if it does not. Getting a JD and then deciding to be a businessperson or social worker is not a problem if that career makes you happy. Getting a JD and becoming a waiter or cab driver is a problem if your career goal is being an attorney. Unfortunately, the data suggest that, for many law graduates, the opportunities are not in line with the costs - and this has the potential to affect the delivery of legal services across the country.
What, if anything, can state bars do to help find a solution? Some argue that the solution is to shrink law schools, either by cutting class sizes or by closing law schools. Many law schools have already begun to reduce entering class sizes. Others seek to change the content of legal education by promoting skills training or advancing some similar reform.
There is merit to each of these approaches, but, in considering the various options, we feel it important to take into account the entirety of the legal marketplace encountered by the legal profession. These changes are substantial. To address them, state bar associations and the legal academy are going to have to do something we have not done (very well) in the last several decades - work together to strengthen the profession. And the only way to do that is to advance the public interest.
Face up to the scale of change
The first step is to understand what is happening in the legal marketplace. We are not facing a temporary downturn due to the ongoing financial crisis. Although turmoil in mortgage markets, the euro crisis, and public sector funding issues have generated plenty of headlines, the problem for unemployed lawyers is not simply a temporary one caused by the collapse of Lehman Brothers, Spain's banking meltdown, or Illinois' budget issues.
The Census Bureau's County Business Patterns dataset shows that law firm employment peaked at 1,123,000 in 2004 - during the real estate bubble, not afterwards. From 2004 to 2010, total law firm employment fell by more than 47,000, over 4 percent. This does not reflect a lessening demand for legal services, but a restructuring of the market for those services.
At the same time that law firm employment was declining, employment in legal services provision outside law firms rose from 9,800 to 23,600. In contrast to traditional law firms, this sector is growing rapidly.
What are the businesses expanding? In all likelihood, they include the stateside operation of legal process outsourcers (LPOs). Further, the foreign employment figures, which the U.S. Census Bureau does not track, are likely growing much faster.
According to an article in India's Hindu Business Line newspaper, "legal process outsourcing (LPO) companies are now bagging a large number of graduates." Rohan Dalal, Managing Director of Mindcrest, a U.S.-based LPO headquartered in Chicago and operating in India, estimated that the LPO industry would experience 30 percent annual growth. Our study of the market convinces us that this is the start of an important development that will gather speed over the next decade.
Thus, while we can attribute some of the market turmoil in law to the financial crisis, and the crisis is accelerating some changes already occurring, the shifts in the legal market were underway well before our current economic problems appeared. Where these changes will ultimately lead the profession is not yet clear, but we are confident that the market for legal services will look quite different in a decade from how it looks today.
The consequences of the changes in the market are significant. Top law firms in all markets offered a guarantee of quality to customers who had difficulty evaluating potential lawyers, and this enabled them to charge high prices. As entrepreneurs begin to unbundle the services traditionally offered by major firms, they are finding ways to cut the cost of legal services while maintaining quality.
As a result, the threat to lawyers' traditional business model is not simply that there are "too many lawyers." Brookings Institute research suggests that the "extra" profits in law from excluding competition - not just unsophisticated solo practitioners but also well-financed technology companies - have been around $70,000 per lawyer. This is a substantial prize that is now attracting attention from new competitors.
Harvard Business School Professor Michael Porter created his "5 forces" model for analyzing businesses' potential for long-term profitability. These forces are: barriers to entry, internal rivalry, supplier power, buyer power, and substitutes/complements. Applying Porter's model suggests law firms have lost significant protection from competition and that the fat profits of past years may never return.
The success of competitors to law firms should be no surprise: business people know how to compete and how to reengineer processes to wring out inefficiencies, at least in highly competitive industries where efficiency is necessary for survival. Yet, learning such skills has never been a major part of a legal education; further, business acumen is not a part of the traditional law firm hiring criteria. In the years to come, the skill set of the most valuable lawyers is destined to become broader, particularly with regard to managing costs and designing new products and services.
Even within the upper echelons of the corporate bar, competitive pressures are growing. Dewey & Leboeuf's problems included borrowing money to pay salaries, a step some attribute to its need to hire high profile partners away from rivals. Firms are firing partners who underperform profit targets, an event virtually unheard of 20 years ago. And competition for client business has become more cutthroat as client bargaining power grows. The one bright spot for law firms among Porter's 5 forces is that their suppliers - law schools - are in worse shape than the law firms.
The impact of change on legal education
American legal education has undergone an unprecedented expansion over the past 20 years. There are more ABA-accredited law schools today than ever before. And despite the recent cuts in class sizes at a number of schools, the total spaces in law schools remain close to all time highs. Moreover, at the same time as law schools increased their student bodies, they expanded faculties and reduced teaching loads, introduced ever-expanding curricula with greater emphasis on academic subjects and less on practice-oriented courses.
This shift away from "bar courses" has been in service of the expansion of academic legal research. This represents a major allocation of funds. Hofstra University Law Professor Richard Neumann estimated that each law review article by a well-paid, tenured professor at a top law school represented $100,000 in expenditures by the school. Even an article by an assistant professor at a lower ranked school represented $25,000 in expenditures. One might quibble with Neumann's figures but his general conclusion is well supported: law schools are spending enormous amounts of resources on producing legal scholarship.
That might not be a bad thing. Legal scholarship can be useful. Unfortunately, much academic legal research has shifted away from topics of concern to the bar and bench and focused more on work of interest within the legal academy. In 2006, Ohio State University Professor Larry Garvin published The Strange Death of Academic Commercial Law, which documented the disappearance of academic work on this core area of practice. Our own research on long-term trends in legal scholarship has revealed a pronounced shift out of topics like commercial law, bankruptcy, contracts, torts, criminal law, and property and into constitutional law, legal theory, and interdisciplinary work at all levels of the legal academy.
Outlets for the latter form of scholarship have expanded. Yale now has 14 legal journals for a student body of just over 600 - and we suspect few practitioners subscribe to or regularly read any of them. Indeed, law journal subscriptions have been falling dramatically. The top selling law review, the Harvard Law Review, saw its paid subscriptions sink from 10,000 in the 1970s to 1,896 in 2011.
Scholarship in the more practice-oriented fields has shifted to specialty journals, which furthers its decline in the academy, as faculties value publication in top ranked schools' general law reviews over practitioner-oriented work in making hiring decisions.
Law schools have also spent much of the last 20 years engaged in a rankings arms' race in which they jockey for position in the annual U.S. News rankings. Although almost every law professor in America will heap scorn on U.S. News, this does not prevent schools from touting upward movements. Even setting aside the unfortunate recent rankings scandals at both Villanova and the University of Illinois, this competition has led many schools to engage in academically questionable behavior.
For example, in earlier work we documented a 10-year expansion of "part-time" programs at law schools. Why? Because these students were excluded from the school's median LSAT scores - a key input in the U.S. News ranking formula. Although the magazine has since closed this loophole, the rankings arms' race has created an enormous surge in transfer candidates - these students are also excluded by the U.S. News ranking calculations.
After almost 10 years of statistical analysis and examination of rankings issues, we've concluded that many law schools approach reporting their ranking information with a zeal that rivals and often surpasses the most aggressive tax lawyer. Yet there has been almost no educational benefit for the law students footing the bill for this competition from schools' gyrations.
Conversely, there has been a cost. As virtually all U.S. law schools are primarily dependent on tuition for the vast majority of their revenues, this expansion and shift has been paid for mostly through tuition increases. Law school tuition has risen twice as fast as inflation for over two decades. As a result, over the last 20 years, law students have paid for the refashioning of the U.S. legal academy into a less competitive, less useful industry that does a poorer job of preparing lawyers for the practice of law in a highly competitive business environment.
But aren't there too many lawyers?
There are certainly "too many" lawyers with crushing educational debt loads seeking BigLaw jobs in hopes of paying off their student loans. But there are vast unmet legal needs in our society. In 2005, the report The Legal Aid Safety Net concluded that "The legal aid system in Illinois was able to address only a small fraction of the civil legal problems encountered by low-income Illinoisans in 2003" and that the "safety net" offered by the legal aid system was "clearly inadequate to meet this challenge." In the last several years, this situation has not improved. Likewise, middle-income people are also often shut out of the legal system because they cannot afford legal assistance.
The economics of legal education may not be responsible for unmet legal needs in society, but spiraling student debt certainly compounds the problem. The real challenge is not to limit the number of lawyers but to ensure that legal services are available to all at a price people can afford.
Technology is destined to play a critical role in such an outcome - both in reducing the cost of education and creating new ways to cost-effectively service the legal needs of average citizens. To meet this productivity challenge, law schools need to reallocate some of the effort directed at traditional legal knowledge toward the study of how technology can be used to improve legal education and the delivery of legal products and services.
The role of the bar
The structural shifts discussed in this article apply equally to practicing lawyers and legal educators. During the prosperity of post-war America, we tended to go our own ways. In retrospect, that was a mistake. Rather an apportioning blame, however, a more constructive course is collaboration on what we call the productivity imperative-higher quality at a lower cost.
Practicing lawyers need new and better skills to adapt to a changing marketplace, and law schools need to learn how to teach this broader range of skills. The bar associations can play a critical role in this transition by cultivating relationships - in the form of conferences, conclaves, and apprenticeship programs - with forward-thinking law schools and legal educators. The benefits that accrue will ensure that more legal educators and law schools will follow.
The challenges facing legal education are no less severe. Both public and private law schools are given a valuable resource by the rules effectively limiting access to the bar exam to graduates of approved law schools. The "Spiderman rule" applies here: with great power comes great responsibility. To fulfill our obligations to society and the profession, law schools need to cut the cost of legal education, a painful process that will require significant rethinking of the virtually uniform model of law schools focused on academic research. At the same time that costs need to go down, the curricular content and teaching methods need to be updated and improved.
This transition will not happen, however, if legal employers - comprised of members of the state and local bar associations - reflexively favor candidates from the most highly ranked law schools. Hire the best candidates, to be sure. But invest the time and collect the data necessary to make truly informed and accurate hiring decisions.
The pervasive assumption that elite schools produce the best candidates has the effect of dramatically stifling innovation in law schools and locking in the status quo. Legal education takes three years and costs $100,000-plus, often financed with debt. It can also be done well or done poorly. An asset that costs this much needs to be properly valued by employers. Otherwise, there is no working market for quality in legal education.
Finally, the legal job market in Illinois may not be large enough to support nine law schools in the state, or 23 in the larger region. Whatever number remains, they should not all follow the same model in the future. In many respects, the Illinois State Bar Association and legal educators need to engage with one another to help solve each other's problems in the face of a rapidly changing legal marketplace.
William D. Henderson is Professor of Law & Van Nolan Faculty Fellow and Director of the Center on the Global Legal Profession, Indiana University-Bloomington. Andrew P. Morriss is D. Paul Jones, Jr. & Charlene A. Jones Chairholder in Law and Professor of Business at the University of Alabama.