The Legal Employment Market, Student Debt, and Legal Education Refor...

There has been a great deal of press recently about the sorry state of the legal jobs market, student debt, and the irrelevance of legal education (see, e.g., here).  A lot of the thinking on these issues has struck me as incredibly ga-ga and muddled and as reflecting unrelated and pre-existing agendas about legal education, student debt, and the role of lawyers in society.  The jobs market, student debt, and legal education are all distinct, if related issues.  But it's important to untangle them and see where the problems are and what can be done about them.   

(1) If Supply > Demand, then Prices Will Fall...

The legal employment market is a services market, nothing more, nothing less.  It doesn't particularly matter that the services performed are legal.  It's a market.  And that means it is subject to the inexorable laws of supply and demand.  I don't know of a good measure of demand for legal services, but it is clear that aggregate demand is either not growing as fast as it once did or perhaps shrinking.  There are lots of reasons for this including in-housing and out-sourcing.  The reduction in demand is not itself a problem.  The problem is that the supply of lawyers is outstripping demand.  Some of this is greater longevity and the decline of mandatory retirement, but a lot has to do with the expansion of the number of JDs being produced annually.  Simply put, law schools are flooding the market with supply and that's a problem when demand doesn't keep pace. 

(2) What's New Are Problems in the High-End of the Market

The legal employment market, however, is not a single market.  To oversimplify, it has a high end and a low end.  The supply-and-demand problem at the high-end of the market is reversed at the low-end of the market.  There are lots of consumers who need legal services and cannot afford them.  This is a problem and one that those of us who work in consumer bankruptcy and consumer finance are very familiar with, but it's not a new one.  The problem that has recently emerged in the legal market is about the high-end of the market, not the low-end one.  These are different problems and point to different solutions. 

(3) Reduce Oversupply and Prices Will Stabilize

For the high-end of the market, there's really nothing that can be done to stoke demand.  (Ok, a true Machiavellian would be pushing for lots more complicated regulation in order to increase demand for legal services.)  As long as supply outstrips demand, there will be downward pressure on compensation.  At a certain point, however, as compensation declines, a legal education becomes a comparatively less attractive investment, particularly because it is a leveraged investment. Taking on lots of debt to pay for law school is a bad idea if employment prospects are such that debt service will be onerous or impossible.  And that will affect law schools.  Virtually all law schools are funded primarily by tuition. Some have endowments that pick up some slack, but tuition is the economic driver, and it might not be possible to keep up tuition levels or at least increase them at past rates.  The result will likely be some law schools failing.  It won't be pretty--on a human level it will be painful for many people.  But from the perspective of the legal employment market overall, it will be a good thing.  Fewer law schools graduating fewer JDs would reduce supply and thus keep up high end lawyer salaries.  Alternatively, if states just got more restrictive on their bar admission requirements, the oversupply of lawyers would be mitigated.  All of this is to say, the market should correct.  It might take a while, but the closure of some law schools or political pressure from lawyers to tighten up bar admission standards is likely to reduce supply and stabilize compensation. 

(4) Legal Education Reforms Will Not Create Jobs

Many of the responses to the problems in the legal jobs market focus on changing legal education to give law students more practice skills and/or reduce the length of legal education so as to reduce student debt.  Both ideas strike me as incorrect responses to the job market problem.  

 Ok, let me put this in all caps:  CHANGING LEGAL EDUCATION WILL NOT CREATE DEMAND FOR LEGAL SERVICES.  LEGAL EDUCATION REFORM WILL NOT CREATE JOBS.  It's not clear how it possibly could.  Law school graduates could emerge from 3L year like Athena from the head of Zeus, fully formed lawyers in all their glory, and that wouldn't result in greater employment.  Instead, the only thing that education reforms (more practical courses, externships, etc.) can possibly do is provide graduates of one school a leg up on graduates of other schools in competing for a slice of the legal employment pie.  It won't grow the pie.  

(5) Reducing the Length of the JD Education Will Not Result in Lower Education Costs

What about reducing the length of the JD educational program from 3 to 2 years?  It's not clear to me why that would translate into a 33% reduction in the cost of legal education.  If students' post-JD salaries are the same irrespective of 2 years vs. 3 years of education, their demand for legal education should be unchanged.  Indeed, going from 3 to 2 years should actually increase demand for legal education because there will be an extra year's worth of earning time.  If demand is unchanged (or even increases), why would the cost of legal education go down?  Schools have lots of fixed costs (faculty salary and benefits, physical plant, utilities), and these don't depend on 2 vs. 3 years.  Unless we think the legal education market is comprised of eleemosynary institutions, reducing the length of the JD should have no effect on the cost a JD.  (Admittedly, few law schools are run with Bain-like efficiency.  But when it rains gravy, even if they don't bring a kettle, they bring a cup, not a fork.)  

(6) Legal Education Reforms May Help Create Supply for the Low-End of the Market...But That's Not the a New Problem

There is still the problem of the low-end of the market, i.e., legal services for the middle class and poor, where demand outstrips supply.  Again, it is not a new problem, and it has nothing to do with the current Chicken Littleism about the legal employment market.  It's just a separate problem, and it is not one that is contributing to the current concern over law school economics. In terms of serving the low-end of the market, there is plenty of room for creative thinking about legal education reform, and in particular different types of law licensing.  It's a topic that I can't hope to cover in this blog post, other than to emphasize that law schools can't and don't need to shift from serving the high-end legal market to the low-end legal market as a solution to the current problems in the high-end of the market.  

All of this is to say that legal education reforms need to stand or fall on their own merits.  The changes in the legal employment market place should not provide an excuse for pre-existing legal education reform agendas.