“Where have all the lawyers gone?” for beginners

Professor Campos and his colleague Professor Scott Lemieux at their blog (once dismissed by liberal journo Glenn Greenwald as a “cesspool” – after mistakenly spending a few minutes today interacting there, I know now what he meant) profess not to understand the nature of supply and demand in the market for lawyers. Clearly that is true. Their confusion appears to be shared by several of the commenters on the blog as well their fellow opponents of American law schools, Ohio State’s Professor Merritt and Washington University’s Brian Tamanaha.

So here is a simpler version of the description of that market I provided here in a prior post.

We produce approximately 32,500 newly law school graduates each year who both want to practice law and who gain a license to do so by passing the bar. Of course there are more JDs who graduate each year from both ABA and non-ABA schools. But not all of them want to practice law and not all of them pass the bar. (I get that number by looking at an average of 40,000 graduates from ABA law schools and then subtracting a certain percentage who do not pass the bar and who do not want to practice law, but then adding back in some from the non-ABA schools. See the earlier post for details.)

Each year we add, according to the BLS, approximately 10,000 net new positions for employed lawyers. Currently there are approximately 600,000 people employed as lawyers. This does not include partners, solo practitioners, judges and a number of other JD-required positions.

Those who oppose the American law school claim there just aren’t enough jobs for those 32,500 new JDs. At first glance that appears to be true but keep in mind that the 10,000 is a net figure. Each year, however, employed lawyers get promoted to partner (where they make more money, of course), start a solo practice (very common here in Silicon Valley), retire, die or just plain quit.

We would require approximately 20,000 of these shifts out of the “employed lawyer” category to occur each year to absorb supply. That may seem like a lot and maybe it is. But from a base of, on average, about 500,000 employed lawyers going back some 20 years, it’s only about 4%. (I’m neither a labor economist nor a demographer so this last figure is subject to debate.)

There is likely a lot of variation in all these factors every year and in fact the credit crisis and dotcom/telecom crashes likely wrecked havoc on historical averages in variables like retirement ages for employed lawyers. And that likely is why we have had an overhang of supply in the last few years.

The assumptions I make here could be wrong but when asked about it (my positing a 4% exit rate is purely a working hypothesis, for example), the critics have not come up with significantly different numbers.

Lawyers have done well financially, too. While not outstripping GDP growth (as I originally and mistakenly suggested) they have outstripped inflation. Factor in higher paid partners and likely they have stayed comfortably ahead of inflation. This suggests lawyers have solid market power, able to defend and even increase their income in an intensely competitive marketplace.

This is the logic that underlies the significant positive net present value (a concept I tried, patiently but I think unsuccessfully, to explain to Professor Campos in an earlier post here) of the JD as explained by the research of Simkovic and McIntyre. And this suggests that lawyers remain in demand. Society may be willing to allow lawyers to beat inflation because demand actually outstrips supply. That is of little comfort to new JDs but it points to the eventual solution to the temporary mismatch in the market.

This will no doubt not end our great law school debate but I hope the confused folks over at Lawyers, Guns and Money can now see how the world of supply and demand actually works.