Where have all the lawyers gone?

In the renewed debate over the relative health of legal education that has taken place on blogs and elsewhere of late, Professors Tamanaha and Merritt, widely known as opponents of law school as it currently exists, claim there are missing lawyers somewhere. In a recent exchange on Prawfsblawg following the misleading New York Times story on 2010 law school graduates, Professor Merritt claims demand for new lawyers is flat and Professor Tamanaha asks me why every recent law school graduate doesn’t have a job immediately upon graduation.

These kinds of questions have been at the heart of the critics’ case as they have to insist that there is an unprecedented structural crisis in legal education that cannot resolve itself through ordinary market mechanisms. Thus, there have to be a lot of missing lawyer jobs in order to create a deep-set structural mismatch between the number of students graduating from law school and the number of jobs available. Most of the time the critics rely on the BLS’s notoriously unreliable projections of future legal jobs to conclude that there are just too many law students and not enough lawyer jobs. (Even BLS officials admit the limited usefulness of these projections.)

But a review of the actual historical data used to estimate job numbers and income going back to the late 90s available from the Bureau of Labor Statistics reveals a very different pattern than the one law school opponents desire.

I reviewed this data in an earlier post but did not apply that data to the question of supply and demand raised now by Professors Tamanaha and Merritt. In addition, another year of data – up to May 2014 – is now available from the BLS.

First, the new added data through May 2014, confirms the trend stretching back to 1997. The number of people employed as lawyers and the income they earn are both up again. As of May 2014 there were 603,310 lawyers employed in the United States and on average (mean) they earned $133,470 per year. That’s an increase in jobs from 592,670 the previous year and an increase in income from $131,990.

In fact, income for lawyers has increased every year since 1997 (the earliest year for which data are readily available from the BLS) and the number of people employed as lawyers has increased every year since 1997 except in 2008, the high point of the credit crisis.*

(Median income increased by 54% in nominal terms. Medians however declined in two years in this period – 2000 and 2010.)

Now, what is the implication of the available BLS data for the question posed at the outset: where have all the lawyers gone? Or perhaps more importantly where have all the young JDs gone?

Well, it is not accurate to state as Professor Merritt does that demand for new lawyers “will remain flat.” In fact, demand for lawyers has increased every year since 1997, except in 2008 and as a result lawyers have been able to increase their incomes significantly faster than inflation or the rate of GDP growth. (Correction: nominal GDP has increased faster than nominal lawyer incomes.) Arguably, there are too few lawyers and that explains why they have been able to grab more income for the profession. In fact, that likely explains why right wing anti-law school anti-higher education outfits like the Koch Brothers funded Cato Institute have feted figures like Professor Tamanaha and his colleague in arms Professor Campos (in their Friedrich Hayek Auditorium no less). These pro-corporate think tanks are well aware of the cost impact of legal services for their constituents and would like to see that bill cut back significantly.

But the news for lawyers is that this effort has not been terribly successful. And, in fact, the news for law schools is that, more or less, law schools have managed the supply of lawyers quite successfully despite what opponents of law schools say. Of course, this is not to minimize the terrible short term mismatch that occurred in the wake of the bursting of the credit bubble.

How do I reach this conclusion?

Well, there were approximately 425,000 lawyers employed in 1997 and 600,000 in 2014. That means over 18 years we added, net, about 175,000 new lawyers. Every year – except 2008 – that annual number increased. That tells me society wanted to employ more lawyers and when we add in the fact that lawyer incomes increased each year in that period as well, from a low in 1997 of about 73,000 to a high in 2014 of 133,000 it tells me society was willing to pay lawyers more also.

That growth in the average (mean) annual wage paid to lawyers is significant, too, because it outstripped inflation and the growth in GDP. This suggests that lawyers have market power. No wonder Cato and the Koch Brothers are upset.

Now let’s go back to the number of employed lawyers. On average, the net number of additional lawyers employed each year from 1997 to 2014 is 9,722. Let’s just call it 10,000 per year. ABA law schools on average produced roughly 40,000 JDs every year. Let’s assume that 5000 of these students do not pass the bar (very conservative I think) and that another 5000 do pass the bar but do not want to be employed as a lawyer (again, likely very conservative). That leaves 30,000 newly minted licensed JDs each year who want to be employed as lawyers. Some will want to go solo, but such a small number that we can leave that aside for the moment (again a number that helps the critics but perhaps it offsets the rounding up to 10K).

Now we saw above that, net, the market for employed lawyers absorbs about 10,000 new lawyers each year. So we have to get rid of 20,000 of the existing pool of employed lawyers every year. How hard is that? Well, people’s lives change, people retire, and, sadly, people die. If we guesstimate that on average over the last two decades we have had 500,000 lawyers employed each year, that means we need for about 4% of them to leave the profession – one way or another each year on average – to make room for the newly minted JDs. That does not seem an absurdly high number.

Of course, non-ABA law schools add some more to the supply. There are roughly 10,000 students enrolled in these schools but of course the graduate rates and the bar passage rates are very low so perhaps the non-ABA schools add another 2,500 licensed JDs who want to be employed. That would require bumping up the leave rate a bit but not by very much.

In other words, over a long time frame – nearly two decades – law schools have managed to generate a supply of new lawyers that roughly matches social demand. In fact, one could argue that we don’t produce enough lawyers because society is actually willing to pay employed lawyers substantially more than they once earned. Rather than complaining you would think Koch and Cato would celebrate the graduation rates of new JDs.

Now this answers Professor Merritt’s claim that demand is flat but what about Professor Tamanaha’s concern that recent law school graduates are not all finding full time long term jobs as JDs?

Well, of course, nothing in the BLS data tells how long each lawyer is employed and we have to allow for at least 20% to fail the bar or choose to do something other than become employed as a lawyer. But nonetheless it is clear that for a limited period of time starting soon after the bursting of the credit bubble in 2008 that supply appears to have outstripped demand.

That conclusion – as unfortunate as it is for the newly minted JDs who could not immediately find work – is not terribly informative about the job that law schools perform. Given the variables involved – law school pass rates, bar pass rates, decisions of thousands of students to work as lawyers or pursue alternatives, retirement rates, death rates – it is easy to imagine a situation where in any given year or for a period of several years, supply and demand do not match.

Indeed, there was likely a kind of perfect storm after both the dotcom/telecom crash and the credit crisis of 2008. College graduates with BAs likely could not find work so applied in much larger numbers to law school, already employed lawyers likely put off plans to retire as uncertainty about their financial futures increased, employers of lawyers (law firms, government, corporations) delayed hiring plans.

But this is the expected, if problematic and unfortunate, impact of a financial downturn. It says very little about the performance of law schools and as I explained in my review of Professor Tamanaha’s book Failing Law Schools he fails to make the case that there was opportunistic or manipulative enrollment management underway in law schools. In fact, when law school applicants hit 100,000 in 2004 1L admitted applicants actually declined from the prior year.

While there are many changes that law schools can and should and in fact are making in the way they deliver legal education, it is a mistake to be overly concerned – some might even say fanatically obsessed – with the daily lives of law professors and deans. Actually, the biggest concern we should have is that the current economic recovery – which in my region of the country has pushed the mean salary of lawyers to more than $200,000 per year – falters. That could delay what is already a painfully slow economic upturn and would make all but impossible the expensive and complex restructuring that so many of the law school critics advocate.

*Now, these numbers are “employed” lawyers so they do not include solo practitioners or partners who qualify as employers. But the first number is relatively small, approximately 4% on average of all practicing lawyers over that time period. And the second number is likely to skew income higher not lower, so excluding that number does not help the critics case that much. Arguably solos do less well financially (though we don’t know for sure based on the BLS data) so perhaps they cancel each other out.

Henry Manne, 1928-2015

Steve Bainbridge writes here of the passing of Henry Manne, one of the most important legal thinkers of the late 20th century. I did not know Henry at all personally until one evening a few years ago I was very pleased, out of the blue, to receive an email from him commenting on a paper of mine that had been posted on SSRN. That led to a brief but fruitful exchange of ideas about law and capitalism that proved very helpful in my own thinking and apparently, while he was perhaps just being polite in saying so, in his own thinking as well. Henry was someone who I think, alongside the late Benoit Mandelbrot whom I also was privileged to get to know in a similarly random way, should have received a Nobel Prize. Henry’s work and ideas will be of significance for a very long period of time and deserve careful study.

Remembering the words of Thich Nhat Hanh on Martin Luther King’s day

While many tomorrow will, understandably, recall Rev. King’s “I Have a Dream” speech, I often think of another of his great speeches, one that was, in some ways, more radical and disconcerting because he linked his struggle for racial justice to US foreign policy.

It was delivered in New York in 1967 and can be heard here.

There is also a personal aspect of that speech for me because my young son’s great uncle, Thich Nhat Hanh, was quoted by King in the speech:

“This is the message of the great Buddhist leaders of Vietnam. Recently one of them wrote these words, and I quote: ‘Each day the war goes on the hatred increases in the hearts of the Vietnamese and in the hearts of those of humanitarian instinct. The Americans are forcing even their friends into becoming their enemies. It is curious that the Americans, who calculate so carefully on the possibilities of military victory, do not realize that in the process they are incurring deep psychological and political defeat. The image of America will never again be the image of revolution, freedom, and democracy, but the image of violence and militarism.'”

Thich Nhat Hanh had met with King when he came to the United States from Vietnam and apparently had a significant impact on King’s thinking. In fact, King nominated him for the Nobel Peace Prize. This year, Thich Nhat Hanh is quite ill so there is a poignancy to this important historical connection. It is also the case that now is once again a time when America must find a way to stand for “revolution, freedom and democracy” as the events in Paris and the middle east remind us.

Leading study of JD’s million dollar value published in Journal of Legal Studies

The widely respected Journal of Legal Studies has now published “The Economic Value of a Law Degree,” the most important and widely discussed study of the value of earning a JD authored by legal scholar Michael Simkovic and economist Frank McIntyre.

The study concludes based on exhaustive empirical analysis that includes the impact of the recent recession that “a law degree is associated with median increases of 73 percent in earnings and 60 percent in hourly wages. The mean annual earnings premium is approximately $57,200 in 2013 dollars. Values in recent years are within historical norms. The mean pretax lifetime value of a law degree is approximately $1 million.”

A working paper version of the article released last year triggered an intense debate because it provided strong empirical evidence that, despite the difficulties of recent law school graduates, over a career a JD had significant value relative to entering the workforce with only a BA. The concrete data assembled by the authors flew in the face of the anecdotal approach taken by most critics of the JD who dominated discussion of the future of law school in the wake of the economic crisis. Examples of the debate can be found here, here and here.

Here is the full abstract from the article:

“We investigate the economic value of a law degree and find that for most law school graduates, the present value of a law degree typically exceeds its cost by hundreds of thousands of dollars. The median and 25th-percentile earnings premiums justify enrollment. We track lifetime earnings of a large sample of law degree holders. Previous studies focused on starting salaries, generic professional degree holders, or the subset of law degree holders who practice law. We incorporate unemployment and disability risk and measure earnings premiums separately for men and for women. After controlling for observable ability sorting, we find that a law degree is associated with median increases of 73 percent in earnings and 60 percent in hourly wages. The mean annual earnings premium is approximately $57,200 in 2013 dollars. Values in recent years are within historical norms. The mean pretax lifetime value of a law degree is approximately $1 million.”

Some critics claimed, inaccurately, that the paper was not subject to peer review. It was, however, peer reviewed prior to its circulation in working paper form (as I explained here) and now has been published in a leading refereed journal published by the University of Chicago Press.

As the economic recovery from the collapse of the 2008-10 period continues its momentum there is some evidence that applications to top tier JD programs remain strong with applicants with very LSATs now having increased. Nonetheless, second and third tier schools remain challenged to survive the prolonged economic cycle. This study, however, is likely to reinforce the argument that the JD and law schools remain a viable and important economic institution.

The Facebook effect: secondary markets and insider trading in today’s startup environment : Research Handbook on Insider Trading

Coming out in (relatively) affordable paperback soon. Order now in time for the Xmas holiday gift giving season!

Source: The Facebook effect: secondary markets and insider trading in today’s startup environment : Research Handbook on Insider Trading

Schooled, In debt, Struggling

Frank Wu, the dean of UC Hastings College of the Law, flutters about his third-floor office adjusting things, making sure his emails are answered and…

Source: Schooled, Indebt, Struggling

An up close and personal portrait of the challenges facing an important Bay Area law school as the “new normal” takes hold in legal services and education. A must read.

My review of Human Rights and Transnational Solidarity in Cold War Latin America ed. by Jessica Stites Mor

Misguided approaches to the Cold War and the authoritarian regimes supported by both Washington and Moscow abound. My hope that this volume would do a better job were disappointed.

Human Rights and Transnational Solidarity in Cold War Latin America

Is the stock market “rigged”? Evidence from the NYSE – presented at NU Kellogg and Duke

My co-author Stanford-based economist Jenny Kuan and I each traveled to different parts of the country recently to present our research on the problematic changes in stock market structures. I presented the paper at the meetings of SASE held at Northwestern’s Kellogg School of Business and Jenny presented the paper at the ISNIE meetings at Duke. We got helpful comments from both events and are honing in on a new draft for submission to a peer reviewed finance journal. Here are the slides I used in Chicago.

What The New Yorker’s Louis Menand gets right and wrong about the Equal Rights Amendment

I sent The New Yorker the following letter recently in reply to a very interesting essay by Louis Menand on the complicated interaction between the battle over civil rights for women and minorities. They have not printed it so I thought I would share it with readers of the blog:

To the editor,

Louis Menand is to be commended for bringing to light certain aspects of what I and my co-author, the late Hal Draper, describe in our study of the ERA (The Hidden History of the Equal Rights Amendment) coincidentally just published in the last few weeks by the Center for Socialist History.

While Mr. Menand notes correctly the close ties between business interests and proponents of the ERA he leaves out of his account one key historical fact and misstates one key impact of the passage of Title VII. The two are related in an important way and together they act as a key to understanding the full story we set out in detail in our book.

The key historical fact is that there were, always and from the very earliest period following suffrage, two versions the ERA. Left and liberal activists (including, for example, the social feminist Florence Kelley and the liberal Eleanor Roosevelt) promoted a “labor” ERA that would, indeed, have extended the benefits of protective labor legislation to men workers. Yet at every turn this genuinely progressive alternative ERA was attacked and undermined by Alice Paul and her allies in the business community who backed what we term the “pure” version of the ERA. There is no surprise about this alliance nor was there ever any confusion – Paul herself was from an upper class background and was a natural ally of business and professional women who aspired to join their male business counterparts at the top of our socio-economic hierarchy. Paul and her colleagues in the National Woman’s Party were enthusiastic about ending expensive labor laws that protected working class women.

The related misstatement is Mr. Menand’s bald conclusion that “Labor-protection laws did not disappear, as many liberals had feared; they were written to cover both sexes.” Oddly this follows his correct statement that a federal court found such laws unconstitutional. The court opinion is accurately cited [see Rosenfeld v. Southern Pacific, 444 F.2d 1219], his follow on conclusion has no basis. In state after state, in the immediate wake of the passage of Title VII, protective labor laws were stripped from the books and any chance of extending them to men workers was gone.

At least one of the authors cited by Mr. Menand clearly concurs. Jo Freeman wrote in her study of Title VII: “As a consequence [of the passage of Title VII] the federal courts voided state protective laws on the grounds that they were in conflict with the federal prohibition against sex discrimination …. These laws, which limited the hours women could work, the weights they could lift, often prohibited night work and entry into some occupations considered too dangerous for women, had been actively sought during the first half of the twentieth century by an earlier generation of women activists …. “[citations omitted]

We describe in detail this process in the book, including for example the bitter battle over these labor laws fought out in California between trade union women and the National Organization for Women.

Only when one puts these pieces of the ERA’s history together can one explain its ultimate failure during the ratification process, a step that Mr. Menand does not, understandably, attempt in his essay. By the time the amendment emerged from the Congress for ratification by the states, Title VII had already carried out the business side of the original Alice Paul/business agenda – elimination of protective labor laws. An attempt to extend the period for ratification of the ERA was defeated as the erstwhile allies of Alice Paul in Congress, such as Senator John Tower of Tennessee, backed away from her lifelong project.

Both working women and professional women still face significant discrimination in the workplace today and thus a full understanding of this history is crucial.

Did the Governor Schwarzenegger secretly “terminate” a woman’s right to choose?

In a potential violation of the state constitution and several state statutes, the longstanding right in California to insurance coverage for abortions and other family planning services including some forms of contraception was dramatically cut back by a secret administrative action that took place while Governor Schwarzenegger was in office, internal state agency documents show.

The State’s Department of Managed Health Care (DMHC) approved the cut back in coverage for abortions and other services, the documents show, at the request of a “large religious organization,” which several sources now say was Loyola Marymount University, based in Los Angeles. While the request was made on behalf of a religiously affiliated entity, no precise definition of what constitutes a “religious organization” or “religious group” was provided nor was the basis of the term “affiliated” defined.

There is no indication by the DMHC that the special exemption is limited to entities with a religious affiliation, instead the documents indicate that an insurer can cut back coverage because it is not obligated under the state’s Health and Safety Code to provide “all” family planning services but only “any” family planning services. This finding appears to shift the choice of whether to terminate a pregnancy or use contraception from the patient to the insurer and employer. Thus, the new rule opens the door to the cut back or elimination of insurance coverage for abortion, contraception and other family planning services at any California workplace.

The DMHC approved the insurance cut back secretly in 2008, while Arnold Schwarzenegger was Governor, but the decision only came to light recently when Anthem Blue Cross, one of California’s major insurance providers, agreed to implement the cut back at Loyola Marymount University (LMU) in southern California. In the wake of the Anthem decision at LMU, several other religiously affiliated entities, including Santa Clara University and St. Mary’s College, announced an intent to follow the LMU example.

Because abortion, like other health care services, is cost sensitive, the denial of insurance coverage has a significant impact on the ability of a woman to choose freely whether or not to terminate a pregnancy. Research indicates that a genuine freedom to choose whether or not to terminate a pregnancy provides a wide range of social and health benefits to women and their families, as well as to society at large.

California’s constitution guarantees a woman’s right to privacy which has long been interpreted to include the right to choose to terminate a pregnancy. California’s Health and Safety Code obligates insurance companies that offer HMO plans to cover health care that is medically necessary. Both medical abortions (including the use of the drug RU-486) and surgical abortions have long been accepted in California as medically necessary to terminate a pregnancy.

A review of DMHC’s records indicates that insurance companies never deny coverage to abortions as, by definition, an abortion is “medically necessary” to terminate a pregnancy. Once a woman exercises her constitutional and statutory right to choose the Knox-Keene Act, a 1975 amendment to California’s Health and Safety Code, obligates an HMO to provide insurance coverage for any medically necessary procedure or service, including the use of RU-486 or a surgical abortion, that safely terminates the pregnancy.

California’s Administrative Procedures Act also requires state agencies such as the DMHC to follow a rigorous and publicly transparent process when it implements rule changes such as the one required to approve the insurance cut backs. In this instance, however, the records provided indicated Anthem made the requested change to the General Counsel’s office of the DMHC. No notice or opportunity to be heard was provided to the public. It is not clear why Anthem delayed implementation of the change, approved in 2008, until now. There is some indication that the change was delayed while the debate about changes in federal health care were worked out.

Finally, the California Reproductive Freedom Act forbids a state agency like the DMHC from “interfering” with a woman’s right to choose to terminate a pregnancy. The DMHC licenses insurers like Anthem to sell HMO insurance plans, thus providing a significant benefit. By carving out undefined “religious groups” such as LMU, the DMHC is likely trespassing on that statutory obligation.

The documents, obtained from California’s Department of Managed Health Care (DMHC) through a public records act request, indicate that Anthem originally requested approval from the DMHC to terminate coverage of a wide range of family planning services including abortion, sterilization and certain forms of contraception, including the intrauterine device (IUD). The DMHC objected only to the request to terminate coverage of the IUD, but gave the green light for the other cutbacks.

In one document provided by Anthem to the DMHC in the summer of 2013 it states:

“Per agreement with the Department, only for religious groups, the text of the provisions dealing with pregnancy, maternity care, infertility and birth control may be limited to a minimum number of a “variety of family planning services,” and some may be excluded. The following exclusion will only be included for religious groups and will be omitted for non-religious groups (See Filing No. 20081015 closed out July 8, 2008.)

“Family Planning. No services are provided under this plan for: diagnosis and testing for infertility: sterilization of females or males; shots or implants for birth control; diaphragms; doctor’s services to prescribe and fit a diaphragms; or for voluntary abortion, except when medically necessary.  As indicated under “What’s covered,” “Birth Control,” family planning (counseling and consultation) is covered.”

The final version of LMU’s “Evidence of Coverage,” which must be provided by the insurance company to all plan members, is not yet available so it is not clear if their new plan will track this language. However, Anthem is now free to offer this kind of cut back to any “religious group,” however that term is understood.

The announcement at LMU caused a firestorm on its campus as staff and faculty objected to the changes. Similar reactions were heard at Santa Clara University. On both campuses faculty objected to the changes as a violation of established norms of “shared governance,” a longstanding principle that faculty must be formally engaged in major decisions about an academic institution. However, the Boards of Trustees at both campuses reaffirmed the decision to cut back insurance coverage arguing the institutions’ religious values trumped the rights of faculty in this instance.

While public attention to the universities’ decision has focused on the affiliation of the two schools with the Catholic church, the designation “religious group,” used by Anthem and approved by the DMHC, has no formal basis in current California law. There is an exemption available for a religious entity that meets a strict four part test. Thus, a religious order or seminary can obtain certain favorable exemptions from some aspects of the state’s Constitution or statutes. However, it is widely agreed that neither university fits that definition.

Thus, the new rule change by the DMHC either creates, without any legislative or judicial process, a new broader legal classification that would presumably include any employer loosely affiliated with a religious faith or the DMHC has, perhaps unintentionally, opened the door to allowing any employer expressing certain moral or religious beliefs to claim the same ability to eliminate coverage of abortion and other family planning services from the HMO’s. It appears that any employer who can claim to fit the undefined designation “religious group” would qualify for the new DMHC approved exemption.

This kind of argument is now being raised in litigation in other parts of the country in reaction to the Affordable Care Act, or “Obamacare” as it is widely known. Private corporations that clearly do not meet the existing four part test for a “religious exemption” have claimed that their insurance companies should nonetheless be exempted from the ACA’s requirement that they provide contraception coverage free of charge because the owners of the business object to contraception on religious grounds. Because there is no grounding of the California rule change in the formal definition of a “religious entity,” the change could be read as opening the door to similar arguments in California, long seen as a bastion of a woman’s right to choose.