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Wednesday, June 5, 2013

Seto: JD Job Prospects as Predicted by JD Degrees Per Capita

SetoTheodore P. Seto (Loyola-L.A.), JD Job Prospects as Predicted by JD Degrees Per Capita:

In a May 29 post on The Legal Whiteboard, Jerry Organ of St. Thomas (Minn) projects that ABA-accredited JD matriculations will total between 38,300 and 39,900 this fall. 2013 matriculations place an approximate upper limit on 2016 degrees awarded and on the supply of JD grads at that time.

If we assume 2013 matriculations of 39,900 and historically normal attrition, law schools will award approximately 35,954 JD degrees in 2016. The last time US law schools awarded so few degrees was 1989, a quarter of a century ago:

Demand for legal services, however, probably increases as population increases. Converting the same data to degrees awarded per 100K of US population produces the following:

You will observe a downward trend between 1981 and 2001, when degrees per 100K bottomed out at 13.30. The least-squares regression line from 1981 to 2001 is of the form:

X = 136.1615 + (Year * -0.0609)

Note that this line takes into account the downward trend in per capita demand between 1981 and 2001 and therefore arguably reflects long-term changes in the structure of the legal services industry.

If this line is predictive of non-cyclical demand, non-cyclical demand for 2011 through 2016 was and will be as follows:

 Year

Demand

Supply

Oversupply

2011

14.28

13.69

0.59

2012

14.83

13.63

1.2

2013

13.57

14.97

1.4

2014

13.50

13.78

0.28

2015

13.44

12.48

-0.96

2016

13.38

11.11

-2.28

Non-cyclical oversupply is exacerbated by recession. It should therefore come as no great surprise that the market has been unable to absorb all recent law graduates.

By 2016, however, the per capita supply of law grads for entry-level jobs will be down by more than 25% from 2013 and more than 16% below America’s modern historic low in 2001.

Unless something truly extraordinary has happened to non-cyclical demand, a degrees-awarded-per-capita analysis suggests that beginning in fall 2015 and intensifying into 2016 employers are likely to experience an undersupply of law grads, provided that the economic recovery continues. To some extent, this will be buffered by recent oversupply. If matriculations remain at projected 2013 levels, however, once the market has absorbed the recent oversupply, a degrees-awarded-per-capita analysis suggests that long-term demand for law grads will outstrip long-term supply into the indefinite future.

Update:

http://taxprof.typepad.com/taxprof_blog/2013/06/seto-.html

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Comments

"Demand for legal services, however, probably increases as population increases."

Funny, I would have said that demand for legal services increases as the ability to pay for it increases. Since most of the jobs lost in the recession were middle-class and most of the jobs gained in the "recovery" were service-sector, I wouldn't be too optimistic.

"By 2016, however, the per capita supply of law grads for entry-level jobs will be down by more than 25% from 2013 and more than 16% below America’s modern historic low in 2001."

You know, someday I'm going to have to get one of you sunny-side up law profs to show me where all the "entry-level jobs" are so I can get on with my life. I'm in one of the largest legal markets in the country (Massachusetts), and it's been, well, years since I've seen an actual entry-level law job that didn't actually require 3-5 years' experience and a federal clerkship. Actually, that's not true: I saw a Paralegal or JD job listed on Monster the other day. They'll take entry-level attorneys IF they have prior paralegal experience, and they are willing to pay the princely sum of... $16/hour. So I stand corrected.

Posted by: Unemployed_Northeastern | Jun 5, 2013 8:30:04 AM

It is not clear to me what claim the analysis is making. Is the claim that the trend is good for law schools because there will be more applicants chasing fewer seats? Or, is the claim that the trend is good for law students because there will be fewer graduates chasing entry-level jobs? If it is the latter, don't we need to know what the demand will be for entry-level jobs? Surely, we cannot say the demand for legal education is the same as the demand for legal services.

Another question I would have is the utility of trying to smooth out cyclical supply and demand effects because in the world things are cyclical. Someone smarter than me will be able to supply the quote about things working out well in the long-run, but in the long-run, we are all dead.

Posted by: Bob Lawless | Jun 5, 2013 9:27:26 AM

There's a point to be made here. For someone who has the interest and ability to practice real law (i.e. not "international" or "human rights"), then now is a very good time to attend law school. The reasons are as follows:

1. You will be able to attend a significantly better school than you would have a few years ago, or, alternatively, you will be able to secure a large scholarship at a lesser school.

2. You will graduate with a smaller cohort that is competing for jobs, and the pool of strong candidates will be even smaller proportionately.

I think reasonable advice is to either attend a Top14 school, or to get a full academic scholarship to a lesser institution. Attending schools like UCLA, BU, George Washington is also a reasonable option, especially if you get a discount, but can also quite easily lead to disaster.

Posted by: JM | Jun 5, 2013 10:24:24 AM

"Demand for legal services, however, probably increases as population increases."

This is a very dubious assumption. Legal work is subject to far too many other factors to be closely tied to population growth. Technology can and will replace many legal jobs. In addition, legal reforms (e.g. tort reform, patent reform, etc.) are likely to cut further into headcounts. And law firms increasingly are asking for more labor from each billing unit, meaning they can get as many hours today out of 90 attorneys as they demanded from 100 attorneys 10 years ago. Add that to the fact that corporate legal departments discovered in 2009-2011 that they could trim their legal spends without the disastrous consequences that have historically scared them into overpaying for legal services.

Posted by: John | Jun 5, 2013 11:08:14 AM

Seto took this line 2 years ago on Taxprof, arguing on the same grounds that law schools were not facing a crisis: http://taxprof.typepad.com/taxprof_blog/2011/07/seto-.html

Today we know Seto was badly wrong, as law schools across the country are currently struggling with dramatically declining revenues.

Seto will be wrong again in 2015 and 2016: there will still be a significant oversupply of graduates to available positions, though it will be 3-2 rather than the current 2-1.

And he will be wrong for all the same reasons, starting with the false presupposition that provides the basis for his analysis:

"Demand for legal services [that people are willing and able to pay for], however, probably increases as population increases."

Posted by: Brian Tamanaha | Jun 5, 2013 11:11:48 AM

Although admittedly I have a strong a strong personal bias (KU Law Admissions), I would add another group of schools to the "reasonable advice" category.

Attending a strong, reasonably priced, public law school is a great option, particularly if you're looking to practice in that school's home territory. A number of law schools, including Alabama, Kansas, Oklahoma, LSU, Temple, Nebraska, etc. have done a good job keeping tuition reasonable while providing students decent employment opportunities. These schools will become even more attractive when the employment situation improves as outlined above.

Posted by: Steven Freedman | Jun 5, 2013 11:16:08 AM

Another question from the faculty lounge also seems very important:

"My concern here is the effect of retainage in the system. Clearly people enter the legal field and exit over time. It's not like any one year is an input-output function independent of other years."

There has been a decade of over oversupply, and lawyers are increasingly practicing much later in life. This has resulted in built-up supply that has to go somewhere, and much of it will be competing with the graduates of 2016 for employment. In other words, the relevant market is not one for recent law graduates, but one for lawyers in which recent law graduates must compete. Unless there is a significant increase in aggregate demand for legal services, recent law graduates will have a very hard time entering that market for the foreseeable future.

Posted by: John | Jun 5, 2013 11:19:16 AM

*cross-posting from Faculty Lounge*

I'm not sure I'm fully appreciating Seto's methodology, but in any event I took the equation, rearranged it into classic "y=mx+b" format (once I saw that Seto was trying to describe a line through the modified data), and ground it out in Excel. I also went back across the entire span of the data.

My concern here is the effect of retainage in the system. Clearly people enter the legal field and exit over time. It's not like any one year is an input-output function independent of other years.

Seems to me everything is hinging on 2016 and the assumption that the delta between demand and supply is -2.28. When I use the data from 1981 to 2013, I get a "total" oversupply of 1.64, which indicates to me that there has been systemic overproduction of JDs for decades. I don't see how 2014-2016 can, in reality, vastly swing this total down to -1.33, which is what I get when I add in the 2014-2016 theoreticals to the mix from 1981-2013.

Posted by: dupednontraditional | Jun 5, 2013 11:38:19 AM

Brian, he rejected your prediction that the drop in applicants might be as much as 1/3 from the high. Even your prediction fell short. But, hey, I give you a solid A for seeing it coming.

Posted by: Jeff Matthews | Jun 5, 2013 11:41:35 AM

Brian says, above, "Seto will be wrong again in 2015 and 2016: there will still be a significant oversupply of graduates to available positions, though it will be 3-2 rather than the current 2-1."

I predict it remains steady. There is more to it than the number of law grads. Median family debt remains too high, and median family incomes are fairly stagnant. Today's college (not law) grads would have been tomorrow's clients, but for those high student loan repayments.

Posted by: Jeff Matthews | Jun 5, 2013 11:44:23 AM

First comment is correct: why is population the predictor of "demand"? (Other than the self-serving legal industrial complex wishes to dupe students.) Talk to me when the median net worth and median wages are back at 2001 levels. ROFL. Not going to happen.

Posted by: any | Jun 5, 2013 12:34:03 PM

Seto's demand-side estimate of 13.38 or greater per 100,000 of the US population equates to at least 42,000 lawyer jobs per year. However, the BLS projects an average of 21,880 lawyer jobs per year through 2020-- including growth and replacement needs, including part-timers, including one year long judicial clerkships. And the BLS projection is premised on a rapidly growing economy.

Last year, as well, Seto asserted that law school was a promising investment. He stated that "the best time to buy is when everyone else is selling."

http://abovethelaw.com/theodore-seto/

I have a clear memory of Jim Cramer on CNBC saying the same thing about Bear Stearns when its price began drop.

Posted by: dybbuk | Jun 5, 2013 12:36:28 PM

Any discussion of attorney supply and demand that does not directly address the fact that the BLS reports about 650,000 working lawyers, while the ABA reports over 1.3 *million* JD grads over the last 40 years...is *woefully* incomplete.

Until somebody can give a reasonable accounting for over 650,000 "missing" lawyers (they can't all be student-loan-driven suicides...can they?) then any suggestion of lawyer "undersupply" is *absurd*.

Enough with the anecdotal hypothesizing, legal profession - get into the Age of Empiricism and do some digging.

Posted by: cas127 | Jun 5, 2013 12:48:02 PM

Regarding lawyers leaving the field, with zero interest rates less will be able to afford to do so. I planned to retire at 60, but at 61 I see no end in sight.

Posted by: MarkInFlorida | Jun 5, 2013 1:26:33 PM

Yes, I think these calculations underestimate the "inventory" of unemployed JDs already on the market. With that said, I think some unemployed JDs will never find work in the legal profession and entry level positions will go to newer graduates. These chronically unemployed JDs may have effectively been forced out of the labor market. This is just my gut, but if an employer has a choice between a new grad and an '09 grad that's been waiting tables for four years, I think the employer opts for the new grad.

Posted by: HTA | Jun 5, 2013 3:39:19 PM

Seto's assessment - and for that matter Dan Filler's approving posting of it over at the faculty lounge are both remarkable in inherently admitting something that Dan and Seto had until now been desperately denying - that there was a substantial fall in the number of law school matriculations in progress - and that there is an oversupply of JDs.

At the same time, Seto makes a mess of things. The key hole in his analysis is the assumption that until recently supply (JDs awarded per year) was in fact in equilibrium with demand for new law graduates. As has now been relentlessly detailed by numerous careful studies (as well as the missing lawyer phenomenon) that has not been an accurate assessment since perhaps the 1990s. Only a small proportion of the demand-supply mismatch can be attributed to the recession. (The non-equilibrium in the JD supply is a function of the market distortion of a student loan system devoid of underwriting standards.)

One additional issue that Seto is missing. A trend that I am observing (and my assessment may be anecdotal) is that a lot more lawyers are delaying retirement - and practicing into their late 60s even to their late 70s. Certainly I see a growing proportion of lawyers in their 50s and 60s who are not able to contemplate retirement - who lack the retirement savings, whose pension savings have suffered from a poor stockmarket for the last decade and a half or so, or who have children in their 20s and 30s who have "failed to launch" and need financial help. Indeed soaring tuition has also had its impact on 50-60 year old lawyers' retirement plans, as their kids are in college and law school. The non-retiring are a serious source of competition in the marketplace for young lawyers - law being a game where "age and cunning" can regularly beat "youth and vigour" - while experienced lawyers also have established client networks.

Where Seto may be accurate is in his prediction that on current numbers matriculations will be of the order of 39,900 - though it could easily be lower (the impact of law schools' desperate efforts to get applications in the current cycle (waiving application fees, chasing marginally interested applicants) will likely be a lower yield of matriculants from the number of applications, especially if the recovery continues to strengthen through the summer.) What does this mean for law schools? Well one good prediction is that in any given metro area with multiple law schools, the bottom ranked law school will be in trouble as students shuffle up to the higher ranked school(s), or the lower ranked school needs to offer very heavy discounts to attract students. It may also lead to competition for transfers in senior class ranks (as schools like Phoenix law are discovering) and further efforts to prevent the losses of 2Ls and 3Ls and tuition dollars. Remember a fall of 8,000 law students means the equivalent of around 20-40 law schools' first year classes (assuming 200-400 per entering class.) The assumption of the pollyanna's is that the fall in matriculations will be evenly distributed across all law schools - but it seems more reasonable to think that those with the perceived worst value offering will take the biggest hit.

The next couple of years are going to be a wild ride for law schools - and September will be very interesting.

Posted by: MacK | Jun 5, 2013 4:17:16 PM