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Will Law School Applicants Return?

law school apps

Law schools have suffered a precipitous drop in applications in the last six years—the largest decline in decades. To assess whether this decline will continue and to determine the response, legal educators must first figure out the causes of the decline. Here are the three most plausible causes in ascending order of the threat that they pose to incumbents in legal education. The first is the Great Recession: law schools have declined because of a decrease in the demand for legal services caused by the Great Recession. The second is the existence of a lawyer bubble: law schools previously produced too many lawyers and there is overhang of supply that makes new lawyers less necessary. The third is structural: law has faced a technological shock, which has depressed the demand for lawyers and/or their income.

It seems quite clear now that Great Recession cannot be assigned a primary role. Applications are still declining this year even though the economy has been coming back for some time. Moreover, recessions in the past have not unduly harmed the demand for legal education.  Prospective students recognize that a recession decreases the opportunity costs of being in a school, and students emerge ready to earn more in a more robust economy. Finally, as Ben Barton shows, the incomes of lawyers in small firms were declining before the Great Recession.

The bursting of a bubble in lawyers is an inherently somewhat less plausible explanation than a housing bubble for a persistent oversupply. Housing stock is a durable good and once built stays on the market for a long time. But lawyers’ skills are somewhat perishable. If a graduate is not employed substantially as a lawyer for several years, he or she is unlikely to be easily able to reenter the market as the relevant skills and connections atrophy. Thus, the bubble explanation is unlikely to provide a full accounting for the decline in demand for new lawyers.

The most important cause of the decline in demand for legal services is technological shock. Technological change has reduced the demand for lawyers, at least at the price point law schools were delivering it. The technological shock has been of two kinds. First, machine intelligence is beginning to substitute for lawyers, particularly at the low end of the legal profession. Document discovery is moving from human to machines. Legalzoom and similar services are encroaching on the production of simple documents, like many wills and trusts. And once machines get into an area, they dominate over time.

Second, machine intelligence is reducing the agency costs from which lawyers have benefited, General counsel, for instance, can keep better track of exactly what their outside counsel are doing, cutting down on slack. The information age reduces the information asymmetry between lawyers and many of their clients.

This technological shock has been good for the economy by reducing the transaction costs constituted by lawyers. But it raises a grave challenge to law schools. Since the cause of the decline in applications is structural, the applicants are not likely to come back in anything like previous numbers. Because the structural change is technological, it also may intensify as computation becomes ever more powerful.  In a subsequent post, I will discuss how law schools can respond to these challenges.

Reader Discussion

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on February 15, 2015 at 13:51:31 pm

Oddly, you don't mention one prominent effect of technology: enabling corporate law firms and corporations to outsource much of the research and document drafting traditionally done by junior law-firm associates to legally trained workers in English-speaking foreign countries, like India, whose services are much less expensive.

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djf
on February 15, 2015 at 14:26:35 pm

djf:

Is that really being done? Heck, I did not know that - although it does not surprise me.
After all, if the Supreme court can *outsource* its assessment of the "evolving International standards of decency" (see Ginsburg, et al) why the heck can not a law firm do something similar? I suppose McGinnis would say that it would cheapen the transaction costs associated with our constitution.

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gabe
on February 15, 2015 at 17:07:07 pm

Yes, this country is still in the grips of a Great Recession; yes, there is (and has been for the last couple of decades) a lawyer bubble; and yes, there are technological issues which aggravate an already weak demand for the bloated academic infrastructure.

Methinks you are too quick to dismiss the Great Recession, or at least its side effects, as a major part of the decline in applicants. The Great Recession is first and foremost a debt crisis. The bursting of the housing bubble only exposed those who had been over-leveraged; they were over-leveraged before housing values crashed, but only realized they were "underwater" when their home appraisals started declining.

There is also a student loan bubble. Those who succumb to the student debt temptation are in for a wild ride. I know many, many (did I say many?) attorneys who are graduating from law school with more than $100K in student loan debt. Considering the average law school tuition, I don't know that I can recommend spending the opportunity cost to indenture oneself to the tune of $100K and then face the dismal legal job market for new graduates. Many are foregoing families, retirement savings, and any semblance of a normal life to repay loans 6 months after graduation.

After every economic crisis consumers deleverage and learn tough lessons from the school of hard knocks. Potential law school applicants (who are already college graduates) may just be calculating the return on investment for law school for themselves.

In a normal market, over capacity would be shuttered due to failure to produce a profit (bring in more receipts than expenses). The legal education industry will resist admitting that their is an excess capacity in lawyer training. Of course, the trend in America is to continue to fund, and indeed increase funding, for public institutions. Those not publicly funded will be forced to become more competitive for students.

Law school applicants may merely be wising up to the uncertainties of law school debt financing and the shaky employment market facing newly minted attorneys.

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ColJay
on February 15, 2015 at 23:32:18 pm

Gabe, I wouldn't have posted the comment if it weren't being done. It really has nothing to do with what you're referring to; the Indian (or Pakistani, or whatever) legal workers research the relevant US law or follow US document forms. They don't even need books, since everything's available online now. A law firm or in-house corporate counsel can outsource this kind of legal work the same way a tech company can outsource programming work.

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djf
on March 01, 2015 at 10:13:27 am

Another reason is that trial work is declining as the cost of electronic discovery extorts corporations to settle very early. The function of a "litigator" is reduced to arguing over the scope of discovery rather than having a jury trial. The skill set of a young lawyer is reduced to scanning documents on a computer. The profession no longer calls for warriors , but instead, conformist factotums wed to a computer for 10 hrs a day.

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Brian Campbell
on March 02, 2015 at 09:28:06 am

Sorry, but I don't buy it.

When I started at Harvard in 1973, tuition was $2,700. This year it is $54,850. That's a 7.62% rate of increase, compounded annually over 41 years. Had tuition increased by the general inflation rate, it would have been $14,396 in 2014-2015. If we adjust upward for increases in real GDP per capita over that same period, we could justify a $28,294 tuition figure in 2014-2015, on the assumption that lawyers should participate equally in GDP per capita increases. In sum, Harvard Law school's nominal tuition has roughly doubled over the last 41 years, after adjusting for changes in inflation and real GDP per capita.

In Econ 101, we learn that when suppliers attempt to charge too much, demand falls. Prof. McGinnis's first hypothesis should have been that law school tuition is now higher than the market will bear. The problem with testing this hypothesis (and it is a very real problem for law school administrators) is that the price/quantity feedback cycle for legal education is a least three years long, and perhaps longer. Neither we nor our admittees will know whether law schools admitted the right number of applicants and charged/paid the right tuition this year until at least three years from now. In the meantime, in my view, law school administrators should plan on tuition increases no larger than the current average rate of increase of lawyer compensation -- about 3%. Harvard's proposed tuition increase for next year is 4.28%. For Harvard, this may not be a problem. Further down the food chain, however, it is more likely to be.

To Prof. McGinnis, my question is simply this: What hard data do you have in support of your claim that increases in machine intelligence is reducing demand for lawyers? Show me the numbers. Unsupported claims may be good enough for academia or government, but they are not good enough for business. And running a law school is now a business.

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Theodore Seto
on April 14, 2015 at 23:28:27 pm

[…] Will Law School Applicants Return? | Online Library of Law … […]

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Online Law Schools | Colleges & Universities
on April 29, 2015 at 12:16:49 pm

[…] Will Law School Applicants Return? | Online Library of Law … http://www.libertylawsite.org/ This technological shock has been good for the economy by reducing the transaction costs constituted by lawyers. But it raises a grave challenge to law schools. Since the cause of the decline in applications is structural, the … […]

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Best Online Law School | Colleges & Universities
on July 08, 2015 at 11:29:56 am

Some economic data and analysis on the changing state of the legal profession is available through the Georgetown Center for the Study of the Legal Profession. Their 2015 report is available here: https://www.law.georgetown.edu/academics/centers-institutes/legal-profession/upload/2015-Annual-Report-Peer-Monitor.pdf

One comment in the report:

"While it is true that some of the changes on the horizon would have far reaching effects on how law firms operate -- e.g., a shift away from the billable hour as the standard currency of law firm billing and compensation systems or the increased reliance on technology for records searches, document drafting, legal research, and dispute resolution -- it seems unlikely that the basic tasks of lawyers (counseling, negotiating, researching, drafting, litigating, etc.) will change. They are simply part and parcel of how our legal system works. That is not to say, however, that important changes will not occur in the way these tasks are performed."

Note that the very areas where the report cites growth in the impact of technology are also the areas where the authors think no change will occur--research and drafting. Change is occurring, albeit slower in law than in other industries. Firms are lagging in Associate productivity; technology can help with that. There is a world of opportunity for change, particularly at the down-market end of the profession where economies of scale and uniformity of work-product are more possible and desirable.

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Kevin P. Lee

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