Law and economics

The New York Times has a front-page story about the ongoing collapse in the number of people applying to law school (from 100,700 in 2004 down to about 54,000 this cycle, with a 38% total decline over the last three years alone).  The story features some nice quotes from Brian Tamanaha and Bill Henderson regarding the dysfunctional economics of law school, which is important, because as any legal philosopher can tell you, in this culture the ontological status of an epistemological insight is greatly enhanced when it appears on the front page of the NYT. ("They wouldn't print it if it wasn't true." F. Nietzsche, trans. J. Jackson).

Oddly, the story fails to mention the crucial role the law school transparency movement, to which the Times gave such valuable attention in 2011 in a series of prominent stories, has had in all this. It's hardly a coincidence that most of the collapse of the applicant pool has taken place over the last two years, which happens to be when something resembling accurate employment and salary statistics have been extracted from law schools via political pressure.

The story also features this strange claim:

“We have a significant mismatch between demand and supply,” said Gillian K. Hadfield, professor of law and economics at the University of Southern California. “It’s not a problem of producing too many lawyers. Actually, we have an exploding demand for both ordinary folk lawyers and big corporate ones.” 

She said that, given the structure of the legal profession, it was hard to make a living dealing with matters like mortgage and divorce, and that big corporations were dissatisfied with what they see as the overly academic training at elite law schools.

This is a very peculiar use of the word "demand."  Big corporations have put the squeeze on BigLaw, because they've decided they will no longer subsidize the training of junior associates to do work people trained to be lawyers should do.  Even more problematically for the Cravath model, they've also decided they won't pay BigLaw rates any more for essentially clerical work.  So firms can't bill out a lot of what first and second year associates do, and a lot of other work that such people did is now outsourced to the document review mills and to non-lawyers.

In other words, client demand for various services that used to fatten the bottom lines of the big firms has imploded, not exploded, because it has been shifted to other service providers, or is no longer billable when performed by the firms themselves.  This is a structural not a cyclical shift: it's not as if GCs are going to decide that when and if more deals are being done it'll be OK for firms to bill out monkey work at $300 an hour again.

 The "overly academic training" at law schools has nothing to do with this.  That's an issue about failing to train people to do legal work. The collapse in demand from BigLaw clients is a product of the realization that a large amount of work traditionally done by lawyers can be done by non-lawyers with either no loss of quality, or not enough loss to make it worthwhile to pay the added cost of having lawyers do it.

The claim about "ordinary folk" is even stranger, but it's one that's being made a lot these days by legal academics desperately searching for a raison d' paycheck.  The argument goes something like this:

(1)  Many people in this country who could benefit from legal services aren't getting those services because they're too expensive.

(2) Those services are too expensive because law school costs too much.

(3) If future lawyers could go to law school without incurring so much debt, they could afford to offer legal services at a price that far more people could afford to pay.

(1) is certainly true.  (2) and (3) are just wrong, and obviously so.

The cost of legal services has almost nothing to do with the cost of law school.  Why would it?  No client cares about how much it cost you to get a law degree, which means that no client is willing to pay more for legal services because a lawyer has a lot of educational debt.  This theoretical claim is confirmed by empirical observation: there are literally hundreds of thousands of lawyers in America who went to law school when it was radically cheaper than it is today, and it's not as if they charge lower rates than recent law graduates (if anything they charge on average more more, because clients will to some extent pay for experience as a proxy for competence).

There are also hundreds of thousands of people with law licenses who are barely making a living by practicing law (A 2009 survey of Alabama lawyers found that 23% of the respondents with active law licenses had an income of less than $25,000 in the previous year).  Such people are charging the absolute minimum they can charge while still maintaining an ongoing business.

The notion that the hundreds of thousands of lawyers in solo or very small practices in this country could somehow operate by billing out their services at X dollars per hour (with X being a figure that lots of "ordinary folk" currently priced out of the market for legal services could pay) if only law school didn't cost so much is one of those ideas that sounds intuitively plausible until you actually think about it for three minutes, which is apparently why people in legal academia don't.

The reason ordinary folk don't pay for legal services even when in theory they could benefit from them is exactly the same reason they don't pay for a lot of things they could in theory benefit from: because they don't have any money for those things after paying for more pressing needs like food, shelter, clothing, medical expenses, transportation to work, etc.

Comments such as Hadfield's indicate the lengths that legal academics will go to in order to talk themselves into believing that the basic problem isn't really the basic problem. And that problem is that the economic demand in this country for people with law degrees will employ (at best) half the people who are paying us to grant them law degrees.

Uncivil procedures

Glimpses into yesterday's ITLSS inbox:

Hey Professor,

Here is the article about the [Fordham] Con Law Professor giving his students a multiple choice exam that had been sitting online for everyone to see all semester (w/ answers) that I had written to you about earlier.  Not as hard hitting an article as I would've written, but it covers the basics.

The school's 'solution' (substituting grades from other classes, many of which are easy A 2 credit courses) essentially gifts 80 out of 400 members of the class a better than median grade on the only curved and 4 semester credit class of the semester.  You can imagine the consternation this is causing amidst the viciously competitive job market.

I see that there was no good solution here, (although giving students the option of a P would have made more sense than allowing them to replace their grade with the grades of non-curved classes) the section in question already suffered 6 weeks of aggravation and stress.  What bothers me is the stunning lack of accountability for the Professor who couldn't be bothered to accomplish his one concrete job for the semester.  No reprimand, no apology, no consequences.  He's an old man who clearly is no longer fit to teach and collect his large chunk of federal loan payments.

http://flsrecord.com/con-law-exam-mishap-opens-debate-over-grading-policy/

Six hours later:

Hey Professor, so they have already bowed to public pressure and instituted what looks like a pass/fail, and did so by invoking one of your favorites - the 'balancing test'.  They "very much regret the situation" but have announced zero disciplinary measures or repercussions for the highly paid Professor who caused all of this.  

 Four hours after that:

I regularly read ILSS and wanted to get your thoughts on a situation that has occurred at my law school (University of Arizona). I am a 1L and was enrolled last semester in civil procedure. During the course of the semester it was clear to everybody in the class that our professor was not up to snuff. I'm not just talking about quickly brushing off topics or being hard to reach outside of class; I'm referring to basic deviations from professional norms that we are all held to. In the first week of class alone, the professor was late twice, each time students went to her office to find her asleep at her desk . . .  

[Long tale of incompetence and subsequent shenanigans related to grading redacted for privacy reasons. Short version: Prof put on administrative leave and the administration is trying to figure out what to do with the class's grades]

The administration is working to come up with a solution that will only help the students (which I predict will look like everybody above median will keep their grade and everybody below median will switch their grade to a pass). My question for you is: do you think the class should press the school to refund our money for the course (at least partially)? The school treated the class like just another expense and took a risk by putting this "professor" in the classroom. The risk did not pan out as they would have liked, but the students are the ones that are skirting the costs and not the school. Any insight that you can provide would be greatly appreciated.

These sorts of incidents are perfectly predictable consequences of an increasingly out of control system, which features less and less accountability for those who exploit and are exploited by it.  Law schools charge prices completely unrelated to the value of law degrees because they can. Students borrow sums of money completely unrelated to their subsequent ability to pay that money back because they can.  Professors get away with metaphorical murder because they can.

From the look of it I doubt this Fordham guy puts ten hours a week into his "job," and his behavior is hardly unusual, as anyone who works at a law school is perfectly well aware.  Yes lots of law professors work hard.  Lots don't. After a few initial observations on this theme I haven't pursued it, because it's marginal to the central problem, and references to it become a distraction, since apparently nothing upsets the average law faculty member more than the suggestion that law faculty on average don't work very hard.  But in any case it's a side issue: Even if every law prof in America published 100,000 words a year and spent 30 hours per week preparing for classes that wouldn't by itself lower any graduate's debt load or get anyone a job.

Still it's true that the non-work habits of professors are one outcome of the egregious featherbedding that is a prime consequence of having tripled real tuition since the 1980s: it's not an exaggeration to point out that it would possible to get rid of half the faculty at most law schools with no significant loss of educational quality.  (Doing so would merely return faculty student ratios to what they were in 1980).  And that of course has consequences for long-term reform: a few months ago somebody posted on I forget which law prof blog about a "no-frills" model law school that would charge only $20,000 per year year in tuition, obviously without realizing that no law school anywhere charged even that much (in constant, inflation-adjusted dollars) as recently as the early 1980s.

Housekeeping detail:  JD Painterguy has assured me once again that he will no longer post on this blog.  COMMENTS REFERRING TO HIM IN ANY WAY WILL BE DELETED, INCLUDING IN THIS THREAD.  Please abide by this policy.

Various matters

(1) I have a piece in Time regarding Sonia Sotomayor's recent comments regarding what a privilege it is to practice law, and how unhappy lawyers "need to go back to square one."

A few additional thoughts:

 *Sotomayor’s comments illustrate how thoroughly people get de-classed when they rise in the American social system. After all, it’s not as if Sotomayor’s remarks illustrate her lack of up to date knowledge regarding political corruption in Bhutan or something. She’s talking about her very own profession, and yet it seems clear she (like John Roberts) has managed to avoid finding out what’s actually going on in that profession.

This in turn suggests that the new federal law requiring all SCOTUS justices to attend both Princeton and Yale may not be encouraging the most important kinds of diversity.

*Few things are more annoying than high-status quasi-lawyers (as I point out in the piece judges and law professors don’t practice law) burbling on about how being a lawyer is a particularly public-regarding occupation. Sure, part of a lawyer’s job involves helping people. But:

(a) You can say this about any service profession, including the guy who brings you a cheeseburger with a side of fries.

(b) Another part of the job involves hurting people, which is a lot easier to forget if you don’t actually do the job, hence the blovations of judges and law profs.

(2) In November Catholic University hired Daniel Attridge, the managing partner of Kirkland & Ellis' DC office, to be the law school's new dean.  On Friday the school sent a letter around announcing that some unspecified number of staff are being laid off, as part of a reorganization of the law school, undertaken in response to declining enrollment and revenue.  (Interestingly, the linked story from the NLJ says that Attridge was going to become dean in July, but according to Friday's letter he's starting this week.  All this is rather suggestive of what may happen when someone who has spent a good deal of time considering P&L statements is asked to take over a law school under present circumstances).

(3) Speaking of dean searches and innovative budgetary ideas, an IU Maurer student writes:

Professor Campos,

Professor Solan is coming to IU Maurer next week to interview for the open Dean position there. As is typical of these events there is an open question and answer session. If you and the other members/readers of your site would like to compile a list of questions that you think should be asked I will make sure that they are shared with the enrolled students at large.

If you don't have the time or interest, than I'd just like to thank you for your time and the work you do on your blog - it is not always pleasant reading for a 1L, but that's no surprise.

I will continue to share your posts on Professor Solan and other topics to my peers at Maurer and elsewhere.

(4) Relatedly, a 1L at another school is interested in what current law students can do to push reform efforts forward:

Like you and many of your readers, I feel great frustration with the current state of legal education.  Unlike many, I entered law school (I am a 1L at [    ]) with a certain awareness of the shortcomings of the system. I knew what I was signing up for, but I do not think it means I have to take it (the detriments of the system) lying down.  But what CAN I do?

I have made a frustrated attempt at being proactive about reform at my school and I am not sure what path to choose moving forward.  The first step was seeking like-minded individuals, from fellow students to faculty and staff.  Many people seem, to various degrees, aware of challenges facing legal education, but no one seems motivated to take substantial action. Students are simply over-burdened with the study load to do more than complain, staff (as at-will employees) are not in a position to buck the system, and faculty members are either too comfortable in their tenure, and/or wary of being under the Dean's cross-hairs if they become subversive.  I have actually gone directly to the Dean to seek participation in [my school's] efforts at reform, but the meetings and communications fizzled out with a rejection of the open-door approach (i.e.- student involvement).  It seems that [my school] is ready to acknowledge big challenges exist, but is still uncomfortable with thinking radically.  

I suspect I am not the only one who has been in this position and that is why I am seeking advice.  What have other students done at schools?  Can you point my attention towards any groups or forums about ground-level reform action?  Do you caution against any approaches that end up being counter-productive or complete failures?  What can be done by someone who does not want to become an enemy of their school's administration but also cannot stand idly by with their head stuck in the sand?

I've passed on some thoughts, but I'm sure others have better ones.

John Roberts' summer vacation

"Debts that can't be repaid won't be."

-- Michael Hudson --

To: Professor Lawrence M. Solan

From:  BigLaw Partners

Re:      Lower Salaries for New Associates

We read with great interest your recent proposal to cut entry-level salaries for BigLaw associates. We are delighted to inform you that we thought of this idea ourselves and have been implementing it for several years. We call these lower paid associates "staff attorneys," "discovery attorneys," or "career associates." If you have other suggestions for clever titles, please let us know!

To give you a sense of how enthusiastically we have embraced this approach, here are a few examples.   WilmerHale has 70 discovery attorneys and 67 staff attorneys--together, those groups make up more than 10% of the lawyers at WilmerHale. The firm has already been recognized as an "innovative law firm" for this idea of lowering salaries for new lawyers. Baker & Hostetler, similarly, has 89 lower paid staff attorneys--more than 10% of all lawyers working for them. Orrick Herrington has 41 staff attorneys in a Wheeling, West Virginia, General Operations Center, where those lawyers provide "around the clock" service for clients around the world.

Even stodgy Cravath has recognized the wisdom of hiring associates off the usual partnership track. They currently have 14 discovery attorneys and 19 practice area attorneys, all with impeccable credentials. These aren't the entry-level lawyers you propose, but we see significant cracks in the "Cravath way." For all of us in BigLaw, this hiring market is a real treat.

Returning to the entry-level jobs, we do find your suggestion of a $75,000 starting salary a bit high. We sometimes pay that, but we can attract high quality staff attorneys for $60,000--sometimes even less. To see why, consider placement rates for your recent graduates. At Brooklyn Law, your 2011 graduates secured just 17 jobs in firms of more than 500 lawyers. That's just 3.7% of the class. Many more students, 56 members of the class, took jobs with firms of 2-10 lawyers. Those graduates reported a median salary of just $48,750. Surely we could hire any of those 56 graduates for less than $50,000 apiece?

We are also puzzled by your suggestion that we increase salaries for these attorneys to $125,000 in the second year and $175,000 in the third. Why would we do that? Your law school and others continue to churn out twice as many law graduates as the economy can absorb. Almost one-third of your 2011 Brooklyn graduates (137 out of 455) were completely unemployed nine months after graduation. With that much pent-up demand for work, we can fill as many "career associate" positions as we want without extravagant raises.

You will be pleased to know that we give all of our lesser-paid attorneys plenty of opportunities for "legal research, due diligence, discovery, and . . . just observing." We're not sure if this turns them into "sophisticated practitioners," but it is the same work that we in BigLaw have always given our entry-level lawyers. We have heard that this type of work doesn't really prepare lawyers for jobs in smaller practices or government but, frankly, that's not our problem.

We note that you don't suggest giving these new attorneys significant client contact or help in building their own practices. We agree! Introducing new lawyers to clients is a recipe for disaster. Either the clients complain about paying too much for the new lawyer's work or the clients like the new lawyers better than us. And, since we won't be able to keep most of these attorneys within our pyramidal firms, we certainly don't want to teach them how to get clients. These days, we keep even our conventional associates far away from clients and rainmaking opportunities.

We don't understand how our new system will solve your problem of declining law school applicants. Hiring new lawyers for less money works very well for us. But why would that help you attract more law students? In fact, why does anything we do affect your law school and most others? We hire primarily from the most elite law schools. And even in our most generous year, 2008, we (those of us in firms of more than 100 lawyers) hired only 19.5% of law school graduates nationally. We don't have anything to do with the vast majority of law school graduates. What are you telling these prospective students? That they will all have a chance to work for BigLaw?

Over the last few years, we have greatly reduced our entry-level hiring. By 2011, we were able to cut hiring to about half of 2008 levels. Rather than hiring 19.5% of law school graduates, as we did in 2008, our firms of more than 100 lawyers hired just 10.7% of the nation's graduates in 2011. And here's the kicker: that percentage includes all of the lower-paid positions we created. If we hadn't already implemented your idea, we'd have even fewer new lawyers on board. Even with that approach, we're still concerned about excess capacity today.

The bottom line is that we enthusiastically embrace your idea of "shifting some of the costs of training to the inexperienced associates themselves." We've watched you do this in law schools and it was brilliant. Some of us attended Brooklyn Law School in the early 1980s, paying about $4,000 per year. Adjusting for inflation, that would be about $10,000 today. But we see that tuition and fees today are five times higher--just shy of $50,000. That's wonderful: you have captured much of the financial benefit from education for yourselves rather than sharing it with graduates.  We admire that, we truly do. If there were some way we could absorb all of the value generated by our associates (and perhaps shift more of our costs to them?) we would do that too. Please let us know if you have ideas on that.

[Memo updated at 7:46 p.m. to reflect some suggestions in the comments.]

A message from the Dean

Duke's dean has sent a state of the school update to the school's alumni (I don't know if current students got it.  Readers will recall that members of the Duke community are petitioning the dean and the school regarding various matters).

The dean highlights that Duke is only one of seven schools which have seen applications rise over last year to this point, while nearly half of ABA schools have seen declines of at least 30%.  (I suspect that the 20.4% drop in applicants as of mid-January year over year is very unevenly distributed, with top schools seeing small or no declines, middling schools seeing big ones, and the bottom 125 or so schools getting slaughtered).

Anyway, a concerned party sent me his/her reactions to the missive, which I'm reprinting with minor redactions below.  (I should emphasize that, although I can't speak for my correspondent in this regard, I don't think any of this should be taken as a criticism of Duke in particular, since as far as I know both Duke's finances and its institutional practices mirror those of other elite schools in all important respects):

A couple of thoughts:

1) He seems to be responding directly to the petition in the section about tuition. That's a good sign, at least.

2) About tuition:

"Our tuition does not cover the cost of a Duke Law education and the supporting services that students receive.  Even the full tuition covers only about two-thirds of the cost of an education at Duke Law."

Cite please? Seriously, how on earth is this possible? How much are they paying the professors that the actual cost PER STUDENT is $78,000 per year??? (assuming tuition at 52k). I wonder if Dean Levi realizes how bad this actually makes him look. Yes, alumni, please give our needy charitable organization money, because we need $78,000 per student per year to operate. I promise it's not just going to pay for the profs' McMansions and fancy cars.

[S]cholarship funding has doubled from $5 million to over $10 million in the last five years, and, as a result, the net average tuition at Duke Law, taking account of scholarship grants, has stayed fairly stable during that period at about $33,000 per year. 

Wow, just wow, on so many levels. First, the fact that there is such an extreme disparity between sticker price and actual average tuition shows the need for much greater transparency in terms of what people are actually paying. Duke really needs to disclose to current students that 33k is the net average tuition, and to prospective students where their "scholarship" puts them compared to everyone else.  I know lots of current students who were enticed to enroll with a 1/3 "scholarship" - 48k over 3 years - but apparently they actually pay more now than the average student. Incredible. Duke slyly uses its scholarships to make everyone feel like a special snowflake to get them to enroll. They manipulate them into thinking they're getting a really good deal when in actuality they're paying more than other students. Second, let's not forget that more than 20 percent of the class is still paying full sticker price. I would be really, really pissed if I were one of those people and found out that so many people are paying so much less. Third, since the number given is an average and not a median, we have no idea whether there are a few people in the class with full scholarships that pull down the average cost, or lots of people with modest scholarships. LSAC says the median grant for Duke is 16K I believe. 

[Ed. comment: Looking at LSAC's numbers I suspect Dean Levi is speaking loosely when he says net average tuition has stayed around $33K per year. Those numbers indicate that less than 10% of the class get even half tuition scholarships, and that almost no one gets a full scholarship.  This makes it very unlikely that mean tuition paid is really $33K, given that the median grant is $16K and 22% of the class pays full price.  I imagine the $33K number is derived by simply subtracting the median grant amount from last year's tuition of $49K and change].

Anyways, it would be interesting to figure out the extent to which the bottom students are subsidizing the top ones, who need it the least. Fourth, why are Duke Law's expenses rising so rapidly that the scholarship fund needs to double in 5 years just to keep average tuition from rising? And what is the justification for milking alumni to make up the difference, rather than, say, budgeting more efficiently? Fifth, average tuition may be holding steady, but the debt taken on by Duke students is still rising exponentially, especially when interest payments are considered.

"Our governing faculty has demonstrated its full support of our students by creating a faculty scholarship from personal donations.  As of this writing, the governing faculty already has committed $142,000 for a new endowed scholarship.  This bears repeating: Members of our own faculty, who already work so hard for the school, have pledged substantial amounts of their own money to help students.  My wife Nancy and I have established another scholarship." 

How kind of you! Why don't you just do the same thing more directly and lower tuition instead? And again, as said above, none of these efforts have kept Duke students from taking on more debt every year - that's what actually matters.

3) Bridge to Practice:

" Again, the support of alumni mentors and donors for this program — which costs close to $300,000 each year — has been critical."

Explain to me how to this is not the classic, textbook definition of a Ponzi scheme. The new students are forced to pony up 300k - per YEAR - to pay for the graduated students who can't find jobs, but whom are reported as "employed" in their internships. Thus the ROI is artificially propped up by the fresh tuition dollars of the incoming students. I appreciate that the school is trying to help students, but let's not forget that in 2010 (when the current 3Ls enrolled) Duke was claiming a 100 percent employment rate without disclosing the existence of Bridge to Practice (Current 3Ls had never even heard of it until after they started school). They are not doing Bridge to Practice out of the goodness of their hearts, they're doing it to game the rankings. And the website even now is pathetically vague about how many students actually get permanent positions as a result of the program.

4) LRAP: We have expanded our LRAP (loan repayment assistance program) for students who seek careers in the public interest, in government and in non-profits.

Nowhere does he mention that Duke's LRAP is tied to IBR, meaning that Duke is using a government welfare program designed for people with financial hardships to pay the loans of public interest lawyers. And not telling them the risk this entails for their ballooning underlying loan balance (in case they lose their job or quit the public sector and lose eligibility) and credit scores. How...responsible.