Wednesday, February 27, 2013

It's the Economy Stupid . . .

Well, the Dow is back up over 14,000.  There are a bunch of megadeals, including megamergers in the pipeline.  Bernanke is reiterating his commitment to quantitative easing.  Meanwhile, the sequester looms, and Europe is uneasy.  So, the question I pose for the group is, what does this mean for law schools.  For the last couple of years there has been persistent moaning about how the legal market has fundamentally changed, that the entry level market is going to remain eternally depressed, that law school is a bad economic bet, and so on.

I'd like to put aside the conversation about the intrinsic value of a legal education for a moment, other than to assert that (1) law school is valuable; and (2) there are lots of things that law schools could do to make it more useful and more valuable, virtually none of which are being fruitfully discussed at the moment, at least in the blogosphere.

Instead, I'd like to ask whether we are nearing the end of the winter of our discontents.  Law school applications lag the economy.  Once a recovery is established, it starts to show up as deals (see above).  The firms then get busy, absorb internal slack capacity, and only then do they go to the market for new folks.  I have to believe that the combination of low interest rates, money sitting on the sidelines, and increasing deal volume is beginning to show up in the firms.  I'm beginning to get inquiries from lawyers I know about the existence of fourth year associates who are, "ready to make a move?"  That seems like a first sign.  It's also a symptom.  There, are, of course, no third and fourth year associates to be had, because four years ago firms were not hiring anybody.  Hopefully this will be good news for the underemployed lawyers who are still out there.  I suspect, for a variety of reasons, it's not.

On the other hand, I do think this is good news for current third year law students who are on the market now, and who will be on the market in the Fall.  I think it's great news for current first and second year law students, who will be applying for jobs in the Fall.

This, of course, won't show up as law school applications this year, or probably even next.  The word won't filter out to the marketplace that law students are getting good jobs again until about two years from now . . .  And, since law school is a four year bet, from application to graduation, who knows what things will look like in 2018?


  1. I hope for one difference from the last couple of times this happened: in 1999, starting salaries jumped from ~$90K to ~$125K overnight. In 2003, they went to $165K. (All these are Wall Street numbers; appropriate discount to be applied based on the distance from NYC.) Maybe this time around hiring takes place without ratcheting salaries to a level that is unsustainable.

  2. I am less sanguine than Ted about this since I see much of the downturn as structural rather than cyclical. Much routine legal work is being commodified in this country and being outsourced abroad (document review, first drafts of patent applications, etc). That both hgollows out the profession and makes a four year bet with a $150,000 price tag a particularly risky proposition, even if you are right about the economy slowly righting itself. My best guess is that will continue to weed out lots of applications from people who in the past choose law school as a safe option to defer the real world while they figured things out. Frankly, those people need at most an undergraduate degree in law ala the UK, unless and until they have an articulable plan why they want to practice law (or something closely related) for a living.

  3. I agree with Max about the salaries, and think that moderation of salaries will cushion some of the dynamics that Spencer describes.

  4. How phenomenal would it be if a big firm went out and hired 11 new lawyers instead of 10, discounting salaries by 10% each to accomplish that goal? Everybody's work could be reduced by 8% (so the firm can profit on this arrangement) or hourly rates could be reduced 4% and work reduced 4%, or some combination. If the firm had to dig deeper in the talent pool to find these 11, because the top talent insisted on earning top dollar, so be it; the talent pool is much deeper than current demand.

    I beat up my friends who are in hiring positions about this regularly. I am not sympathetic to the "we need to pay top dollar" answer. Clients are either individuals for whom money is relevant or businesses that understand cost cutting efforts, and I refuse to believe that our 20th ranked student is markedly worse than is our 10th ranked student.

  5. Dow at 14,259 today. Just sayin' . . .