This is the next post in my series on the unwinding of the attorney bubble. My last article discussed how the legal profession got into a bubble over the last forty five or so years. It’s important to understand that the current oversupply of attorneys was fueled by a growth in car accidents, the “war on drugs,” and that law schools opened, rapidly, in order to meet what was an increased demand for legal services. The big thing to understand, however, is that the fuel which created the bubble is now being taken away. In short, the bubble is bursting just like this:

Bursting bubble

The result of this bursting bubble is that 2018 is not looking like a good year for the legal profession. The legal services sector lost 1,100 jobs in the first quarter of 2018[1]. Since the first quarter of 2008, the legal services sector is down a total of 36,700 jobs[2]. Here’s the important thing about the latter of those two statistics – in March of 2008 we were in the midst of the financial crisis and the legal profession had already been bleeding jobs for some time. So, not only has the profession not recovered from the crisis at all, it’s actually managed to lose an average of 3,670 jobs per year since then. The big thing to understand is that the factors that caused this “slow bleed” over the last ten years have kicked into overdrive and 2018 is shaping up to be, for attorneys, what 2008 was for the banking sector.

This article will look at the signs which show that the party is over and my next post will look at the fallout which the profession can see through the end of 2018 and into next year. Let’s get to it.

Attorneys should recognize that the legal profession has entered its consolidation and wind down phase

While I would actually have quite a bit of fun writing a treatise on economic theory (yes, these are the nerdy types of things I read in my spare time), I’m going to put this into simple terms. All industries and professions, the law included, go through a few different “stages.” As demand for a service increases an industry will go through its “growth” phase as more providers enter the market to meet that demand. An industry will then enter its “maturity” phase. This is when it becomes harder to break into the group of service providers due to barriers of entry and the fact that some providers have already achieved larger scale and efficiencies. Actual demand for the product or service has gone flat and is not growing the during the maturity phase of an industry. Finally, an industry enters its “decline” phase as demand for the service actually drops. Weaker service providers are then forced out of the industry and the remaining service providers are often forced to consolidate. The decline phase often signals the end of the industry’s current business model[3].

I explained in my last article that the profession had a rapid growth phase from 1960 through the 1980’s due to a few specific factors – namely the growth of personal injury law as well as America’s drug policies. This led to an increasing number of attorneys entering the legal services field in order to meet the demand for services from Plaintiffs, accident defendants, those who were accused of crimes, government entities who needed to prosecute offenses, as well as other areas. The industry then went through what was actually a short maturity phase in which firms with larger advertising budgets and other efficiencies created barriers of entry that kept many of the smaller players out of the more lucrative practice areas (such as personal injury, corporate compliance, etc.). An interesting thing then happened – cars started getting safer, the number of people getting arrested started to drop, and automation started to reduce the demand for attorneys in other areas. Now let’s look at the proof that the profession is in full blown, and rapid, decline.

Evidence shows that the legal profession is in an accelerating decline

As I stated above, an industry enters its “decline” stage when demand starts to drop. This leads to weaker service providers leaving the industry and to consolidation amongst those remaining. Well, we only need to look to “big law” for the start of the decline phase. And, as with all other forms of s#!t, it rolls downhill.

In the 2017 “Law Firms in Transition Survey,” more than half of all equity partners said that they were not sufficiently busy[4]. Forty-three percent of firms reported that their associates were not busy enough. Fifty-nine percent of firm leaders stated that flat or declining demand for services was the culprit. How have big firms responded to these problems through 2017 and into 2018 – through consolidation (which is typical of a “decline phase”). Again, not to sound repetitive, but its important to remember that mergers and consolidation are a sign of an industry in rapid decline. Well, in 2013, an all-time consolidation record was set for law firms with 88 mergers[5]. That record was broken in 2015 with 91 mergers[6]. Just to keep things going, 2017 set another record with 102 mergers and acquisitions[7]. The first three months of 2018 have already seen 30 mergers[8]. Most interestingly, about 3/4 of these 2018 acquisitions have been larger firms acquiring those with twenty or fewer lawyers[9]. What we can take from this is that, in spite of the consolidation that took place from 2013-16, law firms still reported themselves at not being sufficiently busy in 2017. That’s how rapidly the demand for legal services is declining.

Remember the crash of 2008-09? You may recall the speed at which mid-size and regional banks were acquired by larger banks. Well, history may not repeat itself, but it sure does rhyme. Now let’s look at evidence showing that things are quickly going downhill for small firms.

The demand for personal injury law has fallen off of a cliff in 2018

Last year I wrote about the declining demand for personal injury lawyers. I explained that the increased availability of features, such as automatic breaking, would rapidly reduce auto accidents. Well, that’s coming true. In 1996 there were 42,065 auto deaths in the US[10]. Ten years later, in 2006, that number was roughly flat at 42,708[11]. By 2016, however, that number had dropped to 37,461[12] due to improved safety features in cars. So it took ten years from 06-16 for the number of auto related deaths to drop by twelve percent. That’s a pretty slow decline over the course of a decade.

2018 is proving to be a year of rapid change. Data I’ve been tracking, year to date, shows that auto related deaths are likely down, as of yesterday, somewhere in the area of 8.6 percent for 2018. Most states are very, very, very (very) bad about putting out up to date data. Some haven’t even put out their data for 2016 yet, let alone 2017. There are eight states, however, which keep their auto death data more or less up to date. As of yesterday, here’s the available data from those states[13]:

StateLast Date Reported20172018Change
Ohio4-17-18282245-37
NJ4-17-181371425
Illinois4-17-1826427511
Kentucky4-17-18192158-34
Wisconsin4-15-18140138-2
Iowa4-16-187873-5
SC4-17-18295242-53
Vermont4-16-18159-6
Totals 14031282-121

If those trends hold on a national basis then personal injury attorneys are looking at a drop of auto deaths somewhere, again, in the area of 8.6 percent this year alone. At that rate, the number of deaths would be cut in half after just seven years. While this is great news for society, from a pure business standpoint it’s not good for those who make their living representing the Plaintiffs or defendants in such matters. Personal injury law is clearly an area in its “decline” phase and that decline is rapidly accelerating.

Technological and societal changes are eliminating the need from criminal attorneys

I discussed in my last article how various marijuana laws fueled the need for criminal defense attorneys. Well those trends are changing. Also, the use of ride share services, such as Uber and Lyft, and eliminating the need for lawyers to handle DUI cases. The effects of marijuana decriminalization, and outright legalization, are obvious and many attorneys will go broke as a result. As far as the frequency of DUI arrests, we can just look to the state of Texas. From 2014 to 2016 the state saw DUI’s decrease from 70,569 to 62,327[14]. Similar data has been shown in other cities and states after the arrival of ride sharing services.

Total arrests in the state of Texas dropped from 876,601 in 2014 to 808,634 in 2016[15]. The days of work for lawyers being generated by “tough on crime” policies are over. This is in part due to societal changes and it part due to technology. Criminal law is in a state of rapid decline.

Workplace related law has begun to decline rapidly due to automation

Our economy lost many ‘a job in the 2008-09 crash. According to the politicians and media those days are over and the economy is doing well right? After all, unemployment is in the four percent range. I call “bull$#!t” on that. Bear with me and you’ll see why this is important.

How the unemployment rate is calculated can be tricky. A much better stat, to gauge the number of jobs in the economy, is the “current population survey.” This is the total number of people over the age of 16 divided by the number of jobs in the US economy. In other words, it’s the percentage of people who would have a job if every single person of working age was actively in the work force. In March of ’08, at the depths of the financial crisis and in a period of job losses, the current population survey stood at 62.7 percent[16]. In March of ’18, after roughly eight years of “solid job gains” it stands at 60.4 percent[17]. In other words, job growth is not keeping up with population growth. The main reason for this is automation. While I would actually enjoy writing more on how automation is eliminating jobs, it’s not the purpose of this article. Do yourself a favor and read Rise of the Robots by Martin Ford. The big thing to understand is that the number of jobs, in relation to the population, is actually going to keep going down.

Now why is it important to understand that the number of jobs in our economy, in comparison to the population, is going down? Simple, there is a great deal of legal work which depends on people having jobs. Every wrongful termination case has an attorney who prosecutes it and one who defends it. The decline of this area of law is seen in the number of EEOC charges filed.

In 2017 there were only 84,254 claims filed with the EEOC[17]. There were 87,529 claims filed 1995 [18]. Keep in mind that the number of people in the U.S. has grown substantially since ’95. While there has been some variance up and down over the years, its clear that the number of claims being filed are not keeping up with U.S. population grown or with the growth of the attorney population. This is due to the fact that that the number of jobs, per capita, is going down as a result of automation. Going forward we can expect to see large drops in employment law due to increased automation. This is going to lead to the end of the road for many employment law attorneys, those who represent employers in disputes, and for firms who handle workplace compliance issues on behalf of businesses of all sizes. In other words, here’s another area of law in rapid decline.

Attorneys must recognize the legal profession’s state of decline

It’s crucial that attorneys recognize that the legal profession is in its “decline” phase and that the decline is accelerating. Those who don’t recognize this are, quickly, going to find themselves going the way of Blockbuster Video or the neighborhood record store. By “quickly” I mean that many will find themselves in a bad spot by the end of 2018.

What business trends are you seeing in your firm so far this year? Please chime in through the comment form below.

Cites:

1 – Compare – Employees on nonfarm payrolls by industry sector and selected industry detail from 12/17 to 3/18, accessed at https://www.bls.gov/news.release/empsit.t17.htm#ces_table1.f.p

2 – See citation no. 2 data for March, 2018 and March, 2008

3 – Consolidation Phase – Investopedia – accessed at https://www.investopedia.com/terms/c/consolidationphase.asp

4 – 2017 Law Firms In Transition Survey – accessed at: http://www.altmanweil.com//dir_docs/resource/90D6291D-AB28-4DFD-AC15-DBDEA6C31BE9_document.pdf at page 2

5 – After a Record 2017, No Signs of Law Firm Merger Mania Slowing – accessed at https://www.law.com/americanlawyer/sites/americanlawyer/2018/01/03/after-a-record-2017-no-signs-of-law-firm-merger-mania-slowing/

6 – See citation no. 5

7 – 2018 Could Be the Year of the Mega Law Merger – accessed at https://biglawbusiness.com/2018-could-be-the-year-of-the-mega-law-merger/

8 – See citation no. 7

9 – See citation no. 7

10 – Motor vehicle fatality rate in U.S. by year – accessed at https://en.wikipedia.org/wiki/Motor_vehicle_fatality_rate_in_U.S._by_year

11 -See citation no. 10

12 – See citation no. 10

13 – See (all accessed on April 17, 2018):

  • http://statepatrol.ohio.gov/
  • http://www.nj.gov/njsp/info/fatalacc/index.shtml
  • http://apps.dot.illinois.gov/FatalCrash/Home/CrashData
  • http://kentuckystatepolice.org/tip.html
  • http://wisconsindot.gov/Pages/about-wisdot/newsroom/statistics/fatality.aspx
  • https://www.iowadot.gov/mvd/stats/daily.pdf
  • http://www.scdps.gov/FatalityCount/Fatality_Revised.aspx
  • http://vsp.vermont.gov/trafficsafety/fatalities

14 – Texas Department of Public Safety – accessed at http://www.dps.texas.gov/administration/crime_records/pages/crimestatistics.htm

15 – See citation no. 14

16- Labor Force Statistics from the Current Population Survey – accessed on April 17, 2018 at: https://data.bls.gov/timeseries/LNS12300000

17 – EEOC Charge Statistics – accessed on April 17, 2018 at: https://www.eeoc.gov/eeoc/statistics/enforcement/charges.cfm

18- EEOC Charge Statistics – FY 1992 Through FY 1996 – accessed on April 17, 2018 at: https://www.eeoc.gov/eeoc/statistics/enforcement/charges-a.cfm