This is the next post in my series on the struggles of the legal profession and what you, as a lawyer, can do to ensure that your practice succeeds. My last article stressed the need for attorneys to be mindful of what is going on in their industry – something that many neglect. In this article I’m going to look at a less than joyful subject – how the profession got to this point. By the end of the post many of you will feel like you’re in the same position as this guy:
The good news is that, if you recognize the changes which are happening within the legal profession, you can adjust your business practices and be the guy who prospers. So while others are like Wile E. Coyote chasing the Road Runner off of the cliff, you’ll be looking like this guy:
Given that the first step of developing a solution is understanding the problem, let’s dive into why lawyers are in a tough spot.
The financial struggles of attorneys are only partially due to the “great recession”
Anyone who’s graduated from law school in recent years, or who’s tried to switch employers, knows that the legal market is tough right now. Unfortunately, there are many solo practitioners and small offices which are walking around with their heads in the clouds when in comes to the state of their trade. Consider this – when you adjust for inflation, the average solo practitioner earned $70,747 in 1988. By 2012 that number had fallen to $49,1301. Last time I checked, a roughly thirty percent decrease in income was not a good thing. The financial crisis of 2008 (a.k.a. the “Great Recession”) is partially to blame for this. The larger issue, however, is ongoing changes to the fundamentals of legal practice. Let’s look at these fundamentals.
People have been going to law school and becoming attorneys in spite of this little thing called supply and demand. In 2008 there were 1,180,386 licensed attorneys in the United States2. By 2014, however, there were 1,281,432 licensed attorneys in our country3. In other words, the supply of attorneys increased by 8.5 percent. Over this same time, however, the number of legal service sector jobs in the U.S. decreased by five percent4. Last time I checked, when the labor pool increases while the amount of available work decreases, then the potential earnings of that labor pool looks like this:
This decrease in earnings for associates means that people are less likely to take a job and will, instead, choose to open their own firm. That increase in the number of firms leads to the extreme decline is solo practitioner/law firm earnings described above.
There are a number of reasons why the number of legal jobs is decreasing rapidly. Sure the financial crisis caused part of it. The bigger issue, however, is the fundamental change to the role of a lawyer. Consider the difference between the legal profession twenty-five years ago and today. In 1990, if a person wanted basic legal information then they had few choices besides calling for a consultation. Today, if a potential clients wants to know information such as how often they can file bankruptcy, how long they must live in a state before filing divorce, etc., then all they have to do is visit Google. These same visits to a search engine are resulting in more people performing simple matters themselves. This means fewer people walking into law offices which, in turn, means fewer consultations and fewer clients. As the “information gap” between an attorney and a potential client dwindles, so does the value of retaining a lawyer. The number of legal jobs is decreasing because the amount of work for lawyers to do is decreasing (duh). The web is the primary reason for this decrease.
The rate of attorney job losses is only going to increase and the surplus of lawyer labor is going to go up
Here’s the really depressing part for attorneys. The rate at which jobs are being lost, and the speed at which available work is going to decrease, will only accelerate. I discussed how the legal profession is impacted by marijuana decriminalization, driverless technology, and other factors in my discussion on why attorneys should start their own law firm in 2015. I won’t rehash those statistics or arguments here. Suffice to say that the number of available jobs will be going down, not up.
I’ve heard and read quite a bit of commentary stating that things are now getting better for the legal profession due to the fact that fewer people are going to law school in recent years. While that certainly helps the situation, there’s a few issues with it. First, the rapid loss of jobs that’s coming, due to the reasons I just mentioned, is likely to outpace any decrease in the labor pool. Second, it’s true that law school enrollment is declining. That decline, however, is from extremely high levels. In other words, things aren’t likely to improve for the legal profession any time soon.
Are quite a few attorneys going to fail? Yep. Do you need to be one of them? Absolutely not. The good news is that if you take the approach that we’ll be talking about in our next few posts then you’re going to be highly profitable. Stay tuned.
What do you think of the state of the legal profession? Chime in through the comment form below.
1The Fall And Rise Of Lawyers. May 23rd, 2015. Accessed at: http://www.cnn.com/2015/05/22/opinions/barton-rise-and-fall-of-lawyers/
2 American Bar Association Attorney Demographics for 2008. Accessed at: http://www.americanbar.org/content/dam/aba/migrated/marketresearch/PublicDocuments/Lawyer_Demographics.authcheckdam.pdf
3 American Bar Association Attorney Demographics for 2014. Accessed at: http://www.americanbar.org/content/dam/aba/administrative/market_research/lawyer-demographics-tables-2014.authcheckdam.pdf
4 Legal Services Sector Adds 2,300 Jobs In April. The Wall Street Journal Law Blog. Accessed at: http://blogs.wsj.com/law/2015/05/08/legal-services-sector-added-2300-jobs-in-april/