A distorted market?

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mb9113
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A distorted market?

Postby mb9113 » Thu Mar 21, 2013 11:21 pm

As I've been pouring over employment and graduate data, I've been thinking about the unique economics of the legal market, specifically its inelasticity of supply. (FWIW, I have a very basic understanding of economics and in all likelihood am using these terms wrong - so feel free to correct me).

Take the recession for example. While it hit in Fall of 2008, applicants to law school did not stop increasing until Fall 2011 (LSAC Volume Summary).

The Class of 2011 (41,000) was still roughly the same size of pre-Recession classes (2008 = 43,000; 2007 = 43,000).

Yet, 2007 was then, according to NALP, the highest level of employment for graduates in 20 years. For the class of 2011, the lowest in nearly 20 years.

The class of 2011 applied prior to the recession, but must compete with the same number of graduates in the post-Recession market. However, as previously pointed out, classes of 2012 and 2013 did not decrease either.



My thoughts being:

- Has there ever been any analysis about the unique inelasticity of lawyer supply?

It seems, because the decision to enter the legal market happens three years before one actually does, there is a significant distortion in the actual state of the market. It takes years to respond to market fluctuations. This would compound the cost to the recent post-recession classes (They thought they were buying low, but ended up buying high).

Acknowledging that there are other factors hurting the legal market (tuition, debt, etc), I focus on the recession because of the particular loss in big law employment. It seems like the model for big law would make it more prone to recession-events and corporate-like layoffs than other areas of practice.

- Is it reasonable to believe that those of us making decisions currently based on the employment numbers of these particularly blighted classes will be in a significantly better position? We will be graduating in a comparatively corrected market. (We think we are buying high, but actually buying low.)

I'm not trying to justify a decision and am conservatively expecting things to be at least as bad as they are in this decision-making.



What say you? What analysis has been done/have I missed/have I got wrong?

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bk1
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Re: A distorted market?

Postby bk1 » Thu Mar 21, 2013 11:25 pm

1. If you're looking at large law firms, realize that they hire people roughly 365 days from the moment they step foot into law school.

2. You're not really accounting for the legion of un/underemployed grads that have been stacking up in recent years.

mb9113
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Re: A distorted market?

Postby mb9113 » Thu Mar 21, 2013 11:28 pm

Don't those who have been unemployed for multiple years also lose their competitiveness?

The longer they are unemployed, the more they are stigmatized?

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bk1
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Re: A distorted market?

Postby bk1 » Thu Mar 21, 2013 11:29 pm

mb9113 wrote:Don't those who have been unemployed for multiple years also lose their competitiveness?

The longer they are unemployed, the more they are stigmatized?

Yes, but that doesn't mean they aren't still taking away at least some jobs from fresh grads.

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vanwinkle
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Re: A distorted market?

Postby vanwinkle » Thu Mar 21, 2013 11:34 pm

bk1 wrote:1. If you're looking at large law firms, realize that they hire people roughly 365 days from the moment they step foot into law school.

This. The whole "three years" thing is the wrong perspective, especially if you're talking about law firms. It implies that the legal market works like this, for a Class of 2016 student:

Fall 2013: Student starts 1L
Spring 2016: Student graduates law school, finds a job, starts his job

But the way it really works is like this:

Fall 2013: Student starts 1L
Fall 2014: Student does OCI before starting 2L year
Summer 2015: Student works as summer associate, hopes for permanent job offer at end of summer
Fall 2015: 3Ls who got no-offered scramble, usually in vain, to find another firm to hire them
Spring 2016: Student graduates already knowing whether or not he will have a job at a law firm or not

If you don't get a job with a major law firm by the time you graduate, it's practically certain that you never will. The vast, vast majority of these jobs are given to people who worked as a 2L summer associate at the firm, or at least at some reputable firm. If you want that kind of work, you need to land a 2L SA gig, which means you need to do really well at OCI, which occurs twelve months after you start law school.

If you start law school in 2013, you're depending on law firms being in a hiring mood in 2014, because that's when you'll be approaching them for a job.

mb9113
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Re: A distorted market?

Postby mb9113 » Thu Mar 21, 2013 11:50 pm

Fair points.

I would clarify, though, my focus was not on the demand side of the equation (which is undoubtedly important), but on the supply side.

Employers demand would have to fall as fast as applicant supply to stay at status quo. Is there data out there showing the speed of falling employer demand?

NYstate
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Re: A distorted market?

Postby NYstate » Fri Mar 22, 2013 12:16 am

Can you explain what you mean by supply side exactly? You really need to account for informational asymmetry caused by law schools lying about employment statistics in virtually every way they could for decades. Only the last year or so has seen some correction of that asymmetry . So of course supply will stay the same when they are being told that demand exists that in actuality doesn't exist.
Note the plummet in applicants this year, the first class to start having more complete information.

Maybe I don't understand your question.

As for demand, demand is subject to many factors and from everything I can see is overall decreasing or staying flat. Read some of the citi reports on law firms.

mb9113
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Re: A distorted market?

Postby mb9113 » Fri Mar 22, 2013 2:01 am

NYstate,

You basically said what I said.

The informational assymetry is exactly what I'm talking about. Current applicants are making decisions based on the employment statistics of those who suffered from this informational assymetry, which caused an oversupply.

Because current applicants don't suffer (at least as much) from this informational assymetry like the C/O 2011, less are choosing to go to law school. Because there is less supply now, theoretically unemployment should go down. Right? Current employment statistics that are based on a degree of oversupply that current applicants won't have makes their prospects seem worse than they actually are.

I think too often we imagine the supply of lawyers and the demand for lawyers as parallel lines. Unless demand for lawyers has completely and suddenly fallen through the floor, the more supply of lawyers decreases, the more unemployment should go down and the market should reach equilibrium.

NYstate
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Re: A distorted market?

Postby NYstate » Fri Mar 22, 2013 2:10 am

Except for the fact that 50% or so of grads don't get jobs as lawyers.

So yeah, if half as many people went to law school we might see some improvement in hiring. I don't see that much of a drop happening, but maybe over the next few years it will.

And if you look at BLS numbers for predictions of jobs, the number of jobs they predict are not all entry level jobs. It gets confusing.

The story has been that biglaw hiring is not recovering any time soon. So I would not to see an increase in demand.

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somewhatwayward
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Re: A distorted market?

Postby somewhatwayward » Fri Mar 22, 2013 10:54 am

mb9113 wrote:NYstate,

You basically said what I said.

The informational assymetry is exactly what I'm talking about. Current applicants are making decisions based on the employment statistics of those who suffered from this informational assymetry, which caused an oversupply.

Because current applicants don't suffer (at least as much) from this informational assymetry like the C/O 2011, less are choosing to go to law school. Because there is less supply now, theoretically unemployment should go down. Right? Current employment statistics that are based on a degree of oversupply that current applicants won't have makes their prospects seem worse than they actually are.

I think too often we imagine the supply of lawyers and the demand for lawyers as parallel lines. Unless demand for lawyers has completely and suddenly fallen through the floor, the more supply of lawyers decreases, the more unemployment should go down and the market should reach equilibrium.


You're saying this in way more complicated a way than necessary, but it is not surprising given that economics (as a discipline) is involved, haha. Anyway, basically, yes, because this year we are on target to enroll about 38,000 student rather than the 48,000 we enrolled two years ago, and, at the very least, hiring *probably* won't get worse in terms of numbers of hired, a larger percentage of those 38,000 (minus the ones who drop out) will end up with jobs. Of course that depends on the assumption that hiring at least maintains. This past fall it was down as compared to the fall before.

But that is not what you should be thinking about if you deciding whether to go to law school. The question is whether you can get a job that will allow you to service your debt. From that perspective c/o 2016 may be even worse off than c/o 2011 because their debt is higher, and nothing suggests that there will be a higher number of either big law jobs or PSLF-eligible jobs, the two types of jobs that reasonably allow one to service their debt (not to mention both routes carry risks). If the numbers stay about the same, then again the percentage of the c/o 2016 who get these jobs will increase, but debt also increases, so the people who don't get these jobs are even more screwed, and even the ones who do get them are more screwed if they are laid off early on. It looks like a wash to me, maybe a slight edge to c/o 2016. Of course for any one person it is about their individual situation - how much debt must s/he take? what is his/her plan for paying that off? what is the likelihood of making that plan happen? what is the likelihood of being laid off, and what are the options then?, etc

I have to say I have been seeing a lot of these heads crop up lately that are like help me feel validated in taking an optimistic perspective on this data. In some ways it is good because it seems 0Ls are no longer flat out ignoring it. But as the judge in MacDonald (case where Cooley grad was sued his school for fraudulent employment stats - case was dismissed) said, I would expect people taking out debt this large to be extremely cautious. This means erring toward a pessimistic perspective. It means assuming at the very least that one will finish median in the class and considering what the likely outcome will be from there. Anyway I am not saying you are not doing that OP, just a general message to people starting these threads.

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Tiago Splitter
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Re: A distorted market?

Postby Tiago Splitter » Fri Mar 22, 2013 10:54 am

NYstate wrote:So yeah, if half as many people went to law school we might see some improvement in hiring. I don't see that much of a drop happening, but maybe over the next few years it will.

Well you don't need the entire 50% drop for things to improve. In the fall of 2010 52,500 people started in law school, but last fall it was just 44,500. All indications are that it will be down quite a bit more this year. This makes almost no difference to T-14 graduates (except to the extent T-14's have cut class size) but it could make a real difference elsewhere. It's still a terrible idea to pay for most law schools, but it's not unreasonable to think that over the next few years landing a legal job won't be as rare an outcome.




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