Source: AP Photos
Do more lawyers mean lower wages for lawyers? The legal blogosphere has been abuzz since Mark Greenbaum argued in the Los Angeles Times that too many new lawyers drives down lawyers' wages. However, Mr. Greenbaum's argument is based on misunderstandings of competition in the legal industry.
To summarize, Mr. Greenbaum contends that there are too many new lawyers and that the job market cannot support them. Instead of allowing new law schools to flood the market with more lawyers, thereby driving down wages, the American Bar Association should be stripped of its accreditation power because of irreconcilable conflicts of interest.
"No More Room At The Bench"
In arguing for a slowdown in number of new lawyers, Mr. Greenbaum asserts:
"There is a finite number of jobs for lawyers, and this continual flood of graduates only suppresses wages."
In support of his position, Mr. Greenbaum reasons:
"From 2004 through 2008, the field grew less than 1% per year on average, going from 735,000 people making a living as attorneys to just 760,000, with the Bureau of Labor Statistics postulating that the field will grow at the same rate through 2016. Taking into account retirements, deaths and that the bureau's data is pre-recession, the number of new positions is likely to be fewer than 30,000 per year. That is far fewer than what's needed to accommodate the 45,000 juris doctors graduating from U.S. law schools each year."
Analysis: Why More Lawyers Do Not Mean Lower Wages
Both prongs of Mr. Greenbaum's analysis rest on misconceptions and misplaced assumptions.
Mr. Greenbaum's statement about the connection between new lawyers and wages is overly simplistic. First, he apparently assumes that lawyers are employed by law firms, companies, or the government. This ignores solos. Solos create their own opportunities. Second, Big Law is not cutting back salaries because there are more new lawyers. The correction in salaries is due to client pressure on law firms to reduce fees, the economic downturn, and misplaced hiring and management policies. Third, Mr. Greenbaum assumes that income levels could not be maintained with more lawyers. Yet, Mr. Greenbaum presents no evidence that lawyers' wages have declined as the number of lawyers has increased. The claim that lawyers' salaries have decreased conflicts with the perception that lawyers cost too much and make high salaries.
More importantly, whether more lawyers pushes down income turns on three factors:
- Demand for legal services
- The intensity and character of competition
- External forces affecting competition in the legal industry
Mr. Greenbaum should have said that when the number of lawyers increases faster than the demand for legal services, fees will face downward pressure because of increased competition. As the supply of lawyers increases relative to demand, competition increases. And Mr. Greenbaum says nothing about the demand for legal services. The economic downturn -- not an influx of new lawyers -- reduced the legal budgets of companies.
Price competition has increased over the past two years, but not because of a flood of new lawyers. Separately, the commoditization and automation of certain practice areas is intensifying price based competition.
Moreover, Mr. Greenbaum's analysis of the demographic data is incomplete. If there is demand for only 30,000 (or any other number of) new lawyers every year, then supply does not outstrip demand. When supply and demand are in relative balance, an increase in the number of lawyers will not drive down wages because competitive intensity does not increase.
The crucial point is that even if lawyers' wages have decreased, it is not because there are more lawyers. Other factors have had a much bigger effect on incomes than the supply of lawyers.
Conclusion
Many lawyers are uncertain about how to react to the changing competitive landscape of the legal profession. Crafting good solutions to the legal profession's problem requires a solid understanding of that landscape. If lawyers have difficulty understanding what is happening in their own profession, how can they understand their clients' businesses?
Douglas Y. Park
Twitter: @DougYPark
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NOTE: This blog post is based on a discussion that blog co-author Soyeun Choi and I had about Mr. Greenbaum's essay.
