When legal educators talk about changes in the legal market, we focus on the Great Recession, the slow recovery, globalization, technology, and the routinization of some legal services. These trends undoubtedly are shaping contemporary law practice, but they’re not the root cause of our graduates’ ills. The force that rules law practice today is competition: To comprehend the profession’s economic trajectory, we have to understand the tremendous rise in market competition for legal services.
The Post-WWII Years
During the third quarter of the twentieth century, the legal profession benefited from a remarkable number of trade restraints:
1. Bar associations maintained minimum fee schedules, which bolstered the price of routine legal work.
2. Professional regulations forbid advertising, which restrained competition among lawyers and prevented consumers from identifying cost-effective service providers.
3. Courts strictly enforced rules prohibiting the unauthorized practice of law, which helped lawyers maintain their monopoly over a wide range of services.
4. Professional regulations greatly restricted practice across state lines, requiring clients to hire new attorneys or local counsel for many matters.
In addition to maintaining these protections, the legal profession welcomed relatively few new lawyers each year. College enrollments were lower then than now; few women or minority men considered attending law school, and they encountered formidable obstacles if they did; and many law students left school before completing the degree. In 1963, just 9,638 students graduated from accredited law schools.
The Tide Turns
During the final quarter of the twentieth century, the legal profession’s protections began to fall. The Supreme Court struck down minimum fee schedules in 1975, making clear that antitrust prohibitions encompass the legal profession. Two years later, the Court initiated a series of decisions striking down restrictions on attorney advertising.
At the same time, state supreme courts and legislatures opened doors for non-lawyers to perform tasks that lawyers had once claimed for themselves. Accountants and title agents replaced lawyers in some roles. A new class of paralegals emerged to assist–and then replace–junior lawyers on some of their work. Companies began generating do-it-yourself forms for individuals with simple legal needs.
Barriers to interstate practice also diminished. States began to repeal residence requirements, and the Supreme Court declared those rules unconstitutional in 1985. As law firms expanded across state lines, and as corporate clients demanded more fluid legal counsel, states eased restrictions on interstate legal assistance.
As the profession’s economic protections diminished, its numbers swelled. Accredited law schools graduated 27,756 JD students in 1973, almost three times the number that had earned degrees ten years earlier. By 1983, the number hit 36,389, almost four times the number who graduated in 1963. During the last eight years of the century, each class exceeded 39,000 graduates–and two topped 40,000.
These momentous changes in the legal profession first affected solo practitioners and others who served individuals and small businesses. Those lawyers were the ones who handled many of the matters taken over by non-lawyers; they also benefited most from minimum fee schedules. Between 1975 and 1995, the median, inflation-adjusted income of Chicago solo practitioners fell by almost 50%. For lawyers at the smallest Chicago firms, median income fell by 25%. Both of those figures come from the groundbreaking study conducted by John P. Heinz and his colleagues, Urban Lawyers (p. 163). That study, published in 2005, remains one of the best analyses we have of the legal profession.
Notably, Heinz and his team found that the median income of government lawyers fell during the same period. In 1995, median income for those lawyers was $45,000. Twenty years earlier, it had been $70,828 (in 1995 dollars). Government pay doesn’t depend directly on minimum fee schedules, advertising restrictions, and similar market restraints, but it probably does respond to compensation in the private sector. As solo and small-firm attorneys earned less, government was able to offer lower salaries to attract those lawyers.
The New Century
Since 2000, technology has greatly intensified the changes that began during the last quarter of the twentieth century. Advertising in phone books and on billboards promoted the fortunes of some lawyers, but internet advertising is much cheaper and it reaches more potential clients. The internet has also fed aggressive price competition: consumers can now compare prices for many legal services before they contact their first lawyer.
Computers have made do-it-yourself legal forms more sophisticated, user-friendly, and accessible. One online company, LegalZoom, has generated legal documents for more than 2 million clients since 2000. An online law firm, LegalForce RAPC Worldwide, declares that it “protects more intellectual property as patents or trademarks per year than any other law firm on the planet” and that it secures this protection “for a fraction of the cost” charged by conventional firms.
These technological tools have moved well up the ranks of law practice. Major law firms and corporations use computers to conduct discovery, draft legal documents, comply with government regulations, and perform other professional tasks. Technology has also enabled these organizations to tap lower-wage workers abroad; countries with rising economies have improved their education and infrastructure to meet that demand.
Technology and globalization then prompted innovative lawyers to restructure other parts of their practice. These lawyers reduced prices and secured new clients by unbundling legal tasks and routinizing some of their services. Having successfully shifted routine work to computer programs and offshore workers, these lawyers moved other tasks to staff attorneys and contract lawyers.
The recession and slow recovery exacerbated all of these trends. Even the wealthiest clients wanted price cuts, and they were vocal about their needs. Technology allowed them to track their legal bills more closely than before, to solicit bids from competing firms, and to press for lower prices. Globalization permitted them to look abroad for both high-level legal counsel and routine support work. Well versed in the benefits of efficient production and commoditization, corporations hired law firms that endorsed those approaches.
By now, we’re all familiar with this part of the story. We tend to forget, however, that these changes are occurring in a legal market that is vastly more competitive than it was in earlier years. Today’s market reflects the pro-competitive changes implemented during the late twentieth century. Those changes, moreover, continue to unfold. Courts and bar associations are still discarding rules that restrain competition; non-lawyers are taking on still more law-related tasks; and the largest JD class in history graduated in 2013. Even if graduating classes now contract, we have already flooded an increasingly competitive market with new lawyers.
The Market’s Triumph
Competitive market forces are the most important characteristic of today’s legal market. Technology, globalization, and commoditization are key trends, but their impact depends on the economic context. If the legal profession still enjoyed the protections it held during the 1970s, today’s technology and globalization might have produced more jobs and higher salaries for lawyers. In today’s competitive market, on the other hand, these trends are pushing inexorably on the bottom line. Clients are tracking prices and seeking competitive bids; law firms are employing efficient technologies and low-cost workers to meet client demands; and non-lawyers are continuing to take over legal work.
These competitive forces are highly favorable for clients. The law practice I knew in the 1980s was remarkably inefficient. Highly paid associates proofread briefs, reviewed documents, and continuously reinvented the wheel. Clients of all types paid more for legal services than they should have; they had no other options. A competitive market has given clients more choices, reduced prices, and (despite the protestations of some lawyers) caused no apparent loss in quality. Indeed, competition may have spurred some lawyers to provide higher quality services.
This competition would have forced 21st-century lawyers to make their practices more efficient, even if technology and globalization had remained stable. Rapid advances in the latter forces, however, compounded the impact of a newly competitive market. These changes offered significant efficiencies that the competitive market insisted we adopt. Rather than enduring a simple shift from protectionism to market competition, which would have been dramatic in itself, the legal profession had to adapt to open competition and new efficiencies at the same time.
This combination explains why law graduates will continue to face a daunting job market–and may not earn as much during their lifetimes as recent generations of lawyers did. The legal market is not rotating through a cycle; it is tumbling out of protectionism. Even when the economy booms again, corporate clients will not pay first-year associates to do work that overseas lawyers can handle. Nor will mom-and-pop clients pay for customized wills and leases, when standardized documents serve their purposes. The efficiencies and cost economies that we have achieved in law practice are here to stay.
The new market, of course, will create opportunities for some lawyers. Technology-savvy JDs will profit by developing attractive software programs marketed to others. Lawyers with strong management skills will earn extra pay by coordinating interdisciplinary teams spread across the globe. Some law firms will prosper by identifying new practice areas and assembling the right combination of lawyers, other professionals, support staff, and technology to efficiently address those needs. As always, the market will reward lawyers with unusual legal knowledge, skills, or client connections.
For most lawyers, however, competition will reduce the financial rewards that recent generations captured. That’s what deregulation does. As we project the economic future of the legal profession, we have to remember our loss of market protections over the last forty years. Those changes have accumulated over time, and many of them acquired greater force with the emergence of new technologies and globalization.
The public, including the large corporations that pay our heftiest bills, is unlikely to restore the protections that favored 20th-century lawyers. Instead, our graduates will practice in a world of accelerating competition. Recent graduates are competing with more peers than ever before. Lawyers of all ages are vying with lawyers in distant cities, states, and countries. Lawyers everywhere face competition from computers and non-lawyers. Competition is the new hallmark–and driving force–of the U.S. legal profession.
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