It's been a spectacular week for lawyering. The battle over the constitutionality of the Affordable Care Act being argued before the Supreme Court is giving the nation a chance to see some brilliant, exquisitely educated legal minds at work. We may be unable to figure out health care in this country, but we can sure argue about it eloquently.
Further down the legal food chain, it's not so spectacular. In today's labor market, lawyers are the equivalent of Las Vegas real estate. There's a dogfight going on for what little business exists. Once prominent firms are withering, jobs are drying up, and the prospects seem so terrible that law-school admission tests declined 16% last cycle, after a similar drop the cycle before, says the Law School Admission Council. According to the National Association for Law Placement, the median salary for lawyers who graduated in 2010 was $63,000, vs. $72,000 for the class just a year ahead of them.
We all react to the signals in the economy when it comes to making career choices, but people considering law school seem especially receptive. And those signals have been telling college seniors that the $150,000 they would have to invest in a law degree might be better spent elsewhere.
Typically, when the economy is in the tank, as it most certainly was in 2008 and '09, more college seniors become human inventory, warehousing themselves in grad schools for a few years until things turn around. Labor economists call these enrollment surges shifting out the supply (or demand) curve, and they're particularly acute in law. As Linda Barrington, managing director of the Institute for Compensation Studies at Cornell's School of Industrial and Labor Relations, puts it, "When this recession hit, the supply of lawyers shifts out because more people want to go to law school to avoid the recession." When these lawyers eventually reach the market, though, they depress wages. So law-school applications retreat until demand shifts out, and the cycle repeats.
When you plot the pattern, it reveals what's called a cobweb model. Salaries jump, then are reeled back. Economist Richard Freeman noted it in the 1970s, after a period of sharply increasing earnings. In 1968, Cravath, Swain & Moore hiked starting salaries by 50%--to a mammoth $15,000.
The problem for lawyers today is that they are in really deep shift. "You don't want to be in the last group of students who sort of say, 'Look at how much money you make. Let's go to law school,'" says Kevin Hallock, another Cornell labor economist. That's where the current group stands. The retrenching of Wall Street has severely dented demand for lawyers. There may even be a structural shift under way, as technology replaces legal talent. You don't need a lawyer at $200 an hour to read through 10,000 e-mails when software can find what you need in 10 seconds.
Being in a depressed market hurts your earnings not just for a year or so; it could set you back for a long time. (Hallock says this is also true for people entering the job market for the first time in a recession.) If the lawyer earning $63,000 and the one earning $72,000 each get an annual 5% raise in their first decade, the income gap between them grows over time, as do the gaps in savings and investments. The junior legal eagle is going to have to make a big jump to catch up.