AP Study of the Economy

January 27th, 2013 / By Deborah J. Merritt

As we plan for the future, law schools wonder about general economic trends. Is the economy recovering? If so, will it create more jobs for lawyers? How soon? The Associated Press recently published a three-part series with troubling answers to those questions. You can find the three articles here:

Part One
Part Two
Part Three

The bottom line from this series: The economy is recovering in some ways, but technology is wiping out middle-class jobs–and is starting to chip away at higher paying jobs as well. Here are some of the facts that the AP researchers cite to support these conclusions:

** 7.5 million American jobs were lost in the Great Recession, and less than half of them have been restored. The figures, however, are even starker for middle-class jobs. Half of the jobs lost during the recession (about 3.75 million) were middle-class ones. Only 70,000 middle-class jobs have been restored.

** Technology has been cutting jobs for more than three decades. The losses started in manufacturing, but have moved aggressively into office, retail, and other service occupations.

** Top companies (those in Standard & Poor’s 500 stock index) earned one-third more profit in 2012 than they did the year before the Great Recession. But by relying on technology, those companies employ a half million fewer workers today than they did in 2007.

** Start-ups are launching with one-third fewer employees than they needed in the 1990s. Technology combined with outsourcing (which is, in turn, supported by technology) allows these companies to thrive with fewer workers. Since start-ups are a major source of new jobs in our economy, this trend is particularly disturbing.

** We are on the brink of even more dramatic workplace changes prompted by technology. Google’s self-driving cars have now logged 300,000 road miles without a single accident. What happens to the middle class when driver-less cars replace truck drivers, bus drivers, and cab drivers? What ripple effects will that technology have on commuters, insurance companies, and countless of other industries? One hint: It may be much easier to resolve insurance claims from driver-less cars because all of the data will be stored.

** Although technology creates new jobs, computers have been eliminating many more jobs than they create. For one measure of this, consider these facts: Three software giants (Apple, Google, and Facebook) together employ only 138,300 people worldwide. That’s less than a quarter of the workers (600,000) that General Motors employed during the 1970s. And GM itself produces many more cars today with only a third of its former workforce.

What do these trends mean for the future of legal employment? I explore some possibilities below.

Direct Client Loss

When we talk about demand for legal services, we often focus on large corporate clients. Those are the ones who pay the highest fees and support the most lucrative jobs for law graduates. But those clients have never supported the bulk of our graduates. According to analyses done by Harvard Law School’s Program on the Legal Profession, only 15% of U.S. lawyers worked in the 250 largest law firms–serving the biggest corporate clients–in 2007. Since 2007, of course, large law firms have downsized; the percentage of attorneys practicing for BigLaw today probably is less than 15%.

Where do other lawyers go? Some work for mid-sized firms, corporations, government, or public-interest groups, but a substantial number work alone or as members of very small firms. According to the Harvard analysis, more than a third (35%) of all lawyers work in solo practice. Those attorneys, as well as many of those practicing in the smallest firms, devote much of their effort to individual clients and small businesses.

The middle class and small businesses once sustained these lawyers–more than a third of our graduates–by paying them to handle home closings, divorces, child custody disputes, criminal defense, consumer issues, wills, probate, business formation, contract issues, small claims, and workplace disputes. That work has already diminished. Middle-class clients and small businesses have balked at the high cost of legal services, turning to pro se representation and online companies like Rocket Lawyer and LegalZoom.

Further shrinkage of the middle class may decimate that group’s demand for legal services. At the same time, start-up businesses that use technology (rather than new workers) for their accounting, human resources, and other support staff, will be increasingly comfortable with online legal advice. The trends identified by the AP study bode very ill for the lawyers who serve middle-class and small-business clients.

Some of these lawyers will find work in the online companies that are seizing this sector. The genius of those companies, however, is that they are able to provide legal services with many fewer attorneys; that is why they cost less. With the middle class contracting, it is very unlikely that this client base will grow sufficiently to support even the lawyers currently serving them–much less new lawyers in the future.

Larger Economic Upheaval

Law schools and their graduates might hope that large corporate clients will take the place of middle-class and small-business clients who no longer want our services. But the experts cited by the AP study suggest that we are in the early stages of a wrenching economic shift. Our largest economic challenge isn’t housing, banks, foreign competition, or the deficit; it’s computers that replace human workers. The accelerating capacity of information technology will displace an untold number of jobs during the next decade. Consider just the dislocation that will occur from driver-less cars, a technology that may secure significant success during the next decade.

The economists interviewed by the AP researchers offered three possible scenarios for evolution of the U.S. economy in the face of continuing technological change. The most positive of these, provided by Nobel Prize winner Joseph Stiglitz, is that information technology will cause the same dramatic upheavals that the industrial revolution generated in the nineteenth and early twentieth centuries. Those dislocations could culminate in a cataclysmic collapse similar to the Great Depression. Stiglitz’s forecast is optimistic only because he sees the economy eventually returning to health, just as the U.S. and other advanced economies did after World War II. He’s clear, though, that we may remain in the current “doldrums for half a decade, for a decade, or for longer.”

Andrew McAfee, a principal research scientist at MIT’s Sloan School of Management, offers a gloomier prediction. McAfee suggests that technology will fuel the growing gap between top-paying jobs and low-skilled ones. Technology will allow a small number of workers to reap greater returns, but it will relegate an increasing number to low-paid jobs or unemployment. That’s bad for the bulk of workers, and it’s bad for the economy as well. Without a large, prosperous middle class, how will the economy keep growing?

The gloomiest prediction comes from former Treasury Secretary Lawrence Summers and software entrepreneur Martin Ford. They envision a future in which a majority of citizens cannot find productive work. Technology will produce wonderful benefits, but humans won’t be able to earn enough to consume those fruits.

Whichever scenario you prefer, the next five to ten years offer lots of economic risk. Some parts of the economy may rebound, but there is likely to be significant economic turmoil. That turmoil will keep corporate employers cautious, pushing all parts of their workforce for greater productivity at less cost. Lawyers are part of that workforce, so we’re unlikely to see any return to the boom times of corporate spending.

Legal Work

The AP series doesn’t focus on lawyers, but technology is affecting our workplaces as much as any other. A lawyer equipped with a computer, internet, electronic databases, and cell phone can work much more quickly than one with yellow pads and a row of hard bound books. For a while, lawyers were able to retain the extra profit generated by those increases in productivity. We could charge our clients more for the same minutes, because we did so much more during those minutes.

But market competition, especially the intense competition spurred by the forces outlined above, has shifted the technology bonus to the consumers of legal services. We now produce much of our legal work more quickly and efficiently–but we must offer it at the same or lower prices. With lawyers doing more in less time, we don’t need as many lawyers. The oversupply of lawyers has further pushed price competition, reinforcing the cycle.

The changes we’ve seen so far, furthermore, are just the beginning. Predictive coding is poised to replace armies of lawyers who now conduct document review. Document automation makes drafting legal instruments quicker and smarter–while requiring fewer attorneys. Richard Susskind’s latest book outlines many of the other changes that technology will bring to the legal community during the next decade.

Conclusion

General economic trends offer little refuge for lawyers or legal educators hoping for a rebound in our own job market. Middle-class clients and small businesses are likely to support fewer lawyers during the coming years. The economy as a whole faces great challenges, so corporate clients will continue to demand more value for money. And technology will do an increasing variety of legal work, displacing more lawyers.

If a computer can make a left turn against oncoming traffic, what other feats can it accomplish? You may think that it’s harder to think like a lawyer than like a driver, but consider the number of datapoints a computer must weigh to make that left-hand turn. Legal judgments depend on identifying data and recognizing patterns; computers have shown their skill at both of those tasks.

I’m not a Luddite: I love computers and all that they have done for us. I wouldn’t halt the march of technology for a minute, and I can’t wait to get one of those driver-less cars. But if we want to plan seriously for the future of law schools and the legal profession, we have to consider the trends documented in the AP study. Through the lens of history, it’s easy to see all of the changes that the industrial revolution wrought. It may be harder to see broad socio-economic forces as we live through them.