Why Can’t We Support More Lawyers?

January 15th, 2014 / By Deborah J. Merritt

I wrote recently about the discouraging labor market projections published by the Bureau of Labor Statistics. BLS has–once again–lowered its estimate of the number of new lawyers that the U.S. economy will absorb over the next decade.

Why is BLS so bearish about job prospects for lawyers? The agency devotes an issue of its flagship publication, the Monthly Labor Review to the methodology and trends that underlie its workplace projections. Here are some of the forces that are restraining job growth for lawyers.

The Great Recession

The BLS economists open by noting that the “length and nature of the recession have left lasting scars on the economy.” Recovery has taken longer than even pessimists predicted: Although the Great Recession ended more than four years ago, growth in GDP remains slow.

Unfortunately, BLS predicts that “growth will continue to be slower than was originally hoped.” Robust growth often follows a downturn, but the last recession contributed to a “new normal” in which GDP will grow only about 2.6% per year. That’s better than growth rates during the last few years, which have witnessed growth of only 2.1% annually, but it falls well below earlier growth rates. Between 1992 and 2002, GDP grew 3.4% annually. BLS does not expect that type of growth to return any time during the next decade.

The effects of the Great Recession, in other words, have become structural rather than simply cyclical. This was not an ordinary downturn with a robust rebound. The impacts are lasting. They will dissipate some day, for law as well as other occupations, but that “some day” is still more than a decade in the future.

Decreased Labor Force Participation

The shock of the Great Recession distracted many of us from an economic malaise that has been building quietly over the last twelve years: a declining percentage of our adult population is participating in the workforce. To determine labor force participation, BLS calculates the number of adults (age 16 or older) who are employed or looking for work. That number, divided by the total number of non-institutionalized civilians, yields the labor force participation rate.

In 1947, when BLS started tracking this economic indicator, 58.3% of the adult population was in the workforce. That percentage rose and fell modestly over the next two decades. After 1970, as both women and baby boomers entered the workforce, the participation rate rose steadily–reaching a high of 67.1% that persisted from 1997-2001.

Since 2001, however, labor force participation has been falling noticeably. By 2012, the percentage had dropped to 63.7%, a participation rate that was last recorded in 1979. BLS projects that the rate will continue to fall over the next decade, reaching 61.6% by 2022.

A decline in labor force participation might seem like good news for job seekers: fewer participants means less competition for existing jobs. The negative effects of decreased labor force participation, however, far outweigh any benefits. Declining workforce participation has at least three negative effects:

1. Fewer workers means less productivity. GDP will grow slowly over the next decade partly because of our decreased labor force participation.

2. Declining workforce participation also means fewer people with income to spend on goods and services. Households with a single worker have less disposable income than households with two or more workers.

3. The declining labor force participation rate, finally, means that each worker will support more non-workers. Workers won’t be purchasing goods and services just for themselves; they’ll also be paying both taxes and private money to support the elderly, children, and others who cannot work. In 2012, our economic dependency ratio was 102: For every 100 people in the workforce, there were 102 people supported by the workers. That ratio will climb over the next decade, reaching 106.5 by 2022.

This ratio, notably, is far from the highest one that our population has supported. In 1975, when women still faced employment roadblocks and most baby boomers were still in school, our economic dependency ratio was 126. That ratio, however, steadily decreased during the late twentieth century, falling as low as 91.7 in 1992. Decreasing dependency fostered growth during the late twentieth century; now the trend has reversed.

The Bottom Line

BLS predicts that the long-term effects of the Great Recession, combined with our changing demographics, will impose significant restraints on the economy. Consumers will have less money to spend on goods and services, especially on those that are discretionary.

Lawyers and legal educators tend to think of legal services as essential rather than discretionary, but consumers clearly think otherwise. That is particularly true for middle-class individuals, a group that many law schools and recent graduates hope to attract as new clients.

Historically, middle-income consumers have been reluctant to pay going rates for legal services. Technology and more efficient practice management may now allow us to deliver services at lower rates to these consumers; that’s a noble goal that we should pursue as aggressively as possible. This prospective client base, however, is a moving target. With slow economic growth and more dependents to support, these individuals will have even less money to spend on legal services than they did in earlier decades. We will have to make legal services very efficient and very economical to attract considerable business.

We also have to be realistic about the fact that consumers choose among goods and services. Even the largest corporate clients have budgets; they prefer to spend their profits on executive compensation, developing new products, and opening new markets than on legal bills. For small businesses and individuals, budgets are even tighter. People will almost always buy food, shelter, and health care before they purchase legal services. Many of them may also prefer iPhones, internet connections, and football tickets above legal advice. The BLS projections incorporate, not what people would buy in an ideal world, but the mix of goods and services they are likely to purchase under projected economic conditions.

The constraints sketched here don’t touch on the special factors that are reducing demand for legal services. Those include technology, increasing competition in a profession that once benefited from substantial economic protection, and new management practices. Those structural changes are affecting our industry in particular ways. Meanwhile, we face the same structural changes (lasting impact of the Great Recession and changing demographics) that affect the economy as a whole. This is an era of slower growth and increased dependency–both significant dampers on the economy.