Assessing Future Enrollment

Commentary

Don LeDuc, President and Dean | April 23, 2014

While negative chat abounds and chatters push their views, only a few examples of data-driven, rational analysis can be found.  I offer the following discussion in the hopes that others will be encouraged to look at the situation objectively, rather than emotionally. 

My conclusion is that there will be a recovery and that signs of it can already be seen.  The combination of these four factors justifies a prediction of strong growth in law school enrollment over the next few years:  (1) steady growth in the general economy; (2) steady growth in the legal economy at a time of rapid decline in law school graduation numbers; (3) major increase in lawyer retirements; and (4) social media’s fast response times.

General economy

The national economy currently continues to grow slowly.  That growth is slower than desirable for a robust economy, but it is enough to have created a favorable overall positive growth outlook.  The assumption in the positive enrollment outlook is that growth over the next five years will continue at least at the current pace, with a better chance of an increase than of a decline.  This growth will increase demand for lawyer services modestly, increasingly more so if economic growth accelerates.  It will produce tax revenue that will encourage government employment. 

Legal economy and the legal employment market in light of law school enrollment

Because the focus of discussion is mostly on jobs for law school graduates, the most important employment numbers in the legal world are almost totally overlooked.  Currently, national lawyer unemployment is 1.4%, far below the general unemployment rate.  Each year, the national lawyer unemployment figure incorporates all the unemployed graduates from the prior years, readily absorbing the small number of unemployed recent graduates into a strong law employment market.  This outcome is due in part to the fact that the actual number of unemployed law school graduates is low, but also to the fact that the national first-time passing rates are in the low 80s, while the ultimate passing rates are in the high 90s.  Delayed bar passage retards employment but does not prevent it. 

We are now in the last stage of what might be called a law school market adjustment.  The employment market has improved for recent graduates, roughly parallel to the general economy.  Total JD jobs for recent graduates have risen the past two years, as have JD-required jobs, while JD advantage jobs have increased in each of the past six years.  The past two total employment years combining these categories are higher than any going back to the prerecession job numbers.  The growth in the legal job market is not just to be anticipated, we already have a growing market, measured by performance data. 

Unemployment among recent graduates remains high now because the last two national graduating classes entering the job market were the largest in history.  While job numbers have increased, so have the numbers of law graduates entering the job market and the numbers who are unemployed after nine months.  Interestingly, both supply and demand have risen the past two years. 

The next class of graduates, who will enter this growing job market and growing economy in 2014, will be what might be called the normal or traditional size, reflecting an entering class size pretty much the same as those numbers entering before the recession and its usual law school application boost.  The number of graduates will fall by some 3,500 or so in 2014.  That smaller group of this summer’s graduates will enter the now-growing legal job market and should experience greater employment rates than its two predecessors.  Both the decline in graduation numbers and the improving job market are already present.

The graduating classes in 2015 and 2016 will fall in size by another 4,000 per year or 8,000 total, paralleling the rapid decline in law school first-year enrollment those classes experienced.  This means that overall admissions have fallen by about 4,000 per year over the past three years.  An overall decline in the number of graduates by nearly the same number must inevitably follow.  That is not just to be anticipated; it is certain to happen. 

Thus, the smallest graduating numbers since the mid-1970s will graduate into that growing demand for new lawyers and into a still growing economy.  The market will by then not have just corrected, but overcorrected.

Demographics

The legal job market will reflect the national job market in another respect.  Nationally, a major influx of retirements is on the way.  While most of the focus is on the burden these retirements will place on the Social Security, Medicare, and Medicaid programs, this large number of retirements will create job opportunities. 

Using Michigan as an example, one-third of the current active resident lawyers are age 60 or older and 56% are age 50 and over.  In Michigan, for the past 40 years, each decade has produced fewer new bar members than its immediate predecessor.  Retirements are about to outpace new bar admissions, if not in 2014 then the following year.  And the decline in admissions to Michigan law schools in the post-recession era is even greater than the national decline.  Increasing lawyer retirements are certain to occur. 

Michigan’s lawyer unemployment rate is currently under 2%, measured using the U.S. Bureau of Labor Statistics definitions.  Like the national picture, the Michigan lawyer unemployment number shows that the legal economy readily absorbs the recent graduates who did not obtain employment in the first year following graduation.

Social Media Response Times

The data and economic outlook compel the conclusion that enrollment levels will inevitably increase.  The diminishing numbers of graduates will push employment demand, and employment levels will increase.

When will it happen? 

It already has.  The economy continues to experience modest growth.  First-year enrollment has already fallen to a nearly 40-year low.  Law school graduation numbers just peaked and will fall for at least the next three years, also to long-time lows.  The unemployment rate of current lawyers is already low, meaning more opportunities for new lawyers to obtain entry-level jobs.  The flood of retirements by those of the baby boom generation and older has begun.  The first data showing the improving situation is now available.

How extensive will the increase be? 

Because the decline has been steep, it seems reasonable to expect a fairly strong recovery.  The recession disrupted entering class enrollment size in two respects.  It first pushed applications and enrollment up to record levels.  Then, it also pushed the job market for recent graduates down. 

The national pre-recession numbers were strong and steady, demonstrating that under normal conditions, the market for law students was good.  Seven consecutive years of first-year enrollment of at least 48,000 creates a solid basis for an estimate of the overall recovery.  As the impact of the recession recedes, a return to the pre-recession level is likely, but a return to the recession levels is not.

The demographic data suggests that the replacement job market, already strengthening, will push demand for law graduates upward quite quickly.  Given that the overall economy is improving, demand to fill new jobs will also grow.  The combination suggests more extensive recovery, rather than less.

How long will the recovery take?

The enrollment decline has lasted about three years, so one hypothesis is that the recovery would take that long.  However, if the assumption regarding the extent of the recovery is correct, the recovery to the lower pre-recession level would take less time, since only two years of enrollment decline need to be made up. 

Given that the factors to support recovery are in place—current high employment levels, a growing national economy, a growing job market for recent graduates, and strong job replacement demand due to lawyer retirements—a reasonably quick recovery is likely.

But another factor will be in play.  The internet played a large role in pushing enrollment down.  Blogs and chat pages maintained by media tended to push bad news relatively quickly.  Once the data and growth in jobs become more obvious, the reverse will be true.  More commentary will be positive, and even if it is less enthusiastically embraced, the negative internet atmosphere will diminish, if not disappear. 

However, social media is replacing that vehicle as a source of information.  Social networking will spread the recovery faster than internet blogs or “scam” blogs ever did.  Word-of-mouth, once the slowest and least productive of information transmission, has become the fastest method. 

The facts and the potential for rapid transmission of good news and improving opportunities suggest that the recovery has the potential to be reasonably quick. 

Contrary indicators

Given the current data, it is hard to identify specific indicators that would justify other projections.  Certainly a general negativity is common today, most frequently reflecting largely unsubstantiated claims, like “there aren’t any jobs for new lawyers,” “student debt is too high,” and “there are too many lawyers.”  None of these withstand scrutiny.  As this document shows, employment among lawyers is high, the “no jobs” claim is vastly overstated, the job outlook is strong, and the too many lawyers assertion often lacks any substantiation and uniformly fails to recognize the retirement demographics.  Hyperbole and anecdotal examples characterize the student loan debate.  The average debt is greatly exaggerated, the assertions attribute the highest amount of debt to all graduates, the cost of education is not separated from the cost of living, and the low loan default rates are ignored or intentionally exaggerated. 

Overall, misperception and misleading assertions have captured this discussion.  That combination remains the greatest contrary indicator.  And it remains the most difficult to combat, because it is amorphous.  No external demographic factors have been identified that would continue or enhance the current downturn.  For the next few years, college graduations will increase, if anything.  The changes in the nature of law practice that are discussed affect mostly the larger firms, not the general legal employment market.  Technology, if it actually reduces the demand for lawyers rather than the demand for office support staff, favors the younger lawyers.

The alternatives are this:  things can get worse, things can stay the same, and things can get better.  Getting worse for any extended period is just not likely, since things are already so depressed and at 40-year lows.  Staying the same is not likely, because the reality of increased opportunities will not remain unknown for long.  As the data shows, things already are not staying the same.  

So, improvement is the most likely scenario.  When its onset is more widely apparent, the more challenging questions are how extensive the recovery will be and how quickly the recovery will reach its full extent.  Looking to historical levels is the most reasonable basis upon which to answer them.

National Employment of Recent Law School Graduates
Year JD Req JD Adv Total Growth % Unemployment %
2013 29,109 6,348 35,367 1.5 11.2
2012 28,873 5,979 34,852 6.8 10.7
2011 27,224 5,214 32,438 -0.4 9.6
2010 28,167 4,387 32,554 -0.3 6.2
2009 28,901 3,751 32,652 -1.6 6
2008 30,334 3,277 33,611 -0.2 5.4
2007 31,086 3,129 34,305 --- 4.1
 JD Req = JD Required jobs; JD Adv = JD Advantage jobs

 

National First-Year Enrollment Numbers (Showing closest year with comparable #)
Year Entering Year
2007-08 49,082
2008-09 49,414
2009-10 51,646
2010-11 52,488
2011-12 48,697 2006-07 48,937 (Comparison year)
2012-13 44,481 1994-95 44,298 (Comparison year)
2013-14 39,675 1977-78 39,676 (Comparison year)

 

Read the following prior Commentaries for even more information on this topic.

Unemployment Among Michigan Lawyers Remains Low

Employment Among Michigan Lawyers Is Increasing

The Layperson’s Guide to Legal Employment Data

Answering a Question About Michigan’s Lawyer Shortage

Law School Costs, Student Loan Debt, and Advice for Applicants

Does a Shortage of Lawyers Loom?