Thursday, September 03, 2009

Two Articles on the Entry Level Legal Market

This comment from the thread below deserves a stand-alone post:
John Steele has left a new comment on your post "2009 OCIP Callbacks":

Although these two pieces by Bill Henderson are sobering reading, if you are interested in the economics of law school and how the changing economy might affect legal education, you will want to read them:
-John Steele

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11 Comments:

Anonymous GJELblogger said...

Both articles are insightful. Both say what's wrong with the situation, and give some idea of what should be done to fix it (giving students an accurate idea of what they're getting into; reforming legal education).

However, neither article really proposes a solid solution that can be implemented to change things. Let's start a discussion about THAT.

9/03/2009 11:49 AM  
Anonymous Anonymous said...

I think what would have been a great idea is if Boalt didn't increase our tuition to pay for all this fucking construction that in no way enhances what we learn in class.

The school was banking on us making lots of money so they simply DID NOT CARE that they were going to make us pay more so that they could look good.

To make matters worse, the economy sucks and the state is broke. Now there are fewer of us getting those jobs to pay back that increased tuition. And of course we get more tuition increases because the state cut everything.

9/03/2009 12:04 PM  
Blogger Armen said...

12:04, context matters. And at least the first link suffers from the same flaw by lumping all law schools together. The weekend is nearly upon us and I'm trying to get a lot of work done, so excuse me if I'm not high on details, but here are my thoughts on the matter.

1) Only a small % of your fees goes to construction. That money is mostly out of the capital campaign as I understand it.

2) Earlier in the decade, when the state suffered from the dot com burst combined with the swindling of our energy contracts by Enron, the Regents and the Legislature raided the UC professional schools. By raided I mean they increased fees and then siphoned the fees to cover budget holes, as opposed to say building new buildings or hiring more faculty or the like. When DE arrived he cut a deal with the Regents: Boalt gets reduced state funding, but in return Regents approve fee hikes that stay in-house. Over five years, the plan called for increasing fees until we reached $5000 a year below peer schools. That's the Michigan and VA model, where state funding is nonexistent. So instead of suffering the shock of 50% increase in a year, you have controlled increases that stay in-house.

3) Thus contrary to that first link, Boalt isn't increasing fees just to climb in US News, but to finally gain the financial stability of peer schools.

4) I don't understand why the first link lumps all law schools together. To borrow a concept from antitrust, are all law schools in the same relevant market? Do Boalt grads compete with Whittier grads?

5) For several decades now, the number of students graduating from elite law schools has stayed stagnant while the number of jobs at Big Firm has increased. This resulted in the salary jumps seen earlier in the decade. Did anyone complain about the insane economics of it all?

6) The dot com bubble burst had a significant effect on recruiting from Boalt. How did Boalties in those classes fare? What did they do?

Again, this isn't meant to be coherent, it's just some of my random thoughts on the subject. But the take away is that if anything, the downturn in the economy and California's finances reinforces the wisdom of DE's plan.

9/03/2009 1:10 PM  
Blogger JohnSteele said...

Armen,

Perhaps you could explain more why you feel that Henderson's first post lumps all schools together.

I read him as saying that the schools are locked in a positional race, and that the schools way down the pecking order have chosen the elite model, even though it makes no sense for them to do so.

That is, it may make sense for Yale and a few elite schools to spend their money on scholarship, tenured professors and the like, because those schools occupy a market position where firms will still fight to hire their graduate and therefore applicants will still fall all over themselves to gain admission. In a protected market like YLS enjoys, one would expect the faculty to spend money on themselves, chasing prestige, salary, and enjoyable working conditions.

Henderson is suggesting, however, that that strategy doesn't make sense for many law schools, and the lockstep imitation we see way down into the rankings just can't continue.

He's also saying that market imperfections persist in large part because of a dearth of information and good stats.

Or am I missing something?

9/03/2009 1:33 PM  
Blogger Armen said...

I think that's right. I just took exception to any reading that implies Boalt's fee increases are based on the same motivation as a Pepperdine. That's all.

But reading your comment reminded me of another thought that's been circulating in my head. Just like law schools a lot of the firms attempted to follow the elite Cravath model. See Orrick circa 2006. But the downturn in the economy is putting a strain on that model, causing some to abandon it for alternate tiers, compensation, etc. See, Orrick, circa now.

In the end I don't think I disagree with anything Henderson says. I do think the legal market is one of the most insane markets. If you don't believe me, just imagine an OCIP interview that was like 95% of the other interviews out there in the real world where you are asked: "What do you expect in terms of salary and what did you make at your previous job?"

"Umm $160 grand a year sounds just about right. I made $13 an hour at the college bookstore. What? Why the funny face?"

9/03/2009 1:43 PM  
Blogger JohnSteele said...

Armen,

It seems like we don't disagree. I don't speak for Henderson but I imagine that Berkeley is one of the schools that will still be able to follow the elite model even if the current market trends become structural.

Applying his model to Berkeley, we'd look to see if money was spent hiring prestigious faculty, and starting in 2004 that was precisely the choice made, as you can see from the charts and read in the text:

http://www.law.berkeley.edu/faculty.htm

My guess is that although Berkeley will have to soften the blow for some of its graduates, it can and will continue to follow the elite scholarship model.

9/03/2009 1:53 PM  
Blogger Armen said...

Sounds right. I'd just add the one caveat that I think there's a fundamental difference between a state school weaning itself from public funding and a lower tiered private school simply increasing tuition to boost its $ per student spending ratio. This is what I meant about lumping all law schools together.

9/03/2009 2:00 PM  
Anonymous Anonymous said...

I wouldn't be so sure that Boalt and other elite schools' continued focus on scholarship would neccesarily be in the interests of *all* of their students. One of the things that we may see coming out of the pressures Henderson describes is the modernization of firms' entry-level hiring methodology. Currently, firms rely on school rank and GPA rank as the basis for their hires. Clearly, those are proxies for other things, such as IQ and the prestige of the graduates' networks. However, firms could learn a lot from business, which has dramatically increased the effectiveness of its hiring processes by looking beyond the schools attended, instead looking for evidence of EQ, dedication, loyalty, problem solving, prior work experience and other "soft" skills. Frankly, firms today ignore these qualifiers, and as a result there are significant costs (such as the army of 160/year first-years brought on to do work a 25/hour contract attorney could do, all to find the 1-in-5 attorney that will fit in and last more than a few years in biglaw).

Once firms learn to manage their hiring processes more competitively, Boalt may well start to compete with Whittier. Actually, it does so already. Most firms hire whoever they can get their hands on from elite schools and the top students from lower-ranked schools. In my experience, the standouts from lower-ranked schools are often more dedicated to the task of succeeding at big firm practice, particularly compared to the P'svilles of the elites. As firms refine their hiring methods, lower-ranked schools have a lot to gain, and Boalt and others have a lot to lose, particularly if they continue to produce spoiled middle-of-the-pack graduates who believe their fate was sealed when they received their acceptance letter.

What seems certain is that the future of BigLaw will be more competitive, as clients demand greater cost efficiency from their outside counsel. If firms learn to increase efficiency through their hiring processes, there will likely be a decline in reliance on indicators such as school ranking and an increase in reliance on other qualifications. That will unltimately harm students at schools that choose to focus on scholarship at the expense of practical skills, whether Yale or anywhere else.

9/03/2009 10:33 PM  
Blogger JohnSteele said...

I wanted to response do anon 10:33 pm.

I agree with much of what was said. Law firm hiring, and especially biglaw hiring has been spectacularly inefficient, irrational, and guild-like (rather than market-like). Biglaw firms make employment offers 2-3 years before the job starts. They over-rely on school rank and class rank. Most significantly, they dramatically undervalue students who fall just below the firms’ cutoffs—leading to the famous bi-modal distribution of first year salaries, a hallmark of irrationality and prestige chasing.

A student’s grade/school combination does have some information value. As my former law partner said, “if you have good grades from a top school, you can’t be both stupid and lazy. But other than that, the firms are just guessing.” He was suggesting that the lack of high grades doesn't preclude either intelligence or industriousness. In other words, the grade/school metric leads to lots of false negatives, and even if it does deliver positive information (and it does), it doesn’t help firms predict the interpersonal skills, EQ, etc., that are so important to success.

At least three major projects are underway to measure future success without over-reliance on the school-grade metric. One of them is being developed by Prof. Schultz at Boalt (although it deals most directly with law school admittance). A private consulting group has devised a proprietary method of gauging future success. They haven’t released all the factors but did announce that participation in sports has a surprisingly high correlation with success in private practice. Bill Henderson at IU is working on a similar project.

If these trends continue, and if firms really do catch on, students from elite schools would face increased competition from lower ranked schools. Boalt students can resort to some self-help by choosing courses suited to their career goals (or not, depending on how you want to spend your three years). Boalt has just hired a Director of Professional Skills and presumably will increase its offerings in that area. If they choose, students can politely but firmly ask for more offerings in areas they find useful. Students can do outside competitions in negotiation, counseling, ADR, appellate, and trial.

But even as I agree that these trends could increase competition for Boalt students, I expect that Boalt students will continue to have an edge over students from schools that do not have the same kind of long-term reputation. I’d expect that the gap would decrease at the margin but not disappear. The gap would remain greatest in the prestige-chasing corners of the profession and would diminish in the money-making sectors.

9/04/2009 8:06 AM  
Anonymous Anonymous said...

The true competition will start when the L.L.B. returns. Why pay for 7 years when you can pay for 4? :)

9/08/2009 5:01 PM  
Blogger JohnSteele said...

I agree.


http://taxprof.typepad.com/taxprof_blog/2007/10/john-steeles-ad.html

9/08/2009 5:21 PM  

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