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The Number and Earnings of Lawyers: Some Recent Findings

Published online by Cambridge University Press:  20 November 2018

B. Peter Pashigian
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Abstract

The number of lawyers in a society may depend on the level of real income and on the scope of government regulation. Cross-national data and time-series data suggest that the growth in the number of lawyers in the United States during the past 50 years can be better explained by increases in real income than by increases in government regulation. Other tests also suggest that regulation is of lesser importance. The combined share of memberships in American Bar Association Sections more closely allied with government regulation has not increased over time. The share of billings by the legal service industry to firms is found to be relatively stable throughout the post-World War II period, suggesting that the scope of government regulation has not caused business firms to use the legal service industry more intensively over time than individuals have. An examination of the earnings of lawyers over time suggests that members of the legal profession experienced relative prosperity during the 1920s and early 1930s and during the 1960s and early 1970s. The length of these prosperous periods is traced to the slow adjustment in the number of places in law schools.

Type
Research Article
Information
American Bar Foundation Research Journal , Volume 3 , Issue 1 , Winter 1978 , pp. 51 - 82
Copyright
Copyright © American Bar Foundation, 1978 

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References

1 Haar, Charles M., ed., The Golden Age of American Law 42-43 (New York: George Braziller, Inc. 1965).Google Scholar

2 A more detailed and technical analysis of the issues raised in this paper is presented in B. Peter Pashigian, The Market for Lawyers: The Determinants of the Demand for and Supply of Lawyers, 20 J. L. & Econ. 58 (1977).CrossRefGoogle Scholar

3 See Goldstein, Tom, Job Prospects for Young Lawyers Dim as Field Grows Overcrowded, New York Times, May 17, 1977, p. 1.Google Scholar

4 International comparisons are often difficult to make because the data are undoubtedly subject to large measurement errors and the work of a lawyer differs from country to country. Hence, the data in table 1 are only suggestive but are thought to correctly measure trends over time, particularly for the United States, and to provide rough comparisons of lawyer intensity across the three countries.Google Scholar

5 The interested reader is directed to the original article for a more elaborate derivation of the theory. Pashigian, supra note 2, at 55-63.Google Scholar

6 For simplicity, annual earnings per lawyer are assumed to be directly related to the daily rate charged by lawyers. Therefore, days worked per year and expenses as a proportion of receipts are assumed to have remained constant over time.Google Scholar

7 The short-run supply elasticity may not be very large because lawyers often make significant investments while establishing a practice during the early part of their careers. Former lawyers, whose skills have depreciated while out of practice, will only make these investments if they expect the higher earnings to persist for a time.Google Scholar

8 Table 1 indicates that a little more than 1 in every 1,000 individuals in the population has been a lawyer. If the number of lawyers accounted for a large share of the labor force, a more persuasive case for an upward sloping supply curve could be made.Google Scholar

9 A more general analysis would allow for the probability of completing law school and for the probability of passing the bar to be less than 1.Google Scholar

10 For some evidence, see Mincer, Jacob, Schooling, Experience and Earnings 8-9 (New York: National Bureau of Economic Research, 1974).Google Scholar

11 If the present value of the law school option exceeds the option of immediately entering the labor force,Google Scholar

12 If a college graduate could earn $14,000 per year and the discount rate equals 10 percent, the graduate would select the law school option if earnings from law practice exceeded (1.10)3 ($14,000) =$18,634 and the career decision was based on maximizing present value.Google Scholar

13 The factor k would exceed 1 because earnings in law in the early years are lower than (1 +r)3 U and therefore would have to exceed (1 +r)3 U in the later years because the discounting makes the present earnings more important than future earnings in the income stream.Google Scholar

14 A mathematical restatement of this proposition may be helpful. Suppose the number of lawyers demanded decreases with higher lawyer earnings and with lower real national income (the effects of regulation and other variables on the demand for lawyers are ignored).Google Scholar

where LD t denotes the number of lawyers demanded in year t, LEt denotes average lawyer earnings, and RIt denotes real national income. The terms a 0, a 1, and a 2 are constants; a 1 is negative because a rise in lawyer earnings reduces the quantity of lawyers demanded, and a 2 is positive because an increase in national income increases the quantity of lawyers demanded.Google Scholar

In long-run equilibrium average lawyer earnings in year t, , equals where k is a constant, and denotes average earnings in an alternative occupation:Google Scholar

In long-run equilibrium LD t =Le t where Le t denotes the number of lawyers required for LEe t to equal . By substituting the expression for LEe t in equation (2) into equation (1), an expression for Le t may be obtained:Google Scholar

Hence, the long-run equilibrium number of lawyers declines with increases in (because a 1 < 0) and increases with RIt (because a 2 > 0).+0).>Google Scholar

15 This assumption may be written as:Google Scholar

where Lt denotes the number of lawyers in t, Le t is the long-run equilibrium number of lawyers, given current national income and alternative earnings, and γ is a constant between 0 and 1. If γ= 1, the actual number of lawyers will always equal the equilibrium number. The lower γ, the slower is the adjustment of the actual number of lawyers to the equilibrium number.Google Scholar

16 After substituting the expression for Le t in equation (3) into equation (4), Lt may be expressed as:Google Scholar

The number of lawyers in t will be linearly related to RIt and L t− 1. Regression analysis is used to estimate the coefficients of each of these variables. The regression coefficient of L t - 1 is an estimate of (1 - γ); 1 minus the regression coefficient is the estimate of γ. For example, if the regression coefficient of L t - 1 is .8, the estimate of γ is .2. This estimate of γ may be used in the following way to estimate the equilibrium number of lawyers. Note that the regression coefficient for the intercept is an estimate of a 0γ, the regression coefficient of is an estimate of a 1γ, and the regression coefficient of RI is an estimate of a 2γ. If each of the regression coefficients is divided by the estimated value of γ, estimates of a 0, a 1, and a 2 are obtained. Given these estimates, the equilibrium number of lawyers can be estimated from the expression:Google Scholar

An estimate of Le t may be obtained for each year by first multiplying the estimate of α1 by , then multiplying the estimate of a 2 by RIt and then summing the three terms on the right-hand side of (6). The estimated equilibrium number may be interpreted as the number of lawyers that would have been observed ultimately if and RIt had remained constant thereafter at their respective values in year t. The time series of the equilibrium number of lawyers may be derived by repeating this procedure for each year.Google Scholar

17 In the 1920s and 1930s a college degree was not a prerequisite for entering law school in many states or in many law schools.Google Scholar

18 The census estimates are the only source of information extending back a half-century and are imperfect because some lawyers no longer practicing law may still classify themselves as lawyers.Google Scholar

19 The depreciation rate for each decade was estimated by choosing a value of d that equalized the right and left sides of the following expression:Google Scholar

where Lt and L t - 10 are the Census of Population decennial estimates of the number of lawyers and judges and NAt-i denotes the number of new admissions to the Bar in year t - i. An iterative procedure was adopted to find a value of d that produced an equality.Google Scholar

20 Recent data from the 1970 Census of Population show that the legal, dental, and medical professions have comparatively high retention rates among all professional, technical, and kindred workers. U.S. Bureau of the Census, Census of Population: 1970 (Washington, D.C.: Government Printing Office, 1973). Among those members in an occupation in 1965, the percentage still in the occupation in 1970 was (for selected occupations):Google Scholar

These figures will surprise some because of the implied low depreciation rates for lawyers. See Dixie Sommers & Alan Eck, Occupational Mobility in the American Labor Force, Monthly Labor Review (Jan. 1977), pp. 3-19.Google Scholar

21 For a contrary view see American Bar Association, Special Committee on the Economic Condition of the Bar, The Economics of the Legal Profession 38-48 (Chicago: American Bar Association, 1938).Google Scholar

22 Given gross national product, the number of transactions among firms would increase as the number of firms increased. The smaller the number of firms, the smaller the number of market transactions, the larger the number of within-firm transactions, and the smaller the demand for lawyers. The number of corporations was introduced into the regression analysis to capture this possible substitution between market and nonmarket transactions.Google Scholar

23 The agencies include the Antitrust Division (Department of Justice), Civil Aeronautics Board, Commodity Exchange Authority, Federal Communications Commission, Federal Home Loan Bank Board, Federal Maritime Commission, Federal Power Commission, Federal Trade Commission, Food and Drug Administration (HEW), Interstate Commerce Commission, National Labor Relations Board, Packers and Stockyards Administration (Department of Agriculture), Securities and Exchange Commission, Tariff Commission, and the Wage and Hour Division (Employment Standards Administration, Department of Labor). This listing of regulatory agencies indicates that the number of agencies has grown over time with a large number of additions during the 1930s. Several new important regulatory agencies were formed during the late 1960s, and their effects are being felt primarily during the 1970s.Google Scholar

24 Other measures of the scope of government regulation were also studied. Size of government relative to the economy was found to have little effect on the demand for lawyers.Google Scholar

25 Another alternative would adjust long-run equilibrium earnings directly for underemployment and unemployment in the private sector.Google Scholar

26 The regression equations were estimated with the Hildrith-Lu search process over a grid of values for the first-order serial correlation coefficient, ρ. Results are presented for the smallest transformed sum of squares residuals.Google Scholar

27 A time-series analysis may not be the most effective method of identifying the separate effects of each of the independent variables on the number of lawyers, since many of the independent variables tend to move together over time. A cross-state analysis has greater promise of isolating the separate effects of each independent variable entering the demand for lawyer equation because of the greater diversity across states.Google Scholar

28 See Alfred Zantzinger Reed, Present-Day Law Schools in the United States and Canada, Carnegie Foundation for the Advancement of Teaching Bull. no. 21 (Boston: Merrymount Press, 1928).Google Scholar

29 The quality of schools is defined by the following characteristics: (1) tuition as a percentage of that of the three highest tuition law schools; (2) number of volumes in library; (3) approval of a school by the American Bar Association, which is recognized as the national accrediting body for law schools. See also notes to table 7.Google Scholar

30 The market share of unapproved schools is only an approximation since it is difficult to identify all such schools. A more recent study shows that the total number of law schools in 1976 was 214, somewhat more than the 190 listed in table 7 in 1973. Eighty-eight percent of all students were enrolled in ABA-approved schools in 1975. See Fossum, Donna, Proprietary Law Schools and the Accreditation of Proprietary Educational Institutions in the United States (unpublished report, American Bar Foundation, Dec. 15, 1976).Google Scholar

31 During the past ten years, many higher quality law schools could have raised tuition and not reduced the total number of students but lowered the average quality of students. The law faculty has little incentive to trade for lower quality of students if little is gained in return. Under these conditions, the emphasis by the law faculty on quality of law students is under standable.Google Scholar

32 Testing appears to have become commonplace in business schools in the middle 1960s.Google Scholar

33 These counts are subject to some error because of the difficulty of locating all schools.Google Scholar

34 Winfield, William, Income of Lawyers, 1929-48, B. Bull. [New York County Lawyers Association), Sept. 1949, at 14, 17.Google Scholar

35 Graduates of unapproved California law schools are not permitted to take the bar examination in many states.Google Scholar