Law schools have suffered a precipitous drop in applications in the last six years—the largest decline in decades. To assess whether this decline will continue and to determine the response, legal educators must first figure out the causes of the decline. Here are the three most plausible causes in ascending order of the threat that they pose to incumbents in legal education. The first is the Great Recession: law schools have declined because of a decrease in the demand for legal services caused by the Great Recession. The second is the existence of a lawyer bubble: law schools previously produced too many lawyers and there is overhang of supply that makes new lawyers less necessary. The third is structural: law has faced a technological shock, which has depressed the demand for lawyers and/or their income.
It seems quite clear now that Great Recession cannot be assigned a primary role. Applications are still declining this year even though the economy has been coming back for some time. Moreover, recessions in the past have not unduly harmed the demand for legal education. Prospective students recognize that a recession decreases the opportunity costs of being in a school, and students emerge ready to earn more in a more robust economy. Finally, as Ben Barton shows, the incomes of lawyers in small firms were declining before the Great Recession.
The bursting of a bubble in lawyers is an inherently somewhat less plausible explanation than a housing bubble for a persistent oversupply. Housing stock is a durable good and once built stays on the market for a long time. But lawyers’ skills are somewhat perishable. If a graduate is not employed substantially as a lawyer for several years, he or she is unlikely to be easily able to reenter the market as the relevant skills and connections atrophy. Thus, the bubble explanation is unlikely to provide a full accounting for the decline in demand for new lawyers.
The most important cause of the decline in demand for legal services is technological shock. Technological change has reduced the demand for lawyers, at least at the price point law schools were delivering it. The technological shock has been of two kinds. First, machine intelligence is beginning to substitute for lawyers, particularly at the low end of the legal profession. Document discovery is moving from human to machines. Legalzoom and similar services are encroaching on the production of simple documents, like many wills and trusts. And once machines get into an area, they dominate over time.
Second, machine intelligence is reducing the agency costs from which lawyers have benefited, General counsel, for instance, can keep better track of exactly what their outside counsel are doing, cutting down on slack. The information age reduces the information asymmetry between lawyers and many of their clients.
This technological shock has been good for the economy by reducing the transaction costs constituted by lawyers. But it raises a grave challenge to law schools. Since the cause of the decline in applications is structural, the applicants are not likely to come back in anything like previous numbers. Because the structural change is technological, it also may intensify as computation becomes ever more powerful. In a subsequent post, I will discuss how law schools can respond to these challenges.