Balkinization  

Tuesday, August 23, 2011

How Inelastic is Demand for Law School? (Testing The Limits)

Brian Tamanaha

At Concurring Opinions, Gerard Magliocca (also a contributor to Balkinization) remarks, "Applications to law school are not going down much (or at all) notwithstanding the sharp increases in tuition and the decline of the job market. Demand for legal education seems relatively inelastic."

The key is the modifier "relatively." Demand that remains strong despite increases in price (tuition) and a reduction in expected value (jobs) might appear to be inelastic--until the threshold is crossed beyond which demand collapses.

Contrary to what Gerard suggests, the number of law school applicants (more relevant than "applications") has gone down by more than 20 percent since reaching a high of 100,000 in 2004 (details here). Several consecutive years of decline were interrupted by a two year uptick at the outset of the current recession, but the number of applicants turned down again this year, and there are indications that this decline will continue.

The following chart (provided by my colleague Jeff Sovern, prepared by his assistant Ourania Sdogos) provides some insight into what drives demand for law school, and suggests that law schools might be testing the limits of inelasticity.



This chart shows a fairly close correlation over the past twenty years between unemployment and the number of law school applicants: when unemployment rises (green line), the number of applicants goes up (blue line). For the current recession, this relationship continued to hold, with two notable differences: 1) although unemployment shot up, the number of applicants rose only modestly (this was before the recent spate of bad news about law schools); and 2) the number of applicants turned down again this year by 11 percent (not indicated on the chart) despite a continuation of high unemployment.

These are aggregate numbers. The demand for any particular law school will be determined by its tuition (or discount rate) and the job prospects of its graduates. But it does seem fair to say that law schools generally should not assume that students will continue to apply as long as the employment situation remains bleak. We may have reached the point at which large numbers of prospective students who are contemplating law school--otherwise facing unemployment or underemployment--decide that it costs too much for what they get in return. (Annual tuition at private law schools now averages over $37,000; according to NALP, only 64 percent of the class of 2010 obtained full time jobs as lawyers.)

And what will happen to demand for law school when the general employment situation improves? (see chart for a likely consequence)

Comments:

Great post Brian. It's interesting that the number of applicants was even lower during the mid-1990s than it is are now. I suppose that the dot.com boom explains that, though there were also fewer law schools then than there are now (I think).
 

Which law schools (or type of law school) are most endangered if applications continue to fall?
 

I expect there to be - at a minimum - a several year lag between a drop in applications and enrollments. Unscrupulous law schools will reach further into the part of the applicant pool that is statitically unlikely to pass the bar until and unless they are forced to do otherwise by outside forces.
 

Gerard,

I'm not sure what explains the depth of the previous fall (There were about 20 fewer schools in the early 1990s). The application population can be roughly divided into two groups: people who always wanted to be a lawyer, and people who turn to law school when the overall job market is poor. This chart picks up the latter.

Where things will get interesting is when (if) demand in the former group falls sharply because price is too high relatively to expected return, even for those who always dreamed of legal careers. Some law schools will be in real trouble if that happens.

Mis,

That raises your question. I don't have a specific answer yet, but I think schools at risk will have combination of these factors: high tuition ($40,000 range), location in a weak legal market, and low relative standing.

Schools like Cooley will be fine because they are nearly open admission. Schools that hope to maintain standards, however, will be squeezed if the total pool of applicants continues to contract. When there are fewer bodies to go around, some places must lose out.

Brian
 

This comment has been removed by the author.
 

*edit


I know we discussed whether the recent "enlightenment" will prove to have staying power: anecdotal evidence from conversations with my peers considering law school suggests public awareness is high. That, combined with the relatively weak uptick in applicants shown by this chart gives me hope that us 20 somethings are coming to our senses.

Kevin
 

People don't leave because things are hard. People do leave because it's no longer worth it


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I just dont know about the demand for law school jobs folks.

Regards, Mikes
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