Monday, April 6, 2020

Advice to law students potentially graduating into a down economy (Michael Simkovic)

Unemployment increased from 3.5 percent in February to 4.4 percent in March, according to the U.S. Bureau of Labor Statistics.  Jobless claims have spiked by millions.  While unemployment rates are currently moderate by historical standards, the rapid rate of increase raises concerns that the U.S. is entering into a recession, if it is not in one already. Thus far, credit spreads on corporate bonds suggest that investors are concerned, though not quite as concerned as they were during the height of the financial crisis in 2009.  Law firms are reportedly delaying the start of summer programs and discussing reducing hiring.  A few firms are furloughing or cutting pay for existing workers, at this point disproportionately support staff

Workers who are highly educated (across age groups) are less likely to become unemployed and, if they do become unemployed, find work again sooner.  But even those with graduate degrees are not immune from recessions.  Within each level of education, those who are young and inexperienced are more vulnerable in a down economy because they are less strongly attached to jobs and integrated with employers and have not developed specialized skills that come with work experience.  There's evidence that graduating into an economy with high unemployment can lead to a decline in earnings for the first 4 years or so after graduation for law graduates. College graduates and high school graduates are even more vulnerable.  Law graduates typically catch up in terms of annual earnings later in their careers.

This raises the question--what can law students do now to maximize their chances of finding gainful employment?  A warning before proceeding--the advice that follows may be anecdotal unless it includes a link to supporting research.  Although the advice is primarily intended for those interested in work in the private sector, and who are more interested in practicing law than in other opportunities, the underlying data in Timing Law School and After the JD is broader.  These studies include those who were not practicing law or who worked outside law firms.  The AJD sample is restricted to the 90+ percent or so of graduates who eventually passed the bar exam, while Timing Law School and SIPP include those who did not pass the bar.

Beyond the usual advice--get good grades, network with potential employers--it may be advisable for students to focus on learning areas of law that are likely to be in greater demand in a down economy.  Traditionally, this includes corporate bankruptcy, employment law, and patents.  Areas that are believed to be more pro-cyclical (i.e., that are busy in booms and less so in busts) include capital markets, M&A and antitrust. 

Some successful lawyers will have corporate bankruptcy as a specialty for downturns, and a second specialty for when the economy improves.  It is advisable, all else being equal, to join a firm with strengths in numerous practice areas.  Tax is also a specialty that can be useful both during booms and during busts, as corporate clients seek to use losses to reduce their tax liability a much as possible.  Tax and other areas of transactional practice can open the door to employment at accounting firms, or in-house at a corporation, and not just at a law firm. 

For those intent on working for the public sector, the federal government is typically more insulated from recessions than state governments, which in turn are typically more insulated than municipalities.  Larger, better funded non-profits will tend to do better than smaller ones.

While it is probably preferable to train with a more experienced attorney, and employment at larger employers can be more lucrative, even solo practitioners can earn respectable incomes. (For a more technical look at estimates for solos, see here).

Those who obtain jobs that were not their first choice should realize that not getting your ideal job immediately after graduation is not a life sentence.  After the last downturn, many of my students who started in mid-sized regional firms and were strategic in their choice of practice area or strategically selected clerkships where they could gain valuable experience relevant to corporate law eventually were able to move to larger, more elite firms. 

The data supports these anecdotes, whether it is After the JD III (looking at those who graduated in 2000/2001, 12 years after graduation) or Timing Law School (looking at earnings premiums across multiple recessions for multiple cohorts).  Within a decade or so of graduating, many law graduates who persist in the workforce earn six figures, even if they did not graduate from an elite institution or at the top of their class, and even if they had the misfortune of graduating into a recession. 

Those who work hard and remain upbeat and pleasant to work with may be more likely to succeed than those who become cynical, sarcastic or fatalistic.  During the last downturn, several graduates of law schools gave interviews to newspapers which damaged their own reputations.  In some cases, journalists took their words out of context to make them seem more negative.  Several of those interviewed reached out privately to express regret after being unable to get newspapers to print retractions or corrections.  To the best of my knowledge, these individuals' careers never recovered from their exceedingly public demonstrations of poor judgment. 

A down economy can be a good opportunity to pursue additional training, for example through a clerkship or second degree like an MBA or LLM, especially in an in-demand field like tax.  The opportunity cost of doing so is lower than during a boom.  International LLMs might wish to consider staying on to complete a JD if the additional years of training could make them more competitive in the U.S, market.

Similarly, those graduating college now who do not have attractive employment opportunities may wish to pursue an advanced degree to make themselves more marketable. While no one has compared the value added from different degrees for different kinds of students, advanced degrees in medicine, law, business, engineering and computer science are all associated with high earnings according to the Census Bureau's Survey of Income and Program Participation.

Entering law school during a recession does not increase the chances of graduating into a recession by enough for it to make sense to delay entry, because the current state of the economy is not a good predictor of the state of the economy 3 to 4 years into the future and the cost of delay--earning less during early years--is high.

It is helpful to remember that law graduates are in a privileged position in society. Only one third of the U.S. population has a bachelor’s degree and only around 3 percent have a professional degree or doctorate.  The median income for a 25 year old in the U.S. was less than 32,000 in 2019, and that was a year when the economy was booming.

Guest Blogger: Michael Simkovic | Permalink