Is America Really Facing a Lawyer Oversaturation Problem?

According to more than decade-long trends, the short answer is yes.

Whittier Law School closed its doors for good in 2017, shocking students and faculty members. It was the first accredited law school to shut down. However, other for-profit law schools have felt the decline in demand for a legal education. About half of the law schools that depended solely on tuition fees operating in 2013 have also closed.

With fewer law graduates landing jobs and automated legal services, school closings warn future and current law students about their probable fate. The job market for lawyers is lousy and will only worsen, partly because of technology.

Job Market Decline

Many see the law profession as a prestigious and lucrative career. Many expect new graduates to find jobs in the thousands of law firms nationwide easily. However, that hasn’t been true in over a decade.

Due to the recession, over ten percent of the class remained unemployed. Compared to the class of 2000, which also graduated during a recession, the earlier class was more successful in getting jobs. Those stuck in unemployment had over $100,000 in law school debt.

Given the low number of lawyers finding employment, the 2010 Ohio graduates found jobs outside the legal profession. Many turned to careers as teachers, party planners, firefighters, salespeople, and tennis instructors. Nearly 10 percent claimed they had a “solo practice.” Still, given the difficulty of new lawyers running their own practice, this might have been a euphemism for unemployment or underemployment.

Job market analysts and law professionals saw the oversaturation of lawyers in the job market as early as 2014. As more schools closed in 2018, the only way to become a successful lawyer in the current situation is to get into Harvard, Yale, and Stanford.

Are there too many lawyers?

It may seem inconceivable to an ordinary person that the legal profession is no longer lucrative, given how hard and expensive it is to become a lawyer. But statistics show that is precisely what’s happening.

There are approximately 1.3 million practicing lawyers in the US as of 2023. That is equivalent to the population of Dallas, making the lawyer-citizen ratio 4 to 1,000 people. Moreover, the number of lawyers will keep growing as law schools are churning out new lawyers faster than older lawyers are retiring.

Regarding the difficulty, it might help to illustrate the situation by comparing it to the medical profession—the number of doctors produced by medical schools to the number of lawyers from law schools. 

There are 989,320 licensed medical doctors currently practicing in the US, a ratio of 2.4 per 1,000 patients. Since someone is more likely to sustain injuries than to sue for an injury, it would be safe to assume that a doctor will always have patients. However, the ratio of lawyers to citizens is disproportionate, considering fewer people need their services.

Effect on the Workforce

One reason the market is oversaturated is that not enough people need legal services. A firm can hire only so many lawyers before it stops becoming profitable, resulting in fewer job prospects for new lawyers.

Many law firm managers believe their lawyers are not busy enough to make as much money as before. In one poll, 60 percent claimed overcapacity resulted in less profits. Most (74 percent) of large firms with over 250 attorneys claimed their attorneys’ inactivity hurt profit.

Corporations and businesses are choosing to hire in-house legal counsel instead of law firms, which charge more. Additionally, fewer people need legal services. States started to license legal technicians to advise clients in specific legal disciplines. A law graduate who passed the bar and a drop-out who passed the licensure exam could legally offer clients advice.

The growing technology trend is slowly replacing human lawyers in small legal services. Legal databases match clients with lawyers, reducing the need for people to go to law firms for help. As in many industries, technology is reducing the work humans need to perform. It will not make lawyers obsolete, as demonstrated in this Legal Eagle episode. However, it will significantly decrease the opportunities available to new lawyers.

According to a Wells Fargo report, American law firms continue to be swollen with excess lawyers, showing a drop in productivity during the first six months of 2023. Lawyers invoiced an average of 1,538 billable hours, 150 hours fewer than in 2021. The unit claims they’ve never seen numbers that low.

The demand for legal services declined by 0.4 percent during the first half of 2023, compared to 2022, when demand increased by 0.2 percent. Put another way, legal services constituted 0.58 percent of the US gross domestic product in 2001 and 0.28 percent in 2019, indicating that Americans are spending less on legal services than twenty years ago.

Automation of legal tasks, an increase in the number of paralegals, and a decline in litigiousness all play a role in the declining demand for lawyers’ services. The number of federal court lawsuits filed has declined per capita and on a lawyer basis since 2001.

The drop in demand is the biggest challenge in the near term. Despite these challenges, law firms increased revenue by 4.4 percent for that period by increasing their billing rates significantly.

A Downward Trend

The number of lawyers per 1,000 workers in the US rose from 4.15 in 2001 to 4.4 in 2019, even as demand for legal services fell. Experts believe the legal sector is slow to react to labor market change. That may be partly because it takes four years or more for someone to decide to pursue law and when they can join the bar.

One 2023 report shows that throughout 2022, growing political and economic uncertainty significantly reduced client demand. One of the significant changes in the legal industry in 2022 was a considerable decrease in demand growth that law firms experienced throughout the year. From January to November 2022, the overall legal demand had declined by 0.1 percent, which compares unfavorably with the 3.7 percent growth rate in 2021.

Additionally, lawyers are making less money today than they were in 2001. Their median real income fell nearly two percent from $129,389 (adjusted for inflation) in 2001 to $126,930 in 2020. Solo practitioners and lawyers working for the government and non-profits tend to make significantly less than those at large firms that serve corporate clients. Across sectors, the median real income was at its highest in 2010 at $134,005 and has gradually declined.

By contrast, the real income of all American workers increased nearly four percent during that period. The study found that the median real income among family physicians grew by 20 percent. At the same time, economists saw their median income increase by nearly 11 percent. An oversupply of lawyers and declining demand for lawyer services is likely driving this trend.

During the latter part of 2022 and into the new year, several challenges have arisen that could threaten the profitability of law firms. These challenges include falling demand and productivity, rising expenses, changing client preferences, and economic instability. One crucial metric, profits-per-equity partner (PPEP), has decreased for the first time since 2009, during the last global financial crisis.

Navigating Choppy Waters

Not surprisingly, this collapse in demand growth fell more heavily on larger law firms. That is especially true for transactional practices like bankruptcy law. As a result, many are turning to less traditional marketing practices, such as SEO for a bankruptcy lawyer, to increase revenue.

Despite these challenges, law firms continued to hire new lawyers at a steady rate. All these factors contributed to the decline of PPEP from its 2021 levels. However, it remains in a relatively good position historically.

The trend indicates a growing uncertainty over macro-issues, such as economic sluggishness in the US and worldwide. Additionally, the challenge of returning to the office and rising talent costs set the stage for a challenging 2023 for the lawyers.

An interesting insight into the report was the relatively good showing of midsize law firms, which saw positive demand growth in 2022. That may be attributable to clients’ willingness to work with high-quality but more cost-effective outside counsel.

Too Many Lawyers, Too Few Clients

The declining demand for legal services and the oversaturation of lawyers in the US puts the legal profession at a crossroads. It has created a challenging environment for new and existing attorneys. 

As the industry evolves, it will be vital for those within the legal field to adapt, finding innovative ways to remain relevant and competitive. The future of law may look different from its past, but with change comes the opportunity for growth and reinvention.