Lawyers Are Still In Huge Trouble Even Though The Economy Is Getting Better
Between 1980 and 2005, the median age of lawyers increased from 39 to 49. [...]
That means that the reported oversupply of lawyers may well result from demographic factors, rather than permanent changes in the legal market. The demographic factors, in turn, probably result from a combination of lawyers waiting longer to retire because of 401(k) accounts decimated during the financial crisis together with the "bulge" of baby boomers working their way through the system.
The bulge of baby boomers should be a very rare occurrence, one which the legal market maybe doesn't need to do much of anything to address. It sucks for people graduating while boomers are hanging on to their jobs, but any solutions would take too long, the problem will be gone before there's any affect. But what about that first explanation, that lawyers are staying in the workforce longer in order to recoup their losses from the recession? The market is back, baby:
The Dow hasn't just recovered, it's up nearly 12% over it's pre-recession high. If you add in extra income from staying on the job a few more years, lawyers who were delaying retirement because of the recession should now be much better off than they were before the crash. Why not just cash out now and get the demographics back in line? We suspect two reasons.
First, lawyers may be below-average investors. Many lawyers work in small shops that won't have a formal retirement program, so they're going to be handling their retirement savings themselves. And partners in firms big enough to have retirement programs are probably investing quite a bit beyond their 401(k)s. You know what happens when people who have a lot of faith in their intelligence but less information than professional investors try to play the stock market? They lose. People who play the market are also more prone to pulling their money out during a recession, as opposed to people with generic mutual funds who will tend to just let it ride. So, those lawyers who were too smart for their own good didn't get to reap the benefits of the recovery, and now they have to work an extra decade to make up their losses.
Second, there's the availability heuristic at work. The recession is still fresh in everyone's memory, and if you saw your retirement savings wiped out, it's going to be an especially strong memory. That means the goal posts for retirement have moved. You now need enough to retire on plus enough to cover the losses of another recession. It doesn't matter that retirees should be putting their investments into safer vehicles, or that another recession would be followed by another recovery, so you don't really need to save much extra to prep for it; cognitive biases don't care about that stuff. You're once bit and twice shy, and that's the end of that.
Back before the recession, and even during its early days, the pom-pom wavers talked about how law was recession proof, or at least resistant to the recession. Crimes still get committed, those people need lawyers, and there's more bankruptcies and divorces to make up for slower areas. Of course the proof of the pudding is in the tasting, and as it turns out if your clients have less money they can't pay you as much, and it's not all that simple to go from a deals practice to bankruptcy, or a T&E shop to divorce. There are some industries worse than law during a recession, and some areas of law are counter-cyclical, but whatever resistance the law has to recessions is pretty minimal.
But while the law may not resist recessions well, the number of older lawyers still in the work force indicates that law may be recovery resistant. Baby booms are rare, but recessions? They happen frequently enough that if the legal industry gets any worse at recovering, it might not move fast enough to be back on its feet before the next one hits.