Several years ago, when Cliff Winston and I began looking at the incomes earned by lawyers, we were struck by several facts. First, after accounting for age, years of education, experience and various other demographic influences, we found that the income premium earned by lawyers had increased by about 50 percent between 1975 and 2004, with a large share of the increase coming near the end of the period. Second, the rate of increase in the number of lawyers in the United States had been declining for some time. Why, we asked, would the rising earnings premiums for lawyers have not attracted a sharp increase in the number of persons applying for entry to and graduating from U.S. law schools?
The answer was soon clear. Though the number of law-school applicants had been rising substantially, the number of law-school seats had been increasing much more slowly. The lawyers’ trade association, the American Bar Association, plays a significant role in accrediting law schools, and it has been very slow to add new schools to its list of accredited institutions. In most states, no one can sit for the bar examination without a law degree from an ABA-accredited institution. This slow growth in law school capacity has resulted in rapidly-rising lawyer incomes and in a sharp increase in the cost of a law degree as the law schools have shared in the gains from the restriction on entry into the profession.
We found that over the last thirty years, the demand for legal services has accelerated sharply for three major reasons: the growth in the value of tort suit settlements, the increase in patent litigation that followed the establishment of a new Federal Circuit court for adjudicating patent disputes, and the general growth of civilian federal government employment with the advance of the regulatory state. All three sources of growth are the result of inefficient policies that result in a substantial waste in societal resources, but it would be naïve to suggest that we could streamline or reduce any of these policies substantially, given the large political constituencies supporting each of them, not to mention the general constituency represented by the nation’s approximately one million lawyers. Instead, we advocate deregulation of the legal profession, which would increase the supply of lawyers and thereby reduce the cost of legal services. This downward pressure on lawyer incomes would, in turn, make these inefficient policies less attractive to lawyers and reduce their support for them.
The rising incomes of lawyers are not simply a reflection of “winner takes all” economics. It is not just the elite lawyers who have benefitted – all income classes in the profession have seen their incomes rise sharply. As a result, the costs of most legal services have also risen, transferring wealth from consumers to lawyers. Moreover, state government restrictions on non-lawyers’ offering of simple services, such as the execution of legal documents or drawing up a will, make it impossible for the average consumer to avoid these over-priced professional legal services.
Were the practice of law deregulated, allowing anyone to offer a variety of legal services, the prices of the simplest services would surely decline. Equally important, the amount of legal training received would vary across the legal services field. At present, everyone sitting for a bar exam in most states must obtain the equivalent of three years of instruction at an ABA-accredited law school. Surely, three years of law school are not necessary for lawyers handling simple divorces, real estate transfers, or traffic violations. For the most complicated of practices, however, lawyers would still need a substantial amount of education – perhaps three years or more – at a first-rate law school. The graduates of these law schools would still command large fees for their services.
One of the more important outcomes of deregulating entry into the legal profession would be to allow a variety of businesses to enter the profession by setting up law practices within their firms or in new businesses. Under current ABA-sponsored state rules, only lawyers can own law firms. Such a restriction obviously excludes entrepreneurs who might find innovative new ways to deliver legal services, perhaps as complements to other services, such as accounting or business consulting. There is no good reason why lawyers should only work for lawyers in delivering legal services to third parties. More diversity in legal services firms would likely promote innovation and provide consumers of legal services with more options and potentially lower prices.
The obvious argument for occupational licensure in any profession is that it sorts out incompetent and unscrupulous practitioners. In the practice of law, surely the road to competence is not only through three years of an ABA-accredited law school. At the very least, prospective lawyers could be freed to pursue their legal training wherever they choose and then to sit for a bar exam. And the bar exam could have several variants, depending on the sitter’s intended specialty. Why, for example, should those intending to handle domestic disputes be well versed in all of the technicalities involving complex financial transactions?
Occupational licensing may have been warranted to overcome alleged inadequate information about lawyers’ competency in years past. But today a state-administered test of competency is not the only way or the even best way to gauge a lawyer’s ability. In a world in which virtually everyone is able to access thousands or even millions of Internet sites, it should not be very difficult to find information that bears directly or indirectly on a lawyer’s competence. In a deregulated legal-services market, a variety of new sources of such information would surely develop, further reducing the need for occupational licensure.
Nor is the current system of licensing lawyers an effective method of weeding out the unscrupulous. Requiring lawyers to attend a three-year ABA-accredited law school and pass a state bar examination does little to assure the consumer of legal services that a lawyer is honest and scrupulous. The large number of cases of alleged lawyer wrongdoing that appear in the press daily should cast doubt on the efficacy of the current licensure system in weeding out bad apples ab initio. Even if the practice of law were totally unregulated, there could still be state bar associations that publicized wrongdoing by lawyers in the state. Attorneys general could still pursue the illegal and unethical conduct of William Lerach or Richard Scruggs even if they had not passed the state bar exam.
There are numerous studies of the deregulation of various sectors of the economy that began in the mid 1970s and spread to airlines, trucking, railroads, telecommunications, cable television, and oil and natural gas. Invariably, they find that freeing up entry and deregulating prices leads to greater efficiency, more rapid innovation, and lower prices without a sacrifice in service quality. There is no reason to expect that the deregulation of the legal profession would produce different results. In fact, by eliminating the need to accumulate $150,000 of debt to finish law school, deregulation would attract to the practice of law many bright and innovative young people who seek different careers because of the high entry costs. This increased supply of capable lawyers would surely lead to lower prices for many legal services, particularly when combined with entry by new types of legal services organizations.