Friday, June 21, 2013

The Curious Market for Lawyers

In Prin. of Microeconomics, one of the topics I lecture about is the labor market.  As I tell my students, in a well functioning labor market, the supply of labor should equal the demand for labor resulting in the labor market to reach an equilibrium in terms of both the amount of individuals employed and the wage that those employees receive.  Of course, this is a very simplified model, in that it does not allow for market restraints on the demand or supply side, does not include government intervention and assumes that all the potential and actual employees are the same in terms of their abilities.  These assumptions are used to make a general analysis about labor markets as opposed to a statement of their actual function.

In terms of the market for lawyers this is not the case.  Notice that unemployment among recent law school students is over 10% of the graduating class (meaning that there is an excess supply of lawyers) and that there are substantial areas in the US that face a shortage of lawyers (excess demand for lawyers).  How can this be?

As the New York Times article linked above mentions lawyers tend to concentrate in large urban areas since that is where lawyer demand and most likely the higher lawyer salaries occur.  In rural areas, the demand for lawyers is less and most likely the salaries for those lawyers are also lower.  Hence, some recent law school graduates are hoping that the market in the more geographically concentrated lawyer areas will improve leading to higher salaries than taking a lower salaried position in a less concentrated area for lawyers.

Thus one solution to our simultaneous excess demand and excess supply of lawyers is that there are different geographic markets (and salaries) and recent law school graduates are "wage sticky" in terms of there willingness to lower their wage expectations to practice law in more rural areas.  There are most likely a number of other aspects that leads to this curious occurrence of both excess supply and excess demand for lawyers.

As a result, the state of South Dakota is now offering a subsidy for lawyers to practice is more rural areas.  Imagine that - the government is now paying lawyers to practice law in South Dakota even though there is an excess supply of law school graduates.

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