President John Adams said, “Facts are stubborn things.” You can’t change reality, so you need to face it head on. It might sound crazy, but you should seek out bad news – the earlier you find it, the earlier you can do something about it before it gets worse. Look for problems and become the solution. Nothing good ever comes of avoiding the hard truths. ~ Joel Peterson, Chairman, Jet Blue Airways
Many fellow bloggers will make their 2014 predictions for the legal profession. They will showcase trends in technology, staffing, management as they see it and much more, particularly as it relates to the actual practice of law. I applaud the vision and guidance they bring to our profession. However, as many of you know, I tend to go for the much, much bigger picture, the economic trends facing your clients as money (or lack thereof) drives the realities of your day-to-day practice from your marketing efforts, your choice of practice areas, your office set up, your fee structure, how you package your services, and even your personal life style.
2014 is going to be a doozy as I believe it will be the year when the rubber finally meets the road, when there will be true and dramatic and irrevocable change in the financial status for the majority of your clients needing legal services. Yes, we’ve been building up to this and the scouts in our industry already get it. But the majority of lawyers have not seen the vista yet as they lag behind on the trail. This year they will be forced to see the vista and they will see the it from the edge of a cliff with their jaw dropped wide open.
Please spend six and a half minutes watching this video before you continue reading this blog post. You won’t regret it. (I can’t tell you how many times I’ve watched it.)
Now let’s look at the demographic distribution of this wealth. (Dark Green is over $74,000 per household)
And then I encourage you to read this chart on Household Income in the United States. See the actual division of income, income by state, ethnic group and more. Be sure to read all the charts as there are many.
Here are statistics to explain why over the next 20 years, the ‘average American’s’ income will decline. Factor in the reality that as Baby Boomers (the largest demographic group with the greatest concentration of wealth) age and leave the work force, their retirement income falls and so does their spending. Factor in that on average blacks and Hispanics earn approximately 60% of their white counterparts. No, demography is not destiny but….
“The average American is increasingly going to be black, Hispanic and older. Unless [these demographic groups] earn considerably more than has been the case in previous decades, the average American’s household income is likely to fall.”
(*the Hispanic population will increase from 16 to almost 22 percent of the U.S. population by 2030 and almost 28 percent by 2050)
Let’s add one more fly to this ointment. While the average American is increasingly going to be black, Hispanic and older, fewer than 50% of blacks and Hispanics have any type of retirement savings.
Those with the wherewithal to pay your legal fees are not spread throughout the country, either. They are concentrated in very specific geographical locales in the country and if you don’t happen to be barred in that jurisdiction or maintain a federal practice, their legal needs and dollars are of little benefit to your solo/small firm. More obviously, it’s a buyer’s market when it comes to the uber-wealthy because they are in much shorter supply and most likely already ably represented.
So, the reality is very clear. The majority of lawyers will be servicing the bottom 80% of this country’s population who only have a total of 7% of this country’s wealth (total wealth of the country currently estimated at 54 trillion dollars) and this 7% is spread throughout the country. This 7% is barely scraping by. Imagine working four jobs and still struggling? The working poor has surged from three million to about 11.8 million between 2001 and 2011. In fact, wages fell for the bottom 70% of workers since the Great Recession. We’re talking about people with a combined household income of $19,000. They are also being forced out of their traditional housing (rental properties) and onto the streets (did you know that more than 22,000 children are homeless in New York City?) not because they don’t work but because rentals are a hot commodity and now being taken by higher-income earners as landlords look to double the rents. At present, fifty percent of renters pay more than 30% of their income to rent.
It also means hundreds of thousands of poor Americans are paying far more for housing than they can really afford, squeezing out spending on other priorities. The Harvard study found that many low-income renters cut back most on food and transportation.
There is virtually no disposable income and certainly not for legal fees if they are already cutting back on food and transportation.
But not having money for traditional legal fees doesn’t mean they don’t have legal needs.
Let’s look at migration within the United States. People are staying put because, in large part, they can’t afford to move.
Economic mobility and geographic mobility have been closely linked for much of American history, so economists find it troubling that migration rates have been in decline lately. The proportion of Americans moving has fallen to new postwar lows in the past few years. According to Census Bureau data from 2013, about 4.8 million Americans moved across state lines in the previous year. That is down from 5.7 million in 2006 and 7.5 million in 1999. All in all, the percentage of Americans moving across state lines has fallen by about half since the 1990s.
Clearly, the recession has something to do with declining mobility. You can’t move for a job if no job exists. You can’t buy a house if nobody gives you a mortgage. And you can’t sell your place and take off if nobody is buying. “This triple whammy of forces made it riskier for would-be home buyers to find financing, would-be sellers to receive good value for their home and potential long-distance movers to find employment in areas where jobs were previously plentiful,” William H. Frey of the Brookings Institution wrote in a report on the falling migration rate. The aging of the population might be another factor, because older people tend to move less often than younger ones do.
This is all very troubling, too. But you shouldn’t be so quick to say, ‘I’ll target the top 20%’ or the ‘new rich’ even if you may have the opportunity to cultivate them as clients:
Made up largely of older professionals, working married couples and more educated singles, the new rich are those with household income of $250,000 or more at some point during their working lives. That puts them, if sometimes temporarily, in the top 2 percent of earners.
Even outside periods of unusual wealth, members of this group generally hover in the $100,000-plus income range, keeping them in the top 20 percent of earners.
In a country where poverty is at a record high, today’s new rich are notable for their sense of economic fragility. They’ve reached the top 2 percent, only to fall below it, in many cases. That makes them much more fiscally conservative than other Americans..
- At the same time, an increasing polarization of low-wage work and high-skill jobs has left middle-income careers depleted.
- They’re wary of any government role in closing the income gap. ~ Who’s the Biggest Barrier to Income Inequality? The ‘Top 2′ Percent.
Read the last statement, again. ‘They’re wary of any government role in closing the income gap. Why? Because it means more of their income will be taxed to provide these services or prices will go up with a hike in the minimum wage. A perfect example of this issue is the debate on whether or not to extend unemployment benefits (which has failed as of this writing). If unemployment benefits aren’t extended, more people will be pushed out of their homes, struggle to put food on their table and the spiral downward with more people requiring some form of government assistance continues. And since this is the group dominating the political arena due to their collective wealth, the gap between the 80% and the 20% is destined to grow in size to the width of the Grand Canyon. The middle class, which has been the typical fertile and rich feeding ground of many lawyers, will be gone.
Here is another way we all suffer because of ‘lack of lawyers’ driven by the top 20% feeling fiscally frugal and insecure.
It’s not just ordinary people, small businesses, and neighborhood institutions that can’t afford lawyers. Our local, state, and federal governments can’t. From public defenders to prosecutors to judges and beyond, spots for government lawyers are increasingly eliminated or left vacant. We the people do not have the means to hire lawyers to do our collective legal business, from prosecuting criminals to adjudicating disputes to investigating regulatory violations. This lawyer shortage poses dangers to all of us, elites included. ~ Fixing Law School, Leah Plunkett
So, you have 80 percent of the population in some sort of financial distress and those in the top 19% are educated but have so much income fluctuation they are fiscally frugal and therefore less inclined to provide programs of any type, let alone legal, to the growing poor, This also includes populating our government with the necessary legal talent required to do the work for all folks both rich and poor. This group is also the most likely to want to handle some of their own legal work themselves. The middle class, the sweet spot for most lawyers, is almost extinct. And the top 1% are simply inaccessible to the average private practice solo/small firm lawyer.
As our country becomes even more complex, the need for lawyers to help decipher the laws and advocate for these clients is greater than ever. We have so much legal work which needs to be done and so few lawyers (decidedly not a glut) that are trained or have developed a business model which will allow them to work with these clients that it is systematically destroying our justice system, both civil and criminal.
With our present legal model, clients can’t afford lawyers and lawyers can’t afford to take on these clients because the traditional way of delivering legal services is no longer financially viable for 80% of the American population. Lawyers generally charge fees they believe they need to charge in order to maintain their current practice or to pay their outsized student loans. Yet clients can’t pay lawyers $150, $300, $500+ per hour with no end in sight. Filing fees alone can cost someone a week’s pay. Or, at least lawyers can’t reasonable expect to sustain themselves or their practices with any feeling of financial security.
What has to happen? Too many things, unfortunately.
It boils down to rethinking the practice of law in its entirety from legal education to the final legal product. It means being so creative that your law practice may not even resemble a law practice as we’ve come to know it. It means throwing out the playbook on what it means to practice law (not your ethics or the Rules of Professional Conduct). It also means creating a practice that is truly based on the client experience and the realities of living in the 21st century. This must be driven by the economic realities of the majority of our citizens. Let’s be presidential and face these stubborn facts head on.
Stay tuned for Reality Check: Part II, III, and maybe even IV.
For additional reading check out Paul Jeff Perez’s columns on Building A Bi-Lingual Practice
You should also check out Solo Practice University’s Vonda K. Vandaveer’s course on Creating an Immigration Practice