The price of legal services is increasing faster than the CPI’s basket of goods and services.  Perhaps that is not surprising to those of us working in the legal sector. However, legal services are also losing wallet share.  In 1987, legal services made up 0.435% of the CPI-U basket.  By December 2016, the proportion was 0.245%.

This second trend is telling us something important about the future of law practice, particularly in the PeopleLaw sector.

This post breaks the analysis into three strands. Section 1 presents the CPI data, including technical information on the CPI sampling and weighting methodologies. Section 2 offers some possible explanations for why wallet share for legal services is trending downward.  Section 3 uses CPI data to compare legal services with cost and wallet share of college tuition and medical care.  (Preview: costs in the meds and eds sectors are outpacing the CPI-U, yet their wallet share is growing.)

1. CPI and “Relative Importance” within the CPI Basket

The chart below presents the relevant CPI data for legal services.  

In interpreting this graph, note two vertical axes. The green axis (left side) is the CPI-U with the base year set to 1986 (Index = 100).  Over the last 30 years, the green and grey bars show the cost of legal services rising nearly twice as fast as the overall CPI-U basket (334.5 versus 218.5).

The orange axis (right side) measures the “relative importance” of legal services within the CPI basket. The  orange trendline shows this statistic over time.  Basically, as the relative prices of goods and services change, consumers adjust how they allocate their money. The BLS tracks these changes through the Consumer Expenditure Survey. Through detailed interviews and spending diaries conducted twice a year from a representative sample of urban households (89% of the US population qualifies as urban), the BLS measures recent consumer behavior and re-weights the composition of the CPI-U basket.

In the chart above, you’ll note a sudden drop in 1997 in the relative importance of legal services (from 0.480% to 0.329% of consumer spending). This drop occurred because the BLS re-weighted the CPI basket for the first time in several years.  Since the mid-2000s, however, the BLS has re-weighted the CPI based on two-year rolling averages. Thus, the relative importance data for 2015 and 2016 are calculated based upon spending patterns from 2013 and 2014. See Relative Importance of components in the Consumer Price Indexes, Dec. 2016. When 2017 data are released, it will likely be based on weights from 2015-16.

Finally, note that the CPI data on legal services is limited to consumer spending. This is the PeopleLaw sector, which other data sources show is on the decline. See, e.g., Post 037 (between 2007 and 2012, individual consumer spending on legal services declined from $65.5 billion to $58.8 billion).  In the chart above, none (or very little) of the data reflect spending by organizational clients.

I share this technical information on the CPI so that readers have the full context for following troubling claim:  As the cost of legal services goes up, average Americans are finding ways to forego legal services. This is likely a major factor for the shrinking of the PeopleLaw sector, see Post 037, and an under-discussed factor in flagging law school enrollments, see Post 006. Many prospective students are drawn to law as a way to help people.  Yet, lawyers working in PeopleLaw are probably telling prospective law students, “It’s getting harder to earn a living.” See Post 037 (discussing results of 2017 Clio Report).

2. Why is the relative importance of legal services trending downward?

Unfortunately, we lack the data to answer this question with precision.  Below I offer two plausible contributing factors

a. The DIY law movement

One factor that might partially account for the decline in PeopleLaw legal expenditures is the rise of the DIY (do-it-yourself) law movement.  The online form-driven products may be an attractive substitute for an office visit to a local small firm practitioner. For a summary of these offerings, see We Rock Your Web review of The Best Online Legal Services.  It is worth noting that many of these offerings have an A+ rating from the Better Business Bureau).

Yet, the DIY companies are not a complete substitute for all legal needs.  We know this to be true because so many of the DIY companies are building out networks of vetted lawyers who can handle the large volume of legal work that cannot be handled by a simple form.

The most successful of these companies, LegalZoom, has positioned itself as publishing-technology-marketing company that throws off legal work to a network of independent law offices.  To protect and grow its brand, LegalZoom carefully monitors the client satisfaction figures of its referrals.  Cultivating and channeling the legal needs of consumers, and thereafter monitoring client satisfaction, is not the practice of law. However, it is a set of services that can potentially benefit both lawyers and the individual clients they serve.

b. Fewer state court filings

A second possible explanation for legal services’ decline in relative importance is waning value of state courts in resolving disputes. This trend line would occur when the cost of a lawsuit, including the need to retain a lawyer, becomes too expensive relative to the underlying problem or dispute.

In Post 006 and 037, I discussed the disturbing statistics in the NCSC’s Landscape of Civil Litigation in State Courts Report, which was published in 2015. Drawing upon 925,000 cases disposed of between July 2012 and June 2013 in ten large urban counties, the NCSC researchers identified 228,000 cases that resulted in a non-zero monetary judgment.  The median judgment amount was a mere $2,441 — hardly an amount that can support the cost of hiring a lawyer. Further, only 24 percent of cases had the benefit of attorney representation on both sides of the dispute.  Stated in the alternative, 3/4 of cases involved a party going it alone without a lawyer.

If things are as bad in large urban state courts as the NCSC suggests, it is likely that the volume of state court filings is on significant downward trajectory. The reason is simple — lawyers won’t file cases where they know, upfront, that they can’t recoup the value of their time.  Further, going to court without a lawyer is a daunting prospect most citizens would prefer to avoid.  Thus, the lower the case values, the fewer the case filings and the higher the volume of default judgments.

An insider in the Illinois court system tipped me off that state court filings were indeed trending downward.  To duration and magnitude of the change, all I needed to do was pull figures published from in Annual Report on the Illinois Courts, which are published online.

Illinois is a good sample because it is a “single tier” jurisdiction that handles every type of civil (and criminal) matter in the state, including small claims. Also, Cook County Circuit Court (encompassing Chicago) was one of the ten jurisdictions included the NSCS Landscape Report.

Below are the number of civil case filings in the Illinois courts from 1997 to 2016.

Since 2009, the number of civil filings (which includes all cases for monetary damages, real property disputes, review of administrative bodies, and proceedings related to probate, eminent domain, mental health, and municipal taxes) has tumbled from 791,000 to 430,000, a drop of 45.7 percent.  It is possible that the peak years (2009 and 2010) were driven foreclosure actions related to the financial crisis.  However, over the last 20 years, civil filings have declined from 634,000 to 430,000 (-32.2 percent).  Yet, the Illinois state population grew from 11.9 to 12.8 million people.

According to a recent report by the Illinois Supreme Court Commission on Access to Justice, “In 2015, 93 of Illinois’ 102 counties reported that more than 50% of civil cases involved a self-represented litigant on at least one side. In some case types, that number rose as high as 80%.”

Now let me boil is down:  At least in Illinois, which I doubt is an outlier, civil state court filings are the decline; and among those that are being filed, a large and growing proportion involve self-represented litigants.  In other words, the entire state-run judicial system appears to be breaking down, in part because the system is predicated on the assumption that all parties are represented by counsel, an assumption that increasingly does not hold.

Faced with a similar challenge, the province of British Columbia in Canada created a new Civil Resolution Tribunal (CRT), which implements mandatory Online Dispute Resolution (ODR) for low-stakes disputes (defined as $5,000 or less plus all condominium-related controversies).  The CRT is designed to be a consumer-friendly online process that operates without lawyers. See, e.g., B.C.’s trailblazing digital justice delivering, Vancouver Sun, Jan. 4, 2018. The UK is poised for a similar move. See, Online dispute resolution creates ‘exciting’ opportunity for change, says new report,, Oct. 25, 2017.

3. “Cost disease” in the meds, eds, and legal sectors

I became interested in the CPI index for legal services when reading a book on “cost disease” by noted labor economist William Baumol.  See William J. Baumol, The Cost Disease: Why Computers Get Cheaper and Health Care Doesn’t (Yale 2013).

What is cost disease?  Basically, large productivity gains in some sectors (e.g., manufacturing, technology, agriculture) can have the effect of increasing the relative prices in other less productive sectors. This is particularly true for sectors that rely heavily on the labor of highly educated knowledge workers.

Baumol first identified this relationship when studying the economics of the performing arts. Baumol and his co-author William Bowen acknowledged that human ingenuity has devised many ways to reduce the labor necessary to produce industrial wares, yet “no one has succeeded in decreasing the human effort expended at a live performance of a 45 minute Schubert quartet much below a total of 3-man hours.” See Baumol & Bowen, Performing Arts, the Economic Dilemma 164 (MIT 1966). Despite the immovability of the musicians’ productivity, musicians’ wages went up with the rest of the workforce.

Within the economics literature, the industries most associated with cost disease are medical care and higher education. But, as Baumol points out,  other “personal service” sectors are also highly susceptive to cost disease. Examples include legal services, K-12 education, local police and fire (basically, most of government), and many others.  Cost disease is a serious policy issue because (a) goods and services like medical care and higher education are perceived as integral to our quality of life, and (b) when their costs rise much faster than the CPI-U (i.e., “cost of living”), it generates much political handwringing.

The graph below compares the CPI-U to the consumer price of three sectors prone to cost disease: medical care, college tuition, and legal services.

The consumer cost of legal services is roughly on par with medical care but significantly less than college tuition.  Yet, as shown in the table below, when it comes to wallet share, both medical care and college tuition are growing in relative importance within the CPI basket of goods and services.

Relative importance in CPI-U
CPI component 1987 2016 Change over time
Legal Services 0.435% 0.245% -43.7%
Medical Care 4.807% 8.539% +77.6%
College Tuition 0.840% 1.807% +120.3%

The large decline in relative importance for legal services suggests price elasticity — as the price goes up, consumer demand goes down.  In contrast, the relative importance of medical care and college tuition suggest price inelasticity — as the price goes up, consumers find a way to pay more.

It is worth noting that in the CPI-U tracks only consumer spending patterns. Americans are spending a larger proportion of their household income on medical care and college tuition.  However, medical care and college tuition are also finances by other parts of the modern economy.  In the case of medical care, this comes through employer-provided health insurance, Medicare, and Medicaid. Likewise, Department of Education student loans enable borrowers to effectively defer the cost of college tuition until after graduation.  Thus, the table above reflects only the costs paid out of current household income.

Yet, different consumer attitudes toward medical care versus legal services arguably have a dramatic impact on the willingness of young people to enter these two professions.  Below is a chart that compares applicants to law school versus medical schools.


Since Post 001 of Legal Evolution, I have harped on the topic of “lagging legal productivity.”  The above analysis shows that if legal services cannot be delivered more efficiently, ordinary citizens will forgo legal services.  This is not a prediction; it is a statement of what is happening today.  State courts are glutted with self-represented litigants. At the same time, lawyers struggle to find clients who can support their practice.

The problem is not the necessarily the escalating cost of a lawyer’s time ($260/hr in the most recent CLIO survey, see Post 037), but our failure to update our institutions so that ordinary citizens can resolve their legal problems in a convenient and cost-effective way.  In other words, it’s time to redesign some of our most hallowed institutions.  This is the challenge of the next generation of lawyers, judges, and legal educators.

The graphic above tells a simple, painful, and important story about the U.S. legal profession that we can’t afford to ignore.  The graphic compares the receipts of U.S. law firms in 2007 and 2012 based on “class of customer” data from the Economic Census, the U.S. Census Bureau’s official five-year measure of American business.  Although total law firm receipts increased from $225 billion to $246 billion, receipts from individuals declined by almost $7 billion. That’s a staggering sum.

Ordinarily, with such a large and sudden drop (10.2%), I worry about data quality.  Yet, these data appear to be continuations of trend lines that are several decades old.  Further, recent data published by Clio, the cloud-based practice management and time-keeping system used by a large number of solo and small firm lawyers, reveal that the economics of small firm practice are under severe stress.

As a society and a profession, we are heading to a place that none of us wants to go. Our biggest risk factor is failing to acknowledge the full magnitude of the problem.

The two hemispheres of practice

The structural significance of lawyers’ clientele — individuals versus organizations — was first noted by Jack Heinz and Edward Laumann in Chicago Lawyers: The Social Structure of the Bar (1982) (popularly known as Chicago Lawyers I).

Based on a randomized sample of 800 Chicago lawyers, Heinz and Laumann observed that lawyers tend to serve either individuals or organizations, but seldom both.  Further, type of client was strongly correlated with lawyer income, ethnicity, religious background, law school attended, home address, work address, and bar association membership.  “Only in the most formal senses, then, do the two types of lawyers constitute one profession” (p. 384).  This was the basis for their famous two-hemisphere theory of the legal profession. See also Deborah J. Merritt, Two Hemispheres, Law School Cafe, May 2, 2015.

Twenty years later, Heinz, Laumann and other researchers replicated the study based on a sample drawn in 1995.  See Heinz et al., Urban Lawyers: The New Structure of the Bar (2005) (Chicago Lawyers II).  One of their key findings was a dramatic surge of prosperity within the organizational sphere, with real incomes of large firm lawyers and in-house counsel nearly doubling.  Conversely, among solo practitioners, who disproportionately served individual clients, incomes fell from $99,159 (in 1995 dollars) to $55,000. By 1995, 32% of solo practitioners were working a second job compared to only 2% in 1975.

These are startling and sober statistics generated by careful social scientists. These findings are also 23 years old.

From stagnation to decline

The Chicago Lawyers I and II studies reveal stagnation taking hold within the PeopleLaw sector. Yet, more recently, we’ve moved beyond stagnation to a period of actual decline.  I do not use these words lightly. Yet this is the picture that emerges when the graphic above, which reflects U.S. Census Bureau data from 2007 and 2012, is combined with findings from Clio’s 2017 Legal Trends Report.

Clio is a cloud-based practice management and time-keeping system that has obtained enormous traction with solo and small firm lawyers. The 2017 Legal Trends Report is based on anonymized 2016 data from more than 60,000 U.S. timekeepers.

  • The total sample covers 1,026,000 matters, 10,981,000 hours, and $2.6 billion in billings.
  • Approximately 84% of matters are billed by the hour.
  • The average hourly rate for a lawyer is $260.
  • The average matter garnered slightly less than $2,500 in fees, with traffic offenses the lowest average (~$700) and personal injury the highest (~$3,300).

Yet, what is most striking about the Clio Report is that the average lawyer is billing only 2.3 hours per day.  Of that total, 82% is actually invoiced to the client; and only 86% of invoiced fees are collected. This translates into $422/day per lawyer ($260 x 2.6 x 82% x 86%), or $105,000 in gross receipts over a 50-week year. This is a sum that needs to cover office overhead, healthcare, retirement, malpractice insurance, marketing, and taxes, etc.  And note, these are averages, not the bottom decile or quartile. Further, these are lawyers at firms that have invested in practice management software.

Of the remaining 6 hours in the workday, lawyers are spending 48% of their time on administrative tasks (e.g., generating bills, configuring technology, client collections) and 33% on business development.  The report notes that lawyers spend roughly the same amount of time looking for legal work as they do performing legal work (p. 13).

The danger of not saying the obvious

In Post 006, I reported on statistics from The Landscape of Civil Litigation in State Courts report published by the National Center for State Courts (NCSC). The most startling statistic among many is that 76% of cases involve at least one party who is self-represented. The Report frankly states:

The picture of civil litigation that emerges from the Landscape dataset confirms the longstanding criticism that the civil justice system takes too long and costs too much.  As a result, many litigants with meritorious claims and defenses are effectively denied access to justice in state courts because it is not economically feasible to litigate those cases (p. v).

These are not the conclusions of a fringe group. The NCSC’s research agenda is set in collaboration with the Conference of Chief Justices and the Conference of State Court Administrators. This is the body formed at the urging of Chief Justice Warren Burger.

I’ll now state an obvious truth:  Our legal system as it pertains to ordinary people is unraveling.  Hundreds of millions of people can’t afford to hire a lawyer to solve their legal problems. As a result, they go it alone or give up altogether.  In turn, as the PeopleLaw sector shrinks, a large number of lawyers are under tremendous economic stress.  No amount of tinkering at the edges is going to fix or reverse these trends. Instead, we need a series of fundamental redesigns.

This needs to be said clearly and emphatically. This is because the collective and societal solution to the declining PeopleLaw sector is not for lawyers and legal education to pivot toward corporate clients who can still pay the freight, though this is undoubtedly the direction of drift if we fail to forcefully acknowledge the woeful imbalance of our current legal system.

Redesign or failure

As a law professor, I support innovations that make legal problem-solving more cost-effective.  Indeed, that is the purpose of Legal Evolution. See Post 001 (discussing the problem and consequences of lagging legal productivity).  In the segment of the bar that serves corporations, there is tremendous momentum building to make this happen, primarily because corporations feel an urgency to find cost-effective ways to manage the relentless rising tide of legal complexity.  This is what is driving the legal operations movement. Yet, I’m confidence that very few lawyers want to live in a society where corporate efficiency has become our primary goal. There has to be something more.

As Gillian Hadfield wrote in her recent book, Rules for a Flat World (2017), “People who feel as though the rules don’t care about them don’t care about the rules” (p. 79). The withering of the PeopleLaw sector is moving us closer to a place we don’t want to go.  We have entered a period where we are either going to redesign our legal institutions or they will fail. It’s time for lawyers and legal educators to find creative ways to restore the balance. Step one is acknowledging the magnitude of the problem.

What’s next?  See Student Capstone Presentations: Visitors Welcome (038)