Time bomb

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“This,” says The Economist in a recent special report, “is a slow-moving but relentless development that in time will have vast economic, social and political consequences.” Peak oil? The fiscal crisis? Climate change? None of these  — it’s the fact that the world is aging.

Specifically, people are having far fewer children and living much longer than at any time in recorded history, which means that by the year 2050, 22% of the world’s population (more than three billion people) will be over 60, twice today’s rate. We already knew that in developed countries, the birth rate has fallen to 1.6 children per woman (below the replacement level of 2.1), but some people will be shocked to learn that the birth rate in developing countries — 5.2 children per woman as recently as 1970-75 — has dropped to 2.6.  At the other end of the cycle, worldwide life expectancy will increase 8 years (from 68 to 76) by 2050, reaching an average lifespan of 83 in rich countries. What that comes down to is far fewer workers supporting far more retirees (by 2050, there will be two adults aged 20-64 for every adult 65 or over, half today’s ratio), which figures to result in dramatically lower levels of productivity than we’ve seen for many decades.

As The Economist explains at length, this is an extremely serious issue for every country, with financial consequences that dwarf the expected impact of the fiscal crisis. The legal industry isn’t in the top 100 things that governments will worry about in this regard, but if you have any interest in the profession’s long-term future — which is to say, if you expect to be in practice 20 or more years from now, or if your firm plans to be a going concern in 2050 — you should be thinking today about the potentially devastating combination of demographics and the simple passage of time.  Here are a few places to start.

1. Get ready for the end of retirement, warns The Economist: “few governments, employers or individuals have yet come to terms with where retirement is heading: the end of the whole concept. Whether we like it or not, we are going back to the pre-Bismarckian world, where work had no formal stopping point.” Unless you’ve made a boatload of money by 65 and managed it very well, you should assume you won’t be retiring then or anytime close to it. Picture older partners staying on with a firm indefinitely, starting with those whose investments were decimated in the market crash and can’t afford to retire. Active lawyers in their 70s and 80s will become commonplace, perhaps as Net-connected solos working with select clients from home on a full- or part-time basis.

2. Four generations in one firm will not be unusual. Keep in mind that the Millennial Generation has run its course; since the turn of the century, every new baby has been part of the next cohort — call it Generation Z for the moment. The first Z’ers will enter law school around 2025 and the practice of law by 2030. During the 2030s, law firms will include young Z’ers, Millennial partners, scattered 60-something Gen-X holdovers, and a surprising number of aged Boomers still cranking out work into their 70s and 80s. Generation Z won’t be a huge presence: Millennials will be by far the most numerous and powerful generation in law firms, since the slimmed-down firms of the future won’t require the vast grazing fields of associates familiar from the 20th century.

3. The massive partner incomes of today could well be considered relics of a bygone era, reminiscent of how we now think of railway barons’ fortunes. Partly, this will be because the revolution in the legal services marketplace will take billions of dollars away from law firms, as outsourced practitioners and sophisticated technology snap up formerly lucrative lower-end lawyer work.  But it’s also because there will simply be far fewer working-age adults –  industries of all kinds are going to be smaller and less lucrative than before. There won’t just be  fewer lawyers to do the work; there’ll be fewer clients to provide it.  Barring major breakthroughs in the latent legal marketplace — lawyers learning to sell preventive legal services and good legal health services to clients that competitors can’t — the volume of legal work ought to be lower, just like everything else.

4.  Unfunded pension liabilities could crush some firms well before 2050. Those employees (staff as well as lawyers) who do eventually retire are going to live longer, and their numbers will multiply as the Boomers finally slide out of working life. This will constitute a major ongoing cost center for firms, and if those liabilities aren’t funded, bankruptcy is a real possibility, as a recent ABA Journal article pointed out. The fear of massive pension obligations will motivate firms to cajole their elderly employees into staying on in some paid capacity, if for no other reason than to delay having to provide them retirement benefits. If your own firm hasn’t addressed this yet, it could be in serious trouble.

5. Say goodbye to a lot of law schools. If the coming wave of legal education reform hasn’t already knocked many law schools out of the game, they can expect to be finished off by a simultaneous drop in both the supply of law students and the demand for new law graduates. The profession will have enough trouble finding work for the older lawyers who won’t or can’t retire; there just won’t be a compelling business case for many new hires. And remuneration for new lawyers figures to drop — keep those clippings about $160,000 starting salaries for posterity — making law school a less attractive option. It’s not a stretch to anticipate that half the law schools in your country will be gone by 2050 — a legal education system that grew fat from the Boomer years onwards simply won’t be able to survive a period of scarcity like this.

These won’t be entirely dire outcomes — there are good news stories here. Many lawyers in their 60s have long felt obliged to quit the profession even though they still had contributions to make and wisdom to pass on; the bias against older workers is as prevalent in the law as anywhere else. And the legal profession today suffers from serious bloat; a little demographic-powered surgery would not be a bad thing. But the force and breadth of the upheaval will still come as a shock to us, because it’ll be incredibly different from what we’ve long assumed is normal but is in fact a product of a particular demographic period that’s now ending. As The Economist points out, the US set its retirement age at 65 at a time when the average American died at 62. Lengthy retirement is a very recent phenomenon, and its time is already ending.

So start wrapping your mind around having to work well into your 70s or even later, with associates 50 or even 60 years your junior, for much less money than today’s lawyers take for granted. Unless you’re 50 or older, this likely describes the legal profession you’ll encounter when you reach the soon-to-be-just-another-age of 65 — and even 50-something lawyers should proceed carefully. Of all the trends now acting to change the practice of law, this one might be the most significant — and it’s certainly the only one that’s flat-out guaranteed to happen.

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One Response to “Time bomb”

  1. Dominic Jaar

    Jordan,

    I share most of your thoughts but for the last one. At least, here, in Quebec, with the government funding Universities, law school are the cheapest faculties because they do not require any labs, hardware, software, etc. The government just needs to pay a few profs to teach in amphitheaters. Accordingly, even if there is no need for new lawyers in the market, the marketing around law schools will continue to bring a decent supply of law students. We have already started to see this happening here. Many students end up failing the bar exams for good, or passing the exams and then being unable to secure an articling position, or articling for free and then selling burgers!

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