On the Effects of Occupational Licensing on the Legal Profession

An interesting new study on how state bar requirements may affect the quality and quantity of legal services.

Are state bar licensing requirements just a barrier to entry that reduces the quantity and increases the cost of legal services? Do they also improve the quality of legal services and protect consumers?

Count me among those who is generally skeptical of state occupational licensing requirements. So I read with interest a new study by Adam Chilton, Jacob Goldin, Kyle Rozema, and Sarath Sanga, "Occupational Licensing and Labor Market Mobility: Evidence from the Legal Profession." Here is the abstract:

We study how state occupational licensing requirements shape labor mobility across U.S. legal markets. Drawing on newly collected data, we link variation in state bar exam waiver policies to lawyers' license acquisitions, professional disciplinary records, and educational histories. We find that bar exam waivers increase the number of experienced lawyers obtaining a new license by 38 percent, but that the additional lawyers are subject to more professional discipline and tend to have graduated from less selective law schools. Our results suggest that state-level occupational licensing regimes can create a trade-off between the supply and quality of professionals in an industry.

And from their conclusion:

In this paper, we investigated the impact of occupational licensing requirements on the labor market mobility of lawyers and on the quality of lawyers offering legal services in a state. We specifically studied the impact of bar exam waivers for experienced lawyers on their likelihood of obtaining a license to practice law in another state and on whether the lawyers induced to move by a bar exam waiver differ in quality. To do so, we assembled novel datasets on bar exam waiver policies, license acquisitions of a sample of 1.7 million lawyers, and the professional disciplinary actions imposed on lawyers in 37 states. By exploiting more than one thousand changes in bar exam waivers between pairs of origin and destination states, we found that bar exam waivers increase labor market mobility by 38 percent. However, we also found that lawyers who are induced to obtain an additional license by a bar exam waiver are of lower quality than lawyers who would have obtained an additional license without the waiver. Taken together, these results imply that, in the legal context, occupational licensing requirements create a trade-off between the supply of labor and the quality of professionals.

Given this trade-off, future research is needed to further understand the welfare implications of occupational licensing in the legal profession. Our research specifically points toward two related topics that would benefit from additional investigation. First, because occupational licensing rules appear to impact both the quantity and quality of lawyers, future research should directly investigate the welfare implications that come from expanded access to legal services relative to potential costs associated with having a higher share of lower quality lawyers. The welfare benefits of increasing the supply of lawyers may far outweigh the costs of additional lower-quality lawyers, but more research is needed to directly explore this possibility. Second, future research should explore whether bar exam waivers create lower-quality lawyers or simply redistribute them. For instance, exam waivers may produce lower-quality lawyers if they lead to experienced lawyers not learning information that could directly improve the quality of legal services they provide; alternatively, exam waivers may simply allow existing lower-quality lawyers to expand their practices to new markets without  producing any new lower quality lawyers. These two possibilities have different welfare implications and suggest different strategies for trying to protect the public.

Comments

[ReaderY]

Why doesn’t the legal profession do something similar to the medical profession, where a number of allied professionals – nurses, nurse practitioners, physicians’ assistants, etc. – have increasingly been given authority to do a number of things, like prescribing medication, that previsously could only be done by doctors.

Having only a single kind of license covering everything seems wasteful and inefficient, given that a lot more people want to do things like write up a will or a contract or contest a parking ticket than file a lawsuit or contest a felony. Although some jurisdictions are experimenting with licensing paralegal and giving them authority to do at least some tasks on their own, in most jurisdictions a paralegal is simply a kind of legal office job with no formal existence as a profession, with no formal licensing and no authority to do or assume responsibility for anything on their own.

[Bored Lawyer]

NPs and PAs are still required to report to a doctor.

Your idea may have some merit, but there would have to be some delineation between what licensed paralegals and lawyers can handle. Take a will. A simple will could be drafted by a paralegal. But at some point, it's too complex and a lawyer is needed. How do you delineate that?

[Some Person]

I think this is a value judgment which each jurisdiction makes in light of its geography and its economic situation. Some of the most onerous licensing requirements are in small states that are adjacent to large metropolitan areas. The concern seems to be that easy licensing will drive local attorneys out of business by simultaneously cutting out their pro hac vice work and also allowing out-of-state lawyers to scoop up every semi-lucrative case from the jurisdiction's resident counsel. This may not be as much of a concern for larger, more prosperous jurisdictions.

There are also distinct legal cultures in some jurisdictions, particularly rural jurisdictions and those with small populations. Everyone works with everyone all the time, so there is a level of congeniality that is simply not present in large cities where you might encounter opposing counsel once or twice in your entire legal career. In those jurisdictions, professional licensing is also a means of preserving a distinct legal culture from an onslaught of fly-by-night out-of-state attorneys who show up, behave very badly (by the terms of the local legal culture) and leave nothing but damage in their wake.

How economic protectionism and cultural hegemony can create legal deserts where you have entire counties in the Midwest with no attorneys whatsoever is a different issue. If those states would view a potential influx of mediocre attorneys as preferable to the status quo, then theoretically they could craft county-specific waivers of onerous bar requirements on condition that the newly licensed attorney commit to providing x% of their legal practice to residents of the affected county or region. (I'm sure there is a way to craft this that doesn't run afoul of the Dormant Commerce Clause by requiring residence in those counties; since it's a contracted admission there is undoubtedly a way to constrain the procedural due process issues that might arise.)

[Bored Lawyer]

It's my impression that, other than California, once you have been practicing law for at least 5 years, it's pretty easy to get admitted in another state. Just some paperwork.

Is that not the case in other professions?

[шинка]

Occupational licensing is professional protectionism that enables artificially high costs due to the lack of competition.

Shouldn't market forces weed out the good/bad/ugly?

Allowing lower-quality services into the market will allow lower-cost alternatives for some folks who cannot afford the exuberant cost of a legal defense. Lower-quality doesn't mean abjectly horrible, but it can mean a more affordable alternative.

[CommentMonkey]

In my experience, clients are not always exuberant when they learn the cost of their legal defense.

Anyway, I think your logic is sound but it is important to note that one of the metrics this study used was frequency of professional discipline. In my experience, there is a lot of conduct that could result in discipline but isn't caught. Lawyers who receive reported professional discipline tend to be richly deserving of it, in most cases. And often professional discipline results from acts/omissions that are materially damaging to clients (missed deadlines, inexcusable errors, self-dealing, etc.).

So I would worry about lowered licensing standards that result in more lawyers who incur professional discipline. That is probably a sign of a serious decline in quality, with potentially catastrophic impact on the affected clients.

[Stupid Government Tricks]

A minor quibble. I first wondered how they compared lawyers who had a waiver vs the other kind, which (IANAL) I presume passed their new state's bar exam. How many of each, for example?

However, we also found that lawyers who are induced to obtain an additional license by a bar exam waiver are of lower quality than lawyers who would have obtained an additional license without the waiver.

That's confusing. Waiver lawyers vs "would have obtained"? What does that mean? Did they not actually obtain an additional license? Did they just say "I was going to, I could have, but naw, I changed my mind"? Did they take the bar exam then decline to accept the additional license?

I could probably read the report. But naw, not that important.

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