Where the stock market leads, the legal job market follows. The first half of 1998 saw the stock market rise to record levels, and law firm hiring followed suit. Since the downswing in July, and the volatile stock market since then, legal hiring has markedly slowed. Even though the market now is playing around the level of its all time high, law firms, chastened by the hard lessons learned during the economic downturn of the early 1990's, are being very conservative in their lateral hiring. There is reason to believe, however, that the legal marketplace will fare much better this time around.
For the last couple of years and during the first six months of 1998, law firms made an almost insatiable demand on legal recruiters to supply them with junior-to-mid level associates, especially in such transactional areas as corporate, securities, real estate, and finance. In the late summer, with the first market downturn, many companies pulled or postponed their planned initial public offerings of securities, and other transactional work slowed. As a result, by October, many law firms put their corporate searches on hold for the time being, and are continuing in the "wait and see" mode until early next year at least. Only those candidates with the most superlative academic and employment credentials are being hired, if at all.
Much of this continued law firm hiring conservatism in the face of the stock market's recent upturn can be attributed to the shakeup of the early 1990's. When the bottom fell out of the business and real estate markets following the stock market crash, many law firms found that they had overhired in the excitement and optimism of the "go-go" '80's. In order to cut their losses, attorneys and staff at all levels were let go and offers to new associates were delayed or rescinded. Having learned their lessons the hard way, law firms are loathe to repeat their mistakes of over-hiring, and are becoming nervous at the slightest blip in the stock market. In addition to putting lateral hiring on the back burner, this time around, law firms are poised to move their newly hired entry level associates out of practice areas which are declining and into areas which are thriving, and retooling more senior attorneys, as necessary. For example, some firms have begun broadening the types of assignments given to their associates who had, until recently, been specializing in securities, finance, or real estate work to include bankruptcy or workouts. Furthermore, since the early 1990's, law firms have increasingly relied upon armies of temporary attorneys who, besides not qualifying for benefits and oftentimes being cheaper, can be hired when needed, moved around as necessary, and let go with impunity.
The good news is that this conservatism in law firm hiring is not true across the board. The slowdown seemingly has not affected the entry level associate market. New associates hired for this fall have been put to work, and the larger firms are continuing with their on-campus recruiting efforts undeterred. The new associates are much less expensive, and they are more flexible since they can be rotated through practice areas as needed. Also, by keeping the numbers of juniors attorneys up, law firms will not be understaffed when the work increases, as they were when the work picked up after the heavy layoffs earlier this decade. Other bright spots on the lateral hiring scene remain, as well, despite the reticence in lateral transactional hires. The demand for litigators and intellectual property associates (especially those with technical degrees and/or work experience) continues unabated.
If the stock market continues its climb into the new year, and companies dust off their shelved IPO's, mergers, and other transactions, lateral attorney hiring once again will follow. If not, the job market will be heating up for bankruptcy and workout lawyers! Thus, to predict law firm hiring, watch the stock market.