Taken from El confidencial

After several years of analysis, we are not surprised to see that the problem has not changed, but rather that the trend continues, which is to say that the problem is actually worsening.

Several months ago, we published an analysis of the demographic challenge in law firms in Spain and its possible impact on the firms’ strategy. Now we delve deeper with new data for the 2021-2022 and 2022-2023 academic years, examining how this phenomenon is more current and how it continues to influence various aspects of law firm management.

The problem reported had a double aspect: on the one hand, the possible shortage of young lawyers joining a type of firms that according to their strategy need to grow and have continuous incorporations, but, on the other hand, the problem of future departures of older lawyers and their replacement.
We said that as they are human capital intensive companies, the distortion that this may cause in the dynamics of the firms may be so powerful that it may alter the rest of the strategic factors and we also stated that there are indicators that suggest that in the coming years we may be facing a shortage of law professionals that will condition the strategy of law firms.

Almost two years later, we are not surprised to see that the problem has not changed, but rather that the trend remains the same, which is to say that the problem is actually getting worse.

With regard to the entry of new professionals, the updated figures show a constant trend.

The number of candidates taking the entrance exams remains more or less the same, but with minor variations, although we can estimate an annual average of around 6,500 applicants for the last few years. However, this figure will necessarily decrease soon, since, as we will see below, the number of graduates of the Master’s Degree in Access to the Legal Profession is undergoing slight reductions.

In these two years, it is evident that, on the one hand, the number of graduates in the law degree has fallen even more, but also the number of students graduating from the Master’s program. Although the latest data corresponding to the years 21-22 and 22-23 are not definitive and may still undergo variations, we can consider constant that an approximate percentage of 42% of law graduates access the Master’s program for access to the legal profession, so that with this percentage and the data obtained we can validate the following table as very close to reality, and affirm that the trend is accelerating.

Law Degree and Master’s Degree graduates in all universities.
Incorporation of data 2021-2022 and 2022-2023 (as of the date of this article, there is still no data for the 2023-2024 academic year).

In view of the reduction of graduates in the Master’s program, the average number of 6,500 applicants to the entrance exam will inevitably decrease, and we must not forget that this is the real maximum number of “potential” new lawyers, since not all of them will actually practice law.

However, the number of new students starting to study law is not decreasing that much, and it might seem that in 4 or 5 years the trend could turn around or at least stagnate; however, let us not forget that fewer and fewer students who start studying law end up finally becoming admitted as lawyers, opting mostly for the other professions in the increasingly common double degrees. This data on new entrants – which was not in our previous analysis – anticipates the future trend, and the reduction of students is already consolidated.

Therefore, assuming that we will probably not reach the 6,500 new applicants to the entrance exam, we must, as we did at the time, observe the demographic pyramid of the Spanish legal profession, and we can affirm that, after almost two years, the inversion of the pyramid has increased a little more. These new professionals, the 6,500 new candidates, -practicing and non-practicing- join a population pyramid that, according to data from the census of the General Council of Spanish Lawyers, is structured by age bracket as follows:

Population pyramid of (practicing) lawyers in Spain *.

The figure, with a clear rhombus shape, then showed, in the 25-30 years age bracket, a number of practicing lawyers of 9,421, which has been slightly reduced this year. In the upper age bracket, between 30-35 years old, the number of lawyers almost 2 years ago was 13,773, being similar today, since the 29 year old lawyers of the previous study have been incorporated to this year’s segment, remaining in the same cohort, but reducing the previous cohort of 25-30 years old.

Bearing in mind that these age brackets of professionals do not usually increase, i.e., almost all the incorporations occur in the 25-30 age bracket – in fact, these brackets are characterized by becoming smaller due to abandonment of the profession – we can observe that the younger lawyers are not increasing either, and those who are now 25 and 26 years old, will not increase the total number of their cohort in the coming years, but will necessarily reduce it. In short, the 25 and 26 year olds are fewer today than they were 2 years ago.

Given this situation, the symptoms of the end of 2022 continue to appear more acute with a view to the end of 2024 and the start of this new academic year.

Given the above data, it seems clear that the trend is constant and perhaps accelerating a little, so we can now look at the hypotheses that were raised at the time to see if they are still valid and if firms should address this situation as a priority.

We said, and we say today, that:

1. The population pyramid of the legal profession in Spain has a dangerous rhombus shape, which in less than five years will adopt the shape of an inverted pyramid, very pronounced in the case of men – this pyramid, as it could not be otherwise, resembles the general Spanish demographic pyramid.
2. Of the total number of registered lawyers, less than 60% choose to become practicing lawyers. This trend, two years later, continues.
3. The 45-60 year-old age group of 62,653 lawyers will be replaced in fifteen years by a maximum of 42,795 lawyers, a third fewer lawyers. From this number we must deduct all the departures from the profession that occur.
4. It is striking that only one third of the candidates to the exam -with an estimated 90% pass rate and which coincides with the number of graduates in the Access Master- end up becoming admitted in the first years.

And we can add as additional issues the following:

1. And that, on the other hand, the number of law graduates and the number of graduates of the Master’s Degree in Admission to the Bar are accelerating their downward trend.
2. That the cohort of 26-30 will inexorably shrink, as the previous “segments”, which are already smaller in number, are incorporated.

If law firms have been struggling for years to attract and retain talent, this task will be much more complicated in the coming years. In addition to the supposed loss of attractiveness of the profession and the mentality of the new generations – a really important issue, but one that goes beyond the scope of this analysis – there is also a demographic problem. There are fewer lawyers. And this factor will strongly condition any strategy of the firms; and this statement, almost two years later, is still valid.

The inverted pyramid of professionals greatly complicates the strategy of firms. And this inverted pyramid is continuing and is bound to accelerate.

Thus business law firms continue to bet on:

• a generalized increase in entry-level salaries in order to attract the best professionals at the outset,
• offering flexibility, to a greater or lesser degree, which each firm has configured for its professionals,
• designing policies to generate a good working environment, but in many cases this has meant rowing against the tide because turnover rates do not seem to be decreasing.

But perhaps it is time to think about adopting new solutions. Solutions that necessarily involve two variables: either reducing the incorporation of new lawyers and imitating the pyramid’s investment in its structures, or broadening the spectrum of possible new candidates.

The first option seems complicated, and implies a change of strategy and business model that would be difficult to implement -if feasible- by the current partners.

At this point, some say that technology could help in this reduction of the bases in the structure, but for the moment they do not seem to be more than siren songs. And if it can be done – for example, artificial intelligence replacing a large part of the hours of juniors – it does not seem to be very wise, in view of the learning needs and above all the necessary socialization process that firms require and which is essential for the exercise of the profession.

The second option will be to incorporate new potential candidates, increasing the number of places to search, choose and attract. On the one hand, by looking at all potential candidates and not only at those segments with very specific profiles. Firms should broaden their focus and redefine the parameters of search profiles. This could even accelerate the incorporation of lawyers of other nationalities, especially from Latin American jurisdictions -which also has other very important economic and business considerations that we cannot analyze here-.

In addition, the question arises: Are we facing a phenomenon that could lead firms to consider the inclusion of non-legal professionals as fee-earners to provide services of less complexity, thus broadening the modalities in the provision of services? That is, could the broadening of the spectrum come from the incorporation of more paralegals, skilled administrative or more diverse professionals?

A final variable seems to be looming over the legal profession – and not just the legal profession – which will be that, if this continues, it seems inevitable that current middle-aged lawyers will be forced to remain in practice for more years than originally anticipated.

In addition, the new generations do not see the partnership as attractive, which may force them to postpone the replacement in the ownership of the firms or even generate more and more firms with non-lawyer shareholders – or, at least, former partners.

It does not seem science fiction that in a few years the equity of the firms will be in the hands of retired non-practicing lawyers, and this possibility, as a challenge, should begin to be analyzed. If until today the ownership of a professional firm could be assimilated to a temporary ownership, in which as you move up the ladder you acquire ownership and then pass it on to the next, it is likely that this concept will have to change and the current ownership will not be so easy to transfer to lawyers who today are fewer and with not so similar aspirations.

We can reiterate, two years later, that firms should make this strategic reflection a priority in order to face a hypothetical scenario with fewer lawyers and the need for greater productivity. In addition, the effects of this situation on partnerships and the partner replacement system are also a complex issue that should be taken into account at the beginning of this academic year. We intend to go into both issues in more detail in future articles.

José Luis Pérez Benítez, partner at BlackSwan