Why are lawyers so expensive?

by on 13 November, 2015
Vladimir Vinokurov is a solicitor and a deputy Victorian State director of the Australian Taxpayers’ Alliance. The views expressed here are his own.

Vladimir Vinokurov is a solicitor and a deputy Victorian State director of the Australian Taxpayers’ Alliance. The views expressed here are his own.

Everyone complains about the cost of lawyers, but few look at the cause: occupational licensing laws. Occupational licensing requires anyone who intends to become lawyer to comply with a range of requirements to practice law. These including studying a law degree that is too long, formally applying for “admission” into the profession in an unnecessary ceremony, as well as meeting cumbersome training and supervision requirements that are sometimes unnecessary. These requirements cost law students years of time and tens of thousands of dollars to comply with. The more expensive it is to become a lawyer, the fewer lawyers there will be and the more they can charge. There can be no doubt that this partly explains why lawyers are expensive.

The sheer expense of hiring a lawyer undermines the individual right to obtain legal representation. It means that hiring a competent, effective lawyer can be unaffordable for poorer members of the public. Even wealthier people may find their resources drained by legal fees. The expense of becoming a lawyer also undermines the right to pursue a career of one’s choice, especially poorer students who lack the financial support to study full-time for years and comply with red tape. Lastly, these laws reduce the quality of legal services. The fact that competent would-be lawyers are being excluded from the profession means that existing lawyers have less incentive to operate competently because they have less competition.

The problem starts with the law degree, which must include 11 “core compulsory subjects” but takes three years of full-time study to complete as a result. The degree costs about $10,000 per annum with government subsidies and more without them. Many solicitors may never encounter some of those subjects in practice. Few lawyers practice in constitutional or administrative law. Some solicitors exclusively practice in criminal law or commercial law. Only some do both. It is simply not necessary to study them all in order to practice law. Students should have the choice of studying criminal law and procedure, commercial law subjects or both. Splitting up the degree will reduce costs and create new pathways to legal practice.

But the red tape doesn’t stop there. Graduates must undertake “practical legal training” before they can practice law. They must pay several thousands of dollars to learn what they otherwise should be learning as junior lawyers. If they are not, they can take the course. The problem is that everyone is forced to take it whether or not they have learnt the basics of legal practice. Even experienced overseas barristers have been forced to undertake this training. Forcing this requirement on everyone is unnecessary and wasteful.

Formal admission ceremonies further increase costs. As of 2015, Victorian admission ceremonies alone cost $926. This is a substantial hit to the savings of many graduates. The ceremonies take place monthly, but applicants must apply months in advance to become admitted—further delaying their careers. In the meantime they are simply expected to make ends in meet.

The restrictions pile on after admission. As of 2011, would-be barristers must pass a bar exam and undertake a 2 month readers course, costing thousands of dollars in total, to practice. The exam is unnecessary: barristers typically spend hours to prepare for specific cases, and thinking up answers on the spot will not get you far in the courtroom. Moreover, the exam covers material that graduates may have just covered at university. It’s no wonder practising barristers, even junior barristers, weren’t required to sit the exam: it has nothing to do with upholding standards.

Similarly, solicitors are required to practice for two years under the supervision of another lawyer before they can do so independently—unless they are overseas, or happened to open a practice before that rule was imposed. The inconsistencies in these requirements expose both their arbitrariness and their actual purpose: keeping people out of the profession.

Running a law firm is also unnecessarily cumbersome. By law, all practitioners must obtain “practising certificates” and insurance coverage from a single government-appointed insurer. A competitive insurance field would reduce costs. On top of that, barristers must buy robes and wigs. Costumes can cost thousands. Renting chambers (if practitioners choose to do so) and paying for practising certificates and insurance every year, taken together, costs thousands more.

While there is a great deal of concern about the supposed oversupply of law graduates, the simple fact of the matter is that they are legally forbidden from working without complying with these requirements. The expense of doing so means they cannot compete with established practitioners, which brings prices up.

It is also hard to argue that these regulations protect the public, given that so many current practitioners were exempt from them when they entered into the profession.

By contrast, deregulation will help society at large—especially the poor. Legal fees are just one factor at the margin that can lead to financial insecurity. Reducing costs will help those who are financially at risk.

Nor are regulations the only way to protect the public. Lawyers’ societies could still accept, reject or expel members on the basis of reputation, skill, honesty or competence just as the regulators do now. Ratings systems and online review websites  can also serve an important role in keeping the profession honest. These measures are informative and cost effective. Lastly, in serious cases incompetent lawyers can still be sued by clients for breach of contract, just as they are today.

Those concerned about upholding the standards of the profession forget that some legal work is already competently performed by non-lawyers with knowledge of the law. Tax agents and accountants, police prosecutors, patent attorneys, and industrial advocates all provide legal representation in their chosen fields right now. Indeed there are prosperous, stable nations with reliable justice systems like Sweden and Finland in which anyone can practise law without a licence. There is no reason why Australia cannot adopt a similar system for lawyers or other trades and professions, for that matter.

The case for deregulation is clear: it empowers the poor, the public as a whole and law students. Occupational licensing laws must be repealed. The law must recognise that for many lawyers, the years of study and tens of thousands of dollars spent obtaining a licence to practice is unnecessary.

7 thoughts on “Why are lawyers so expensive?

  1. As someone heading towards the end of his law degree I find myself agreeing with a lot of this, I must admit my biggest problem is working for someone else for those 2 years before i can open my own office. Especially as a mature age student I would like to be able to run my own business not be stuck making someone else money

  2. I think the AFR recently said that there will be 16,000 law graduates this year whilst there are about 66,000 solicitors in practice across the country. That suggests that barriers to entry such as the cost of studying don’t really present problems. The ready inference is that people are willing to pay the costs you have identified in the quest for high paying jobs. Whether it is fair is another question but the costs (other than the costs of the undergraduate degree) are, in comparison to the income those people are chasing, minimal.

    The question of unnecessary standards is a little more complex. I think there is something to be said for a broad knowledge of the law as a pre-requisite to practice. Each area of the law impacts on others. There are major overlaps between family law, wills and estates, corporate and commercial and, on occasion, even criminal. Having a basic understanding of the broad sweep of the law is necessary to give proper advice in specific areas. So, I don’t think you can say it’s a waste of time to study outside the area that, as a teenager, a student has decided will be his/her dedicated area of practice.

    Part of your complaint, as I understand it, is that unnecessarily high standards are demanded of those wishing to practise law and that this is unfair. Less qualified, less motivated people ought to be given a crack at it as well. Whether or not it is fair, one doubts whether dropping those standards would make very much difference.

    That just doesn’t reflect the reality. If graduates of a very high standard can’t get a job in the current environment, why is there reason to suppose that inferior candidates could? Law firms are rational actors; usually so absolutely rational as to be ruthless. Why wouldn’t they drop the incomes they pay graduates and hire more, less accomplished graduates if they could still deliver the services their clients demanded, but at a cheaper rate?

    The answer is that clients in the legal market – particularly corporate ones – want a high standard of legal services and are prepared to pay for it. Delivery of that requires high quality people and they cost. Those people would, likely as not, choose a different, better paying career if they could not achieve the income they wanted within the law. For the reasons set out above, the barriers to entry are trivial and do not underpin those high incomes. The real driver is the expectations of the higher end of the market.

    The problem we have with our law is that it is ridiculously complex and understanding it is the domain of very well-qualified, very experienced people. Those people demand, and usually get, the high incomes that go with such difficult and complex jobs. The laws inaccessibility to much of the population is explained by that. It is unfair but opening the practise of the law up to anyone who wants to hang a shingle is hardly the answer. That intrepid soul is unlikely to have much better understanding than the people who hire him. In those circumstances, the clients will still find themselves effectively unassisted.

  3. Years of full-time study are certainly not trivial barriers to entry. They are financial barriers to entry that have nothing to do with the applicant’s skill, knowledge or competence.
    Supervised practice and PLT is not a trivial requirement. Again it is a financial barrier to entry for perfectly qualified practitioners–including experienced and highly competent overseas barristers and solicitors from the UK and other Commonwealth nations.
    Police prosecutors already practice exclusively in criminal law. Migration agents, conveyancers, etc. do the same in their respective fields.
    Opening up the profession will bring the price of representation down at the margins. Simple as that.

  4. “Trivial” was the wrong description. I accept that there will be a decent chunk of people who look at what it takes to become a lawyer and decide not to pursue that career.

    The effect of your argument is that those people, if they were not required to jump that hurdle, would enter the market and drive down prices. The problem is that the evidence does not support that conclusion. With the barriers of which you complain in place, there is a massive over-supply of people willing to provide legal services. You say that flooding the market with more, less qualified people will drive prices down, but the market is already heavily over-supplied and prices are maintained.

    High prices are driven to some extent by high end customers, the point I made above. They are also driven by very heavy regulatory and ethical burdens on practice (as opposed to entry). Law firms have significant overheads. It only makes sense to employ extra people if a significant amount of revenue can be generated from them.

    Allowing a lower-qualified person to perform legal work would make no difference if that person still had to meet all the regulatory burdens that other participants in the legal market have to meet (things like trust accounting, office systems, insurance etc). That is where the real cost is.

  5. It would make a difference at the margin.

    Keep in mind a lot of people these days can independently operate from a home office with a laptop and a printer if they wanted to. A lot of those people could be first year lawyers making a go of it. That would make a difference at the margin.

    You could have a perfectly well-qualified criminal law practitioner, at least in the Magistrates Court or County Court, out there practising in the field after a year or so of study. That’s what a police prosecutor is, in effect. Saving 3 to 4 years of practicing time and setting up shop after a year would make a substantial difference at the margin for the law student and his clients alike, without much in the way of prejudice to either. It would be a substantial cost reduction. People talk about access to justice for poor, disadvantaged clients–this would be stop number one for them, I suspect, when dealing with criminal law issues at least.

    There is similar scope for reductions at the margin when dealing with other areas of the law.

    Similarly keep in mind that for graduates going into the big firms that don’t practice in criminal law, that’s one less year of study for all of their graduates if they study a commercial law course that doesn’t include criminal law. It’s one less PLT course to take. It makes a difference at the margin because they have a wider field to choose from though, as you point out, it makes much less of a difference for the bigger firms and the bigger clients.

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