"Legislation, Regulation and Litigation : Demand for U.S. Legal
Services in Historical Perspective"

Ariell Reshef - CNRS, Paris 1, PSE, CEPII and CESifo
Cailin Slattery - UC Berkeley, Haas School of Business

Abstract
In the twenty years between 1970 and 1990 the employment share of legal services more than doubled, reaching 1.15% of the private sector—in stark contrast to stability during 1850–1970 and in 1990–2015. During the same period the relative wage of legal services almost doubled, driven by commensurate increases in lawyers’ wages and of law firm partners’ income. We argue that that this demand shift was driven by important legislation and regulation events, starting in the mid-1960s and lasting throughout the 1980s. Using historical data, we observe a tight correlation between the employment and compensation of lawyers and the scope of, and uncertainty created by, federal regulations and legislation. This is supported by cross-state and micro-level analysis. Other factors, e.g., changes in lawyers’ quality, patenting, firm density and technology are not important determinants of the demand shift. A back of the envelope calculation implies that 42% of income to lawyers and partners are in excess of what these payments would be if relative income remained at 1970 levels. This represents an excess cost of$104 billion dollars in 2015 alone.