[Note: in the few days between when this post was written and it was published, the BEA published a major revision that only includes data from 2017. Earlier data will be included later in the Fall. The earlier data can be found on ALFRED here: first and second graph.]
How large is the US legal sector? Excessive litigation and overeager solicitation of injury victims aren’t the norm in Western economies, but the level of advertising for legal services alone may give the impression the legal sector has grown by leaps and bounds. But this is circumstantial evidence, so we need data.
FRED can help us measure the legal sector with data from the Bureau of Economic Analysis. The BEA computes very detailed tables across all sectors of the economy, and the FRED graph above shows what the legal sector contributes to US GDP.
Exhibit A: With data under NAICS code 5411, the FRED graph above shows that from 1997 to 2021 the legal sector’s contribution to GDP roughly tripled.
Objection! Would this statement stand up in court?
Withdrawn. Of course it wouldn’t—because the US economy as a whole has increased as well, as has the general price level.
So, we adjust the graph by dividing the legal sector’s GDP by nominal GDP. Now, we can properly discuss the size of the legal sector, which is shown in the second FRED graph.
What’s striking is that the sector’s contribution isn’t stable at all. The share has indeed increased by a third over the first 11 years, from 1.2% to 1.6%, only to collapse back to 1.3% after the 2008 recession.
Clearly, the real estate industry and finance more generally have had a strong impact on legal activity. But is 1.3% all that much? Without a precedent to compare this number with, you will have to be the judge of that.
Unfortunately, the dataset does not go back far enough to see how the 1977 Supreme Court decision allowing advertising by lawyers may have changed the size of this sector. Also keep in mind that the statistics above do not take into account the public sector side of legal proceedings—that is, judges, their clerks, and other legal system support.
Suggested by Christian Zimmermann.