The global financial markets are in turmoil as interest rate rises to near record levels and economies seem to race towards recession. The US, UK, Europe, and other global economic powers are all slipping toward a recession. Does this mean that Australia is likely to follow suit? What does this mean for the talent market in the Australian legal sector?
The last major downturn was the Global Financial Crisis caused by sub-prime mortgages in the US. It was a massive global correction that demonstrated how interconnected global markets are and how policy can affect markets. One of the main differences this time (a risky statement), is that the GFC came as a complete surprise to most policymakers, whereas this time there is a level of preparedness. However, this doesn’t mean that every country will get its response right (Look at the UK!). But the hope is that this would be a sharp V-shaped recession, as opposed to a prolonged U-shaped one.
4 reasons why the Australian legal sector is a good place to be during a global downturn
- While the minimum wage was increased by 5% in Australia, the average salary increase was extraordinarily low, est 2%. However, the legal industry saw wages increase by an average of 11%. There are a number of sectors that are inherently recession-proof, namely, Food & Beverage, Age Care, Energy, and Debt Recovery/Financing. Luckily, lawyers are an integral part for most of these areas. In addition, Australia is experiencing a huge talent deficit within the legal sector. There may come a point where some lawyers must re-train or firms become open to hiring outside of their strict sector guidelines. However, the level of hiring, and resulting wage negation power of lawyers will remain high.
- While global markets are struggling, Australia still has very low levels of unemployment and good levels of consumer spending which will ease the risk, and depth, of recession. Australia also is a net energy exporter which means that as global energy prices increase, it will reduce the risk of a prolonged or severe recession. We have already seen a large demand for energy and infrastructure lawyers across both mining and renewables (particularly after the recent government announcement to commit to a renewable target).
- While the turbulence in the share markets is dramatic and the ASX has poorly performed this year, it is far from unusual. The inevitable troughs will give way to peaks -which will favour corporate lawyers when the market turns again and investor confidence increases (this may already be happening).
- Talent shortages in the legal sector. Australian universities are some of the best in the world and they are producing talented junior lawyers at a remarkable rate. However, the rate of economic growth over the past 27 years has meant that the supply has not been keeping up with the demand. It would take a long, sustained, recession (highly unlikely, most economists predict that if a recession happens it will be a short one with a steep recovery) to even remotely cover the talent shortage. Coupled with the fact that the legal industry is a slow adopter to changing working conditions means that there is still, and will continue to be, a large drop-off rate from graduates to senior lawyer.