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Recession will shift balance of power in legal recruitment

If, as appears increasingly likely, Australia enters a recession in the coming months, not only will there be a slowdown in the legal services marketplace — the leverage that candidates have enjoyed in recent times will fade.

user iconJerome Doraisamy 14 October 2022 Big Law
Recession will shift balance of power in legal recruitment
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Is a recession inevitable?

The federal government is growing increasingly concerned about the likelihood of a recession in major economies, with Treasurer Jim Chalmers signalling that the global economic outlook is “difficult”.

“The storm clouds are gathering again in the global economy, and that is not irrelevant to us,” Mr Chalmers told media, following the Reserve Bank’s latest interest rate boost.


While Australia faces slightly less damning conditions, Mr Chalmers said that the local economy would not be spared if a global recession were to occur.

“I think the weight of opinion around the world is that the global situation has gotten much worse, even in the last few weeks,” the Treasurer said, alluding to surging inflation and the aggressive rate hike cycle adopted by many central banks globally.

While still fairly optimistic, the dark storm clouds have pushed AMP chief economist Dr Shane Oliver to slightly tweak his recession expectations, saying that the risk of recession in Australia now sits at about 40 per cent — up from 30 per cent back in August.

Dr Oliver acknowledged to Lawyers Weekly’s sister brand, Investor Daily, that “there is now a high risk of global recession, which will impact Australia”.

“The 23 per cent plunge in global sharemarkets, falling commodity prices, central banks, including the Fed, willing to risk recession, the Fed’s record of tightening cycles ending in a crisis, the rising skittishness of financial markets, the deteriorating global growth outlook and domestically very low consumer confidence, and rapidly weakening housing indicators warn of much weaker conditions ahead, which will hit jobs and drive weaker inflation,” he said.

Turning to the RBA’s latest decision, he noted that “aggressively tightening into all this without pausing for breath risks knocking the Australian economy into a recession we don’t have to have”.

It is possible, of course, that Australia is talking itself into a recession. However, if it does come to pass, there will notable impacts upon the legal services marketplace.

Earlier this week, Lawyers Weekly reported on the likely consequences for the in-house legal market if a recession comes to pass.

Impact upon Australia’s legal profession

In conversation with Lawyers Weekly, Empire Group partner Alison Crowther — who recently spoke on The Lawyers Weekly Show about the ongoing “candidate’s market”, how such candidates are subsequently driving salary trends and the need to still showcase one’s worth as a candidate — said that there would be a slowdown in the market in the event of a national recession.

Salaries will stagnate, she predicted, and candidates will “no longer be in the driver’s seat”.

“We will, in fact, revert to the market prior to the COVID-19 boom,” she submitted.

Numerous practice areas will see work dry up, she went on, others will, of course, be buoyant — for example, restructuring and insolvency.

“Firms will seek to hire smarter, and the overseas drain of candidates will slow as well,” she noted.

According to Taylor Root head of Australia Hayden Gordine, the practice groups for which law firms are hiring will “definitely shift” if a recession occurs.

“Law firms are traditionally resilient to recessions as commercial disputes rise and distressed asset transactions increase,” he outlined.

“No one can say for sure, but if demand for legal services decreases, then this will have a negative effect on legal recruitment across all practice groups.”

Burgess Paluch Legal Recruitment director Paul Burgess pointed out that, since there is still “significant backed-up demand”, the impact upon the legal profession of a recession may take some time — even though there will indeed be an eventual impact.

“It will affect front-end areas more than back-end areas. For example, smaller firms did relatively well during the GFC. Areas such as litigation, insolvency, family and insurance are less dependent on the market forces in play,” he detailed.

No longer a candidate’s market

In seeing the market become one in which candidates no longer wield as much leverage as they have had in the last 18 months — due to overwhelming demand for legal services — there will be, Mr Gordine posited, a “shifting in that balance of power”.

“We have already seen law firms begin to tighten hiring standards, if Australia does go into a recession, it is likely to seem like a steep decline, but we have come from extreme lofty heights,” he opined.

“Quality legal talent will also be in demand in Australia at the associate and senior associate level, but a global recession would mean more returning and less outbound Australian lawyers plus an influx of UK lawyers looking to head down under.

“That would definitely make it an even playing field.”

Mr Burgess supported this: “As the number of new roles entering the market lessens, and the supply of lawyers increases, there will be a natural rebalancing of the market. However, as always, quality lawyers with good skills and experience will remain in demand.”

This said, Ms Crowther identified, the lessons from the age of coronavirus, particularly with regard to staff wellness and performance expectations, will be a constant.

“This has been a great move forward for legal, and the employment market, in general. Flexibility is critical, and this isn’t going away anytime soon, even if some firms would like it to,” she said.

“Our role as recruiters is to keep firms aware of these movements and try to assist in accountability.”

Next week, Lawyers Weekly will publish further commentary from recruiters, detailing how candidates and employers alike can take action in the face of the aforementioned economic headwinds.