Cutting starting salaries will hurt young lawyers

The WSJ Law Blog recently noted a suggestion by — that law firms reduce starting salaries for their lawyers in exchange for some sort of (read: unenforceable) promise to keep things together for some period of time.

There are a range of problems that I see with this proposal, and here are some suggestions as well.

Law firm tuition has gone up in great part because of the rise in starting salaries, which have now almost doubled from my time as a first-year in a large downtown NYC firm. If salaries go down, will law schools adjust? My guess is no, which means that the “lucky” students who get big-firm jobs at reduced salaries will have to toil even longer just to break even. It will take a very long time to take the slack out of the system so that young lawyers of the future are “merely” equally stressed financially compared to their peers at today’s firms. A better solution might be to modulate pay among first-years by letting them choose their own level of hours for pay deal. Let’s remember that associates are generally not to blame for a poor business environment; they may cost money, but without them, the firm makes a lot less money. Their marginal contribution is high.

This last point is the one that bears repeating because we must remember that the market will adjust (perhaps too slowly for our liking) to normalize returns for associates. But once someone has already bought a law degree, there’s no real clawback on the price, particularly when even extreme cases don’t get to discharge student loans in bankruptcy.

My colleague and friend Prof. Tomas Nonnenmacher posted this followup of sorts based on some more recent articles about what life in NYC can be like for a lawyer without a high-end job.

[At the risk of reposting, here are my additional remarks on the subject:]

“Segmented” is a nice word for it; “segregated” would be better if it didn’t have unfortunate overtones.

Here are some underlying data:
1. This chart spurred the recognition of the problem — it details the recognition of a bimodal salary distribution for starting salaries that many law students do not know about or understand.

  1. Comments and the issues for law students (as well as practitioners)

  2. More salary curves, this time including curves for 1991 and 1996.

What is important to assess, and so far lacking except in anecdotal evidence, are two more things: first, a usable comparison of schools matched up to these salary curves, and second, an analysis of law school tuition increases matched up to these curves.

It is my fear that law schools generally have increased tuition as a result of the increases in some lawyers’ pay, both capturing more of the benefit from these lawyers and capturing excess benefits from lawyers who land elsewhere on the curve.

Pushing the dialogue even further out, it’s clear that this salary distribution shift is “bad” for many would-be lawyers because they just don’t (a) know about it or (b) reliably assess where they’ll end up on the curve. As for (a), my prescription is above — some uncomfortable data will help everyone figure out what’s going on and improve the use of resources for everyone: students, schools, firms, and society. As for (b), it would be trivial with the additional curves in place to give people a real sense of what their “odds” are. That would shift some activity at the margin, which is all we can expect, and everything that we expect.

But is this salary distribution and the trends that are exacerbating it bad for society? More law schools => more new lawyers => higher supply of [mostly lower-priced] lawyers => lower legal fees for clients as a whole. Maybe society gains if there is widespread availability of legal advice at $50/hour. Or there will be a lot more plumbers and fewer lawyers, which may be good: after all, I have yet to find a line where Shakespeare says “let’s kill all the plumbers.”

4 Comments

  1. M on March 22, 2010 at 6:43 pm

    Wow – I’ve already found this to be true the hard way (I’m a 3L), but I wish I knew it when I left my cush $50-$60K job with guaranteed raises and awesome benefits to attend a private law school that is not a TTT but definitely not a T-14.

    I was suckered in by the doctored (*cough*misleading representations*) salary & employment charts printed in US News. I didn’t know any better or understand how the schools got their data (unreliable self-reporting by graduates). Private law schools (and an increasing number of cash-strapped public law schools (I’m looking at you, California) that are charging $28K – $40K in tuition are a horrific investment for 95% of graduates.

    • Rick Colosimo on March 22, 2010 at 7:11 pm

      There is no doubt that the information isn’t really there for applicants to decide on what to do; indeed, the question of thinking about law school like an investment doesn’t get raised except well after the fact. Compare that to the very common “which MBA is the best bargain” analysis that appeals to typical MBA applicants who are already working. College students, who still make up the largest segment of law school applicants, generally believe themselves to have zero opportunity cost when picking a school. Unfortunately, that’s just not true.

      Although I’m the guy who said “think education, not vocation” when picking a school and considering your career options, that doesn’t change economic reality for new graduates. Best of luck to you.

  2. […] written before about the growing inconsistency between the actual job market for lawyers and the jobs that law schools tell prospective students […]

  3. Mentor corner: Law school or business school? on September 20, 2010 at 10:34 am

    […] days of the high cost of law school for all with the relatively low value for most. This post on starting salaries will point you in the right direction. You simply MUST read the chart that shows the bimodal salary […]

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