The Big Law Firm Raises: Much Ado About Nothing?
posted by Scott Moss
Is it me, or is the frenzy of “wow!” coverage about the big law firms’ salary increases a bit overblown? My memory of law firm salaries goes back to 1996, when the New York standard was $80,000. Now, in 2007, it’s $160,000 — exactly double over 11 years, which means that over time, big law firm salaries have increased 6.5% annually. That’s a decent rate of increase — it beats the 3-4% rate of wage growth for U.S. wages generally — but it’s not absurdly high.
Yes, $145K to $160K is a jump of just over 10% — but big firms tend to follow (and precede) big raises like this with a few years of no raises. That’s how the average raise is just 6.5% despite occasional jumps like this, or like the not-long-ago $125 to $145 raise; as law.com (one of the few sources to get it right) explains:
[The new] increase will surprise many in the legal community because it comes so soon after the new $145,000 standard was set … last February. At that time, the starting salary had been $125,000 in New York for over five years.
I’m surprised that this coverage is so shallow and unperceptive; I think it’s the result of two problems. First is the standard media bias — not left/right bias, but “Big Story” bias. Reporting a huge, sudden pay increase is news. But reporting that law firms raised their pay, pursuant to their long-term practice of alternating substantial raises and stagnation … yawn, I even got bored writing that sentence. That’s why we get reporting like the following:
Second, I think law students feed into the frenzy because their perspective only goes back one or two years. They don’t see the repeated cycle — stagnation/jump/stagnation — just one “jump”, which makes that raise look special, unique, and huge.
I don’t have any major social comment here; I just wanted to deflate the “WOW” bubble I’ve been hearing from, among others, some of my own students….
February 17, 2007 at 9:32 pm
Posted in: Law Practice
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Responses (11)
Eric @ New York Personal Injury Law Blog - February 17, 2007 at 11:09 pm
I think one of the big reasons for the press is that, with a $160K salary plus $30K bonus, rookie associates now get more than federal judges, something I discussed here at the time it was announced. It’s not the raw numbers that are striking, but the comparison.
–Eric
Eric Goldman - February 17, 2007 at 11:09 pm
Fair enough, but I think we as law professors go “wow” when we compare our earnings to 1st year associates! Eric.
Anon for this one - February 17, 2007 at 11:23 pm
Also of note is the number of hours that a first-year associate will be expected to work.
When I was a junior associate at a major New York firm, a colleague and I sat down one day with calculators, and a few months of billable hours. Our goal was to determine whether or not, given our hours, we would be earning more if we were paralegals. The paralegals were earning $25 an hour, and they got overtime for hours over 40/week.
As junior associates, we were making $135,000 a year. And we had been putting in 80, 90, and 100 hours a week.
It turns out that, somewhere around the 90 hour mark, it becomes more profitable (by the hour) to be a paralegal.
Anon - February 17, 2007 at 11:35 pm
“I’m surprised that this coverage is so shallow and unperceptive”
You must not read ATL very much. *All* their coverage is shallow and unperceptive.
KipEsquire - February 18, 2007 at 6:17 am
I’m with “anon for this one.”
Also keep in mind that the technology productivity gains of the past ten years (Windows/Office/WWW/servers/wireless, etc.) are very well suited to boosting entry-level attorney productivity, which should therefore flow through to relative wage gains for them.
But that will likely not continue — it was a windfall and not a trend.
Just my guess.
Sceptic - February 18, 2007 at 7:41 am
The plain fact is that these salaries were never justified, even before the increases. They signify and unwarranted benefit and usefulness to the community than any Lawyer deserves.
Maryland Conservatarian - February 18, 2007 at 2:59 pm
echoing skeptic – the perceived value by the market in these first years is largely a result of the effective legal limits on who can do the kind of work these attorneys are being paid to do. I suspect your typical MBAer or someone with a few years work experience or a even a paralegal of a few years is better suited/qualified than a newbie right out of law school but such is the wonder of our ridiculous stretching of defining who is “practicing” law.
The “Wow” is not the $15,000 increase but rather just the idea of giving $160,000 to a 25 year old kid with good grades and little else. I doubt the productivity of a first year attorney has doubled in the past 10 years.
Scott Moss - February 18, 2007 at 3:40 pm
The the last comment, in referring to whether associates’ “productivity has doubled”, kinda misses the whole point of my post. A doubling of wages over 11 years does NOT imply a doubling of productivity, because inflation alone explains about 1/3 of the increase — i.e., even if associates’ wages rose only to reflect inflation, they’d have risen from 80K to about 106K. So in real (not nominal) terms, wages have risen only about 50% (i.e., in 2007 dollars, from $106K in 1996 to $160K in 200t) — which is about 3.9%/yr. That’s not so staggering a rate.
So, in 11 yrs, have associates gotten 50% more productive (3/9%/yr)? Perhaps; the period from 1996 to present covers much of the computerization of legal work, which has yielded substantial efficiancy gains.
But to some extent that asking the wrong question: in a competitive market, the price of legal services will reflect their value to customers. Has the value of legal work increased since 1996? Of course it has; as corporate deals get more profitable, the “returns” to the legal work that allows them goes up as well.
So, is it possible that a 50% real increase is an accurate reflection of a combination of productivity gains and increased returns to legal work? I see no reason to doubt that.
I also don’t get the prior comment’s suggestion of “legal limits on who can do the kind of work these attorneys are paid to do.” Even if you’re right, firms face too much competition to draw monopoly profits (which I assume is your point): (1) companies that want to avoid paying firms can and do hire in-house counsel at a fraction the cost of firms’ hourly rates; and (2) there’s a ton of competition among law firms, and entry into the market isn’t that hard (as evidenced by the number of law firms, new law firms, etc.).
Mike Madison - February 19, 2007 at 10:30 am
This is not the first time that the media (and the profession) has gone “Wow” over law firm salaries. To my knowledge, the first time was in the Summer of 1986, when Cravath pushed its starting salary to $65,000. (See Time’s coverage here.) There was a seismic effect across the country, even if large firms in big cities didn’t match Cravath dollar for dollar. I was a summer associate at Brobek in San Francisco at the time, and within days of Cravath’s announcement firm management called all associates and summer associates to a special meeting at a ballroom at the Hyatt Regency hotel to announce that all associate salaries (including summer salaries) would be bumped to the new SF standard. (The meeting took place during the day, a financial investment by the firm which suggests what a cataclysmic thing the news represented.) I don’t recall what the number was in August 1986, but when I started as an associate with a firm a year later, the San Francisco first-year market was set at $50,000.
It was clear then, and I think that it remains clear, that the increases in first-year compensation — especially when not coupled with corresponding jumps in compensation for all associates — were due solely to inter-firm competition for the first couple of years of service from the “best” graduates of the elite law schools.
Salad Fork - February 19, 2007 at 1:54 pm
160/125 = 1.28
1.28^(1/7) = 3.6%/year
bill - February 20, 2007 at 10:09 am
Like Salad Fork suggests, for any serious consideration, we should probably measure from peak to peak or trough to trough. Peak to peak might be “big raise” to “big raise” if the big raises follow come during some major boom in legal work (M&A activity, dot com IPO boom).
Cravath 86 vs. Cravath 07=>
160/65 = 2.46
2.46 ^ (1/21) => 4.3%/year
So we can observe 3 to 4% wage growth for entering associates at a “top” firm in the market.
Not really earthshattering.
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