The Great Recession of 2007-09 has hit the legal profession particularly hard. In 2012, there were 201 ABA-accredited law schools. Only 19 of them placed 75 percent or more of their graduates in jobs that require a law degree. For the non-ABA-accredited law schools, many of which are in California, the placement is far worse. In general, more than one-third of law school graduates cannot find a position requiring bar passage. The National Association for Law Placement reported that less than two-thirds (64.4 percent) of 2013 graduates had jobs that require bar passage.
For those who have jobs, the median starting salary for lawyers has fallen 15 percent from 2009 to 2012. There is also no rosy employment outlook for lawyers already working in many large firms. In the past decade, twelve major firms with more than 1,000 partners between them have gone out of business. In June of last year, Weil Goshal, the well-known New York-based law firm, announced it was laying off 60 associates, about seven percent of its total. Several dozen of the firm’s 300 partners who will remain will see a cut in pay. The law firm’s executive partner, Barry Wolf, told a reporter, “We believe that this is not just a cycle, but that the supply-demand balance is out of whack across the industry.” If the firm thought that business would pick up substantially in 2014, “we would not be doing this.”
Demand for lawyers has fallen, while the supply of lawyers keeps increasing. In 1970, the United States had about 300,000 lawyers. Now, it has about 1.2 million people trained as lawyers. About 16 percent of them do not have law-related jobs. To gain some perspective, we now have 400 percent more lawyers than we did in 1970. Each year, ABA-accredited schools produce over 40,000 new lawyers who are admitted to the bar. Every year, some lawyers leave practice because of death, retirement, or the attractions of a non-law-related job.
In general, the rate of demand for lawyers tracks the growth of GDP. As the economy grows and becomes more complex, the demand for lawyers increases. Yet, for years, the increase of the supply has greatly exceeded the demand. For example, from 2008–2009, law schools produced four percent more lawyers while economic activity contracted almost six percent. In just one year, then, law schools created a large lawyer surplus, and that surplus is likely to continue because the business model of most law schools makes cutting enrollments (and losing tuition) unlikely. Law school applications have finally dropped—over 100,000 applications in 2004—to about half that by 2013.
One might think that there is no real need to worry because the average American lawyer earns a median average wage of a little under $114,000 each year. On the surface, this six-figure income is not an indicium of a career that has too many practitioners. However, what we see is not a normal bell curve. Many lawyers earn substantially more than the median income while others earn substantially less: ten percent earn about $55,000 per year while 25 percent have a median wage of about $75,000 per year. Starting salaries (which interest law graduates the most) have fallen over 15 percent since 2009, to a little over $75,000 per year. Compare that to a law student’s average debt after three years of law school—about $125,000.
In the meantime, computers have made law firms much more efficient, so going forward, firms will need fewer lawyers to do the same quantity of work. Lawyers use computers to create documents, modify them, and engage in speedy computerized legal research. In addition, low-cost online law firms, like LegalZoom, compete with traditional law firms in providing low-cost services. In the old days, small law firms had this market completely to themselves. Computers also have substantially reduced the cost of document production. About a year ago, U.S. Department of Justice lawyers reviewing the proposed merger of Anheuser-Busch InBev NV and Grupo Modelo SAB (a Mexican company) approved a request to use computer software to determine which of millions of documents the companies had to turn over to the government. In the past, law firms used young associates or paralegals to find the documents. Later, they turned to contract lawyers, who may have earned only $25 to $40 per hour. The computer software is a lot cheaper and never goes on a lunch break. By using computers, the law firms cut their discovery costs by 50 percent in the Anheuser case.
Big law—the emergence of very large law firms with offices across the United States, and often internationally—is growing. In 1960, fewer than 20 U.S. law firms employed more than 50 lawyers each. By 1968, 20 firms in the entire country had more than 100 lawyers. Now, at least 20 law firms have exceeded the 1,000-lawyer mark.
Despite Change, Female Attorneys Continue to Earn Lower Wages
Yet, for all the changes in the legal scene, one thing does not seem to change: female lawyers, on average, earn less than male lawyers earn. Sky Analytics is a company that provides legal management software for corporate legal departments to monitor their outside counsel. Last month, it published its first sex discrimination study, which it based on actual billings from law firms.
Sky Analytics studied legal invoices from corporate legal departments with annual legal spend ranging from $1 million to $1 billion. The data it examined included over $3.4 billion in legal fees from over 40,000 lawyers and timekeepers and over 3,000 law firms in the United States, including 73 of the AmLaw 100 firms.
The bare statistics are amazing. On average, female partners bill at an average hourly rate that is ten percent lower than males bill. This billing disparity continues regardless of the size of the firm. The average female partner’s hourly rate at top tier law firms is ten percent less than what the male partner bills ($426 vs. $473). The difference continues at smaller firms: there, female partners bill at an average of $498 per hour, while males bill at $562. For this study, “top tier” means firms with over 1,000 lawyers and an extensive national and international footprint.
Virtually no women bill at over $1,000 per hour while two percent of men in top tier firms do. We find that six percent of all male lawyers bill over $800, but only two percent of female lawyers bill over that amount. Furthermore, 51 percent of men in top tier firms charge over $500 per hour, compared to 31 percent of women in the same tier.
On average, top tier firms bill the hourly rate of their female associate at $377 per hour, while male associates bill at $404. At smaller firms, 22 percent of the men charge less than $150 per house, while 30 percent of women are in that category.
Female partners billed nearly one-half hour (24 minutes per day) more than their male partners did. On the associate level, male and female associates billed about the same number of hours per day.
The bald statistics do no prove sex discrimination, but they should at least raise your eyebrows. There may be benign explanations for some of the disparity. The study found that male-dominated teams (93 percent) tended to work on larger matters than female dominated teams of lawyers (81 percent). More complexity may yield higher pay. However, we still have to know why males tended to work on larger matters.
Admittedly, there has been progress over the years. In 1970, only 4.8 percent of lawyers and judges were women. Now, it is one-third. Women now also make up 17 percent of the equity partners (those with ownership stakes) at the 200 top-grossing U.S. law firms.
On the other hand, women may be underrepresented in the rainmaker category, and that underrepresentation will reflect itself in the partnership draw. Older partners, when they move into retirement, may hand off their clients to younger partners and these older partners may favor (consciously or unconsciously) male partners. Female lawyers might be overrepresented in practices areas like family law, which charge less (the fees are typically non-deductible). If so, we would like to ascertain whether the females chose to practice family law and other lower paying areas of law or whether they felt pushed into choosing them.
What we do know is that that this gender disparity exists in a profession that prides itself with rewarding merit. The better lawyers attract more clients and so we pay these better lawyers more. So, why is there this disparity? That is the question the profession and future studies must answer.