Income Inequality in the Legal Community
Income equality in the united states is a hot topic in political campaigns and in the news and shows no signs of abating. We have noticed a similar trend among the compensation for lawyers. The top group of lawyers are highly paid, typically at large law firms or those in-house legal departments who hire from the large law firm ranks. Starting one’s legal career at a large law firm is thus the ticket into the highly-compensated group.
Law students who attend a “top tier” law school and who graduate with honors have the best chance of getting hired by the AmLaw 200 law firms. These large law firms have always paid more than the local or small regional firms, but this gap started widening during the tech bubble of the late 1990s, when large law firms started competing for certain types of recent law graduates and trying to gain an advantage by increasing starting salaries. This gap has continued, and even widened further, as large law firms have continued to raise starting salaries, while starting pay at local and smaller regional firms has remained relatively flat. Just this month, the prestigious New York firm of Cravath announced a starting salary of $180K for its first year associates, which was quickly matched by Sidley Austin and Latham Watkins, and now Morgan Lewis. Competition to hire the top law graduates of the top law schools remains as keen as ever, so law firms continue to get an edge by paying ever-higher first-year salaries.
Meanwhile, law students from the lower tier law schools are facing increased challenges to find ANY job – much less one at a large law firm. An article earlier this week in the New York Times profiles the predicament of recent law graduates of Valparaiso, a regional law school in Indiana that is representative of the one hundred other law schools in the bottom half of the U.S. News and World Report rankings. The article states that fewer than half of Valparaiso’s 2015 law graduates were employed in jobs that required law degrees one year after their graduation. And only three out of its 131 graduates worked in large law firms.
As legal recruiters, we talk to recent law graduates and experienced attorneys every day, and we have seen this trend borne out in often heartbreaking ways. Law graduates with mountains of debt accepting contract document review jobs for $25 an hour, and small law firms hiring desperate law graduates for $60K a year and requiring soul-killing billable hours from them. But yet these are the fortunate ones, as they have a job. It often crosses our minds that these students would have been much better off focusing on a paralegal job right after college, where demand is still high and salaries still rising, rather than incurring the debt and giving up the salary of full-time employment for the three years that law school requires. An experienced paralegal typically starts at around $50K, but we know many paralegals earning over $100K, and the median salary in Texas for an experienced paralegal is in the $70K range. If we consider the salary of paralegals in large law firms only, the median is likely closer to $80K. And in most firms, far fewer billable hours are required of a paralegal than an attorney.
Even honors graduates from top tier law schools are now feeling the income disparity, as there simply are not enough jobs in the largest, top-paying firms to hire all of them. A small plaintiff’s firm recently engaged us to hire a junior associate for its four-attorney, single office firm. Not too long ago, the best this law firm could hope to hire was a middle-of-the-class graduate of any law school, maybe an honors graduate of one of the lower tier schools. But even that would have been a stretch. Now, however, sensing the changing dynamics of supply and demand, the Principal of the firm demanded that we send only honors graduates of top tier law schools. The most they are willing to pay such a graduate is $95K base salary, with no promise of a bonus. Nor will this firm offer any opportunity for partnership down the road. It remains to be seen whether this firm will be successful in hiring such a candidate, but even the fact that they think they can says volumes about the “class divide” in today’s legal market.