Thursday, July 14, 2016

No, Todd Henderson, Lawyer Salaries Aren't Skyrocketing

Although I'm on pseudo-vacation from the LSTC, I can't stay away from checking the news feed.  Today I saw Matt Leichter's post about libertarianism and the ABA "cartel." Sure enough, a click on the link reveals that Todd Henderson, University of Chicago law professor, has come back with more tone-deaf, dumb writing.  You might remember Professor Henderson from almost six years ago, when he infamously claimed that he wasn't making enough at $400k because keeping up with the Joneses means luxury goods become pre-discretionary necessities.

Despite the ubiquity of the internet and the fact that there are millions of lawyers, it's uncanny how the same names seem to emerge, and how the same arguments continue to crop out despite being thoroughly debunked.

This time, Professor Henderson claims that lawyer salaries are skyrocketing (false) because of complex regulations (false) and a cartel driven by the ABA (false).

Although Henderson's interest seems to be in regurgitating standard low-thought libertarian polemical talking points, it's both damaging and stupid to have such a piece in Forbes for a lazy society that generally reads only headlines.

First, lawyer salaries aren't "skyrocketing."  The standard $160k for top-line firms had been there since roughly 2007.  As the linked article notes, only 39% of the nation's 700+ attorney firms actually paid that amount.  Plus, it's a small minority who get these jobs, and it's smaller relatively than it was in 2007.  According to Law School Transparency, only 29 schools even put 20% of more of their graduates in firms of 100 or more.

So we're talking about a minority of a minority getting a 12-15% pay raise over a nine year period.  We're far from skyrocketing territory for even THOSE lawyers, much less the overwhelming majority of lawyers who have nothing to do with those firms and never will.

Second, this idea that complex regulations drive enhanced lawyer employment is completely unfounded and there's no actual evidence of it, much less evidence upon which to base policy preferences.  In any event, assuming it's true that regulations are more "complex," such a claim ignores areas of lawyering that have relatively dried up in the meantime (like tort reform movements).  Further, in the complex regulations field, the bulk of the work is compliance or transactional work that can be done by the slowly growing army of non-lawyer trainees who know more than a typical law grad and for whom $50k is often a decent wage rather than a crushing debt-burdened letdown.

Third, the ABA does not drive any cartel on lawyer production.  The ABA does have a sort of monopoly on domestic law school accreditation, but they've done nothing to limit overall lawyer production by individual schools or lawyer admission which is driven by 51 governmental units across the United States - in some cases not even limited to graduates endorsed by the ABA.

Moreover, the idea that some cartel or expanded regulation is what keeps lawyer fees or pay high is so easily debunkable I should not have to type this sentence; Leichter dismisses of this argument with appropriate brevity, but I'm going to dive more deeply because sometimes stupid arguments just don't bleed out on their own.

Large law firms charge exorbitant rates and pay exorbitant salaries because their clients are willing to pay for that level of business in what is often analogous to either a luxury service (like paying for a Mercedes or a five-star hotel) because you want "the best" or because they're the only places that can handle certain fields of specialized work (say, really large M&A transactions).  Libertarians always have this stupid idea that lawyer services are fungible like gasoline or white onions and that one factor can drive all lawyers salaries one way or the other. 

They simply are not fungible; lawyers at the top of the bimodal curve are their own marketplace, with a supply and demand separate from everyone else, and a price that is not driven by actual labor demand, but by credential, prestige cachet, and partnership potential.  There's minimal actual interest in work skill above competence because they can train and sort out who has a knack for it.  They simply need polished grunts that can work adequately who can be sold to their client pool as "the best and the brightest."  One need look no further than the rise of staff counsel positions, which pay market labor rates instead of the BigLaw associate rate to do largely the same work with a different title.  Why do you think that is?

In any event, large law firms are already pulling whatever they need, as there are boatloads of people who would instantly jump to fill any spot necessary to do the actual work (Leichter claims 5004 unemployed JDs and 5400 JD Advantage for the class of 2015 before considering the mass of small firm attorneys who would lateral instantly).  In the alternative, if lawyer salaries were truly "skyrocketing" because of "complex regulations," don't you think large corporations would simply invest in specialized in-house units for half the cost to learn the "complex regulations" for that specific industry?  Or for litigation, don't you think the largest companies would retain captive or shared counsel as the insurance companies do and pay lower rates on volume?  With the exception of really big deals or large, incredibly complex litigation, there are plenty of options besides using a large law firm and paying large law firm rates.  In other words, we could eradicate every shred of complexity, go to a one-page tax code and a one-page code of conduct for financial products and the large law firms would still be paying what they do.

What bugs me most about Henderson's nonsense is that there is (at least) one area where libertarian ideals would actually help the marketplace for legal services, and that is if we get the government out of law school funding and let the free market dictate individual investment in legal education.  There's a gross inefficiency in the system where the injection of government backing changes the behavior of law schools to increase tuition, increase the trimmings regardless of market demand, and consequently increase student debt.

Withdraw the government and you would still have private investment in students who have a strong chance at making those juicy $180k salaries.  Other students may only receive moderate investment interest and it would force law schools to either adapt to the true market demand for their education services or close altogether.  The end effect would be to make individual lawyer debt more appropriate to the level of actual individual lawyer return and allow the marketplace to adjust to meet the actual demand for lawyers rather than the perceived demand by self-interested gurus.

Of course, Prof. Henderson, being somewhat a beneficiary of the government-infused market inefficiency, would likely resist going down that road, instead spouting about cartels and regulation.  He also likely resists any analysis that would reduce his career path to anything other than a representation of pure meritocratic skill, because if left to this particular piece without resort to authoritative credentials, one is left with little more than a frothy libertarian analysis more resembling a thoughtless Facebook rant from some meth-shooting libertarian second cousin. 

Someone with his pedigree either knows better, and is therefore a partisan shill with no integrity, or doesn't, and is a walking indictment of the whole prestige-based system.  For our purposes, though, it matters not:  lawyer salaries are only going up for a small minority, and even then only because large law firms operate on their own terms in setting associate salaries that may as well exist on Mars for the heft majority of law school applicants and graduates. 


  1. I would expect this sort of argumentation from a LawProf at an unranked school, not U of C. What possible reason is there to hold out such blatant misstatements? How does this help the school or its students?

    I've said it before and will say it again: it's admirable what U of C accomplishes for its students. The blathering of certain LawProfs, however, remains a mystery as to how it "adds value" to the organization.

    1. And Henderson teaches law and economics too. Law professors really know nothing except how to read a case.

  2. It was a pretty amazing article by Henderson-100% fact free.

  3. Any relation to "legal rebel" William Henderson of Indiana-Bloomington? I still recall when Bill Henderson told me and Cryn Johannson that "It's if NYLS charges a lot in tuition. Because most of those kids are from wealthy families. So they're not taking on a lot of debt for the degree."

    What a pig. With that one remark, Pig Henderson revealed his true colors.

  4. I was a patent lawyer. When I started back in 2001, starting salaries for patent law were almost always above $120K. Today, I'm seeing starting salaries at $50K+.

    Salaries have gone DOWN, rather than up. And although this is true for a lot of professions, at least there are still jobs in other professions.

    1. Salaries have gone down for the profession but also on an individual basis. Most lawyers I know have had a flat or downward trajectory of their earnings in the middle part of their careers as they move from Biglaw to mid-size to smaller law firms. In their 50's, most attorneys just feel grateful if they are employed. I'm in my 50's and my mantra is "every paycheck is a victory."

    2. It gets even harder to work as a lawyer in one's sixties. There are no employer paid retirement benefits for most lawyer jobs, so lawyers basically have to work much longer than they would if they had retirement benefits. The lack of lawyers retiring voluntarily hurts younger lawyers because of the lawyer oversupply.

      The downward trajectory of lawyer salaries who have been in big law, as compared to the first year going rate, is the hard part about the legal profession. Even if the job pays the going rate or a little more on an annual basis, you have the problem of intermittent work or part-time or as needed work, for many lawyers, which actually brings lawyer earnings way down below the first year going rate.

      The only people who do well as lawyers are those who keep their jobs gotten in their 20s or early 30s for a career. Everyone else is basically screwed and ends up in a very compromised, lower paying, disappointing legal career that one surely would not go to a top law school for, in retrospect.

  5. The earnings increase affects young people at the biggest law firms. Not clear that pay for even senior associates is going up much except at the most profitable law firms.

    Problem is that lawyers move through and out of the jobs where the salary increase matters with relatively quick speed. Hard to say if this affects a former Cravath associate who is now 45 and working in house. Likely not much, because there are so many lawyers coming out of big law and much fewer jobs than bodies who are very qualified to fill those jobs.

    If you went to a T14 or even T3 or T6 and are now working at a midsize or small law firm, there will be no effect on your compensation. These law firms pay based on revenues generated, and the salary increase for youngsters does not generate revenue for midsized or small law firms.

    Even at big law below the V10, a 10 plus year counsel or contract partner without a book of business is surely not going to to have their pay increased because these lawyers have no place to go. They are not marketable.

    The scam here is high pay for U of Chicago grads and the like for a few years, and then low pay for the majority of these lawyers after graduation from big law. This is especially so if a lawyer ever loses a job. Lose a job and your U of Chicago law degree may pay on average $90,000 a year if you are lucky and $50,000 if you are not.

  6. What is the point of going to law school to try and land a big law career? You're better off trying to become a pro athlete or actor, they get paid way more when they hit. And they don't have six figure debt. Your odds are probably better making it that way than in law.

  7. Unfortunately if government lending were cut back private lending would probably step right in and fill the gap. There's a poster on Professor Campos's blog page who has written on this in detail (Unemployed Northeasterner I think?) and he is convincing. The risk associated with this lending would be reduced greatly by securitization, by the inability of student lenders to discharge the debt, and also by the unspoken assumption the government would step in if things went truly bad.

  8. Atavist --
    Private lenders without Federal guarantees backstopping them would be a lot more picky about their prospective borrowers -- and the likelihood of loan repayment. All other factors being equal, a student going to Harvard is a better risk for the lender than a student at Podunk. Today, however, you can get a gradPLUS loan regardless of your school's likely success in placing its graduates -- and that's why the TTTT schools are still in business.

  9. The Boston Globe finally got hip.

  10. This profession's pathological obsession with the extreme top salaries offered by BigLaw has done more to undermine the profession and ruin lives than almost anything else I know. As the lede points out, a minority of a minority may get a 12-15% pay raise over a nine-year period . . . but it neglects to add that the actual people who held those jobs nine years ago have long since washed out of BigLaw and have been forced into underemployment.

    Those lucky few did not get a raise.

    Skyrockets are not an apt analogy. The Hindenburg is.

  11. Seen this one yet?

    Salaries are skyrocketing alright - for out-of-touch law prawfs whose salary comes from the students their schools exploit, certainly not from practicing law which the great majority of them have done very little of.