Location, Practice Setting, and Lawyer Salary

In 1982, Jack Heinz and Edward Laumann published Chicago Lawyers: The Social Structure of the Bar. Drawing upon detailed interviews of approximately 800 practicing attorneys, this book was a comprehensive analysis of the social structure of the Chicago bar. Its most famous finding was the “two hemisphere” thesis, which concluded that there were two distinct sectors defined by a lawyer’s clients: one serving organizational clients (primarily corporations) and the other providing personal legal services to individuals and small business.  The two hemispheres strongly tracked underlying divisions of race, ethnicity, law school pedigree, professional and social networks, and income. Further, they seldom overlapped.

Heinz et al.’s two-hemisphere theory is a theme that keeps cropping up in my economy geography of law firms research. Before getting to that, a bit more background is needed. Twenty years after Chicago Lawyers, Heinz and Laumann (with Robert Nelson and future ELS guest blogger Rebecca Sandefur) replicated their work using a new cross-sectional sample. The results were published last year in Urban Lawyers: The New Social Structure of the Bar (2005). Heinz et al. found that the division between corporate and personal services still existed, but the “hemisphere” appellation—as in “half”—no longer applied. Approximately two-thirds of Chicago lawyers served primarily corporate clients.

The change (between 1975 and 1995) was not the result of the personal services sphere shrinking—indeed, as the total number of personal services lawyers kept pace with the population growth of Chicago metro area. Rather, the large shift in favor of corporate lawyers appeared to be the result of a massive surge in the demand by corporate clients. In addition, between the first and second study, the corporate lawyers prospered economically while the average income (in real dollars) of personal service lawyers actually declined.

Thanks to Heinz et al., we have a fairly complete overview of the changes in Chicago. But to what extent are these findings representative of other part of the U.S.? The graph below provides some preliminary evidence.

This graph compares the average pay in 1993 and 2003  for  law firm employees (associates, nonequity partners,  secretaries, and paralegals) in the Top 35 metropolitan areas versus smaller markets (a total of 390 MSAs).   Obviously, the pay in the larger markets was higher in 1993.  Yet, by 2003, the average salary increase was $22,827 in the Top 35 markets (53%) versus $7,688 (30%) for the 390 smaller markets. 

These results suggest that a surge in demand for corporate legal services has been heavily concentrated in large urban areas.   The jobs are also more plentiful. Between 1993 and 2003, law firms in the Top 35 MSA added over 78,000 employees versus 16,415 in the 390 smaller markets.  Obviously, we know where the majority of our students are headed to repay their students loans.

Yet, within the Top 35 metros, there are other important patterns.  In my research, I use number of Am Law 200 lawyers and offices as a proxy for concentrations of corporate work.  Consistent with the patterns found in Urban Lawyers, wages appear to be more responsive to changes in corporate law activity than regional population growth.  Specifically, after controlling for starting population and 1993 pay, the correlation between salary increases (93-03) and population growth (90-00) was insignificant (.039, p = .829, n =35).  In contrast, using the same control variables, the number of new Am Law 200 offices was a fairly strong predictor of larger salary increases (.415, p = .016, n = 35).   

The large MSAs that are gaining the most Am Law 200 offices and lawyers tend to fall into two groups:

1. Very large, established markets, such as New York, Washington, DC, San Francisco, Los Angeles,  Chicago, and Boston, that are emerging as primary or secondary "global cities." (I discussed this term earlier in the week.)  The rate of population growth is not uniformly high in all of these cities.
2. Sun Belt cities with vibrant high-tech or banking/finance sectors, such as Atlanta, Austin, Charlotte, Dallas, Denver, Houston, Miami, San Diego. The populations in these regions are generally expanding rapidly.
   

Some large, high-growth MSAs, such as Las Vegas, Phoenix, Raleigh-Durham, Tampa, and Orlando, are not yet important Am Law locations, though there are signs of growth.  But if the number of new Am Law 200 offices or lawyers is an important indicator of legal market health, several midwestern cities are clearly in trouble.  At Comglomerate, I have blogged about the Rust Belt Economy for Lawyers.  Based on earlier research by Andy Morriss and I, these trends are particularly relevant to non-elite law schools because the health of regional legal labor markets affects that the caliber of students they are able to attract. 

In short, the economic geography of the legal profession is changing in important ways.  This research is still ongoing;  I welcome reader comments to make it better.  Thanks, bh.

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The rate of population growth is not uniformly high in all of these cities.

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hello friend excellent post about Location, Practice Setting, and Lawyer Salary thanks for sharing, These results suggest that a surge in demand for corporate legal services has been heavily concentrated in large urban areas. The jobs are also more plentiful. Between 1993 and 2003, law firms in the Top 35 MSA added over 78,000 employees versus 16,415 in the 390 smaller markets.