I recently conducted a survey of billing and financial information for the Indiana State Bar Association (ISBA). The results are going to be presented at an upcoming conference of solo and small firm lawyers.
One of the most surprising findings was the lower incomes of small firm lawyers (i.e., five or fewer lawyers per firm) in large metropolitan areas versus mid-sized and small and rural markets. For example, in my sample of approximately 1,200 Indiana lawyers in private practices, lawyers working full-time in 1 to 5 lawyer firms in large metropolitan areas [see map below, click to enlarge] made an average of $112,712 (n=318), versus $117,284 in mid-sized markets (75,000 to 200,000 residents) (n=104) and $117,741 in small and rural locales (n = 84).
Note that these results are not driven by leverage of a few high outliers; the entire distribution tends to be lower in the larger metro areas. Since household incomes are generally higher in these same locales, I would have predicted the exact opposite pattern.
In the famous Chicago Lawyers study (aka Chicago Lawyers I), Jack Heinz and Edward Laumann carefully analyzed their random sample of 800 lawyers and determined that the most salient division was between lawyers who served organizational clients, such as corporations, and those that provided personal services to individuals and small business. These two groups, which reflect a division that tracks not only clients but income, educational backgrounds, social networks, and bar affiliations, comprise the "two hemispheres" of the legal profession. In my sample, the attorneys in the 1 to 5 lawyers firms are the segment most likely to provide personal legal services; they also make up 52.3% of the private practice respondents.
So why are personal service lawyers making less money in larger markets? My working hypothesis is that graduates of urban law schools tend to stay in the area (indeed, many lived in the metro area before law school), thus oversupplying the region with personal service lawyers, heightening competition, and decreasing income. If this is true, it has important implications for so-called "local" law schools. Some additional data and my analysis follow the jump.
The chart below, which breaks down the sample by market and law school attended, initially suggested the possibility of a local school effect.
In the five large metros with a substantial number of respondents, three have law schools: Indianapolis (IU-Indianapolis), Chicago-Gary (Valparaiso), and Louisville (Brandeis). In each of these metros, the ISBA respondents are predominantly graduates of the local law school. (Not shown is Cincinnati-Middletown CBSA, which has Univ. of Cincinnati and Northern Kentucky; although the total number of respondents there is small, none attended an Indiana law school.)
As a preliminary test of whether the large number of local graduates depresses the income of personal service lawyers, I specified a linear regression in which the sample was limited to practitioners in 1 to 5 lawyer firms (n = 500). The dependent variable was the natural log of practitioner income. The following independent variables were statistically significant at p < .01:
- hours worked per week (+)
- average hourly rate (+)
- years of experience (+)
- percentage of cases taken on contingency (+)
- female (-)
- dependent children in the home (+)
- law school in metro area (-)
After controlling for all of the above factors, proximity to a local law school is associated with lower incomes for small firm lawyers (full regression results here). The obvious rival hypothesis is that lawyers prefer the amenities and social networking found in large urban regions--the same places where law schools are often located. Yet, when I added a control variable for office in a large metropolitan area (all areas in blue in the map above, not just the ones with law schools), the coefficient for "law school in metro area" variable was still negative below the p = .05 level (full regression results here).
Of course, this analysis only applies to Indiana. Because of differences in the local economy, a larger Midwest sample, or one that focuses on the East or West Coast, or the Southeastern states, might produce different pattern of income distribution.
Yet, these results brought to mind one of the findings of Chicago Lawyers II (see Heinz et al., Urban Lawyers (2005)), which replicated the original study 20 years later and found that the income of solo practice lawyers had plummeted in the intervening years (from $99,000 to $55,000 in constant 1995 dollars). Further, 32 percent of the solo practitioners were working a second job in 1995 compared with only 2 percent in 1975.
Greater Chicago has eight law schools, including Valparaiso in the northwest corner of Indiana. In my opinion, before going $100K into debt, it is important for a prospective student to understand (ideally, quantify) the expected return on investment for each school if he or she hopes to practice law in the Chicago metropolitan area. The results of a larger study may persuade some students to pursue opportunities in other markets (or perhaps rural counties) or forgo law school altogether. As tuition continues to climb ahead of inflation, law schools--and the ABA--need to start thinking along these lines.