Distribution of 2006 Starting Salaries: Best Graphic Chart of the Year

The most recent edition of NALP's serial publication,  Jobs & JD's, includes the chart excerpted below [click-on to enlarge].  It is the distribution of full-time salaries for all members of the Class of 2006 who reported income data to their respective law school (22,665 graduates).  If you were looking for a single graphic to illustrate the most vexing problems facing law firms, law students, and law schools, this would be it.  A more dramatic bimodal distribution you will not find.

The sample includes--in order of size--private practice (55.8%), business (14.2%), government (10.6%), judicial clerks (9.6%), public interest (5.4%), and other (2.8%).  Half of the graduates make less than the $62,000 per year median--but remarkably, there is no clustering there.  Over a quarter (27.5%) make between $40k-$55k per year, and another quarter (27.8%) have an annual salary of $100K plus.   

If the chart were a flipbook of the last twenty years, the first mode would be relatively stationary, barely tracking inflation, while the second mode would be moving quickly to the right--i.e., the salary wars.  In fact, because of the recent jump to $160K in the major markets, the second mode has already moved even more to the right.

What are the implications of this chart?

• For law students. Let's face it:  $40K to $55K per year is just not enough to pay down the avg. $85,000 debt (especially as interest rates climb) and still enjoy any kind of lifestyle that a professional degree is presumed to confer. The national median starting salary for a 2 to 10 lawyer firm is $50,000.   There are a lot of struggling alumni out there. And do we really need more law schools?  For many, getting a JD is a very risky financial proposition, especially when you factor in bar passage.

• For law schools.  Because different law schools supply graduates into different modes (roughly tracking US News rank), it is indisputable that lower-ranked schools cannot continue to heap ever higher debt onto their students.  On the other hand, if you are Georgetown, NYU, Northwestern, Harvard, Columbia, et al., your current model works just fine.  The salary wars make this possible.    Yet, 50 to 75 other law schools raising tuition in order to buy their way into the Top 15 is a classic positional competition--and it is socially harmful, with our students bearing the cost.  As legal educators, we can do better.

• For law firms. The second mode keep moving to the right because too many law firms refuse to reconsider their business model in light of a continuing surge in demand for corporate legal services.   All these firms want Harvard, Columbia, Chicago graduates, etc. and, if necessary, Illinois (top 25%),  Indiana (top 15%), Marquette (top 10%), etc.  If legal education worked like any other market, Northwestern would be merging with Cardozo, exploiting Cardozo's capacity and location and leveraging Northwestern's brand.  But law schools are maximizing prestige, not output or profit.  Such a merger would be dilutive or break-even at best for the higher ranked school.

There is a lot of commodity corporate legal work on there; why not bow out of the salary wars, ratchet down the hours to 1800, take work on a flat fee arrangement, focus on better/faster service (thus increasing margins on the flat fees), and literally feast on the human capital willing to take a job in the "death valley" range (i.e., ~$80,000 per year), especially if the hours are sane.  The client gets quality and cost predictability, and the well-managed firm can make a lot of money.  This is a great opportunity for a firm willing to rethink its business model. Larry Ribstein's publicly held law firm would be all over this. But any established large firm willing to think outside the box could do it.

Comments

[Sam Kamin]

Bill --

That really is an amazing distribution. Thanks for bringing this to our attention. I suppose the left side of the distribution is the starting salary of public defenders, prosecutors, and public aid lawyers. If you're right that their starting salaries are barely tracking inflation, I wonder if we can expect to see a dip in the qualifications of those going into public sector jobs out of law school. For a long time, graduates who had much higher paying alternatives have gone to the PD or the DA because the experience was great and the sense of well-being they got from doing good went a long way. As law school tuitions -- and loan burdens -- continue to grow faster than inflation, however, the gap in salary may become too much to overcome.

[Michael]

Wonderful post, and very interesting information. As a potential future law student I find the information quite helpful.
I know that the outsourcing of commodity work to smaller markets has become more common- do you think that this trend might continue and serve to even out that death valley area in the middle?

Law schools seem very unlikely to stop the increase in tuition, even with this knowledge. I suppose in part it may be that even a lower ranked school wants to maintain the perception that students can graduate and make large amounts of money in top markets and that they prepare students to do so.

[Matt]

The majority of the salaries from the "left" side, come from Insurance Defense and personal injury attorneys, sadly, NOT from PD, DA or Public Intrest. The majority of law school graduates (from the thousands of graduates in NYC, not from NYU, Columbia or Cornell) are forced to work in that field, which starts around $45-$50K, with $5K raises each year. Do to the saturated market in big cities, this is all that is left. Except, of course, for unemployment which many new attorneys are experiencing in major cities. Sadly, again, even fellow attorneys (those from high ranking schools or practicing for several years) are oblivious.

[Jeff Yates]

(cross posted on Voir Dire Blog) Bill notes that this phenomena has important implications for law students, law schools, and law firms. I would add that it may have implications for public perceptions of attorneys and how much they earn relative to others, especially those who take a different professional degree path (e.g. M.D.s, MBAs, Ph.D.s etc.). I think that it would be interesting to compare this distribution to the other programs’ graduates’ salaries.

Is the conventional notion that “lawyers make a lot (too much?) money” a very meaningful generalization given this “feast or famine” salary distribution? Keep in mind the outlay of tuition, effort, and lost income opportunities for three years that are involved in earning this degree (not to mention the relative difficulty of gaining admission). The costs are, typically, constant across degree earners, but the enhanced salary opportunities are not. Even the median salary for attorneys is not “accurate” or at least very meaningful for the massive number of graduates in the left mode.

It seems that we hear a lot about the attorneys in the right mode, but much less about attorneys (and their salaries) in the left mode. While highly ranked law schools’ graduates have excellent opportunities to place in the right mode (assuming that they wish to do so, at least to work off some law school debt), students in non-elite schools are essentially in a “lottery” for getting these high paying jobs (or perhaps even those jobs in the “death valley” area between modes), since such firms ordinarily only interview those in the top 10 to 15% in these law schools.

[P. Anonymous]

I think a large part of the problem is that students are choosing law school right out of college, before they have a reasonable understanding of the costs of adult life and the opportunities of the workplace. In a market-based system, you cannot fault schools for providing a product at a cost that people buy. The problem is, though, the buyers are uneducated. Some luck out and it works at the 145-160k range. Many do not.

But, if the schools choose not to follow the market imperatives and instead modify their admission standards to reduce the risk of students leaving school with debt that they cannot manage, they would go the way of business schools and emphasize prior work experience in the admission process. By taking an older, more sophisticated (economically) student body, it wouold most likely produce a better alignment of realistic expectations for salary and students ability to pay off debt.

[Loyola 2L]

Mr. Henderson,

This is a wonderful piece which should be published in many other sources. I loved your prior career placement article too, and eagerly await your ranking of law schools by career placement. Don't doubt how much law students appreciate the work you are doing to de-mystify post law school career prospects.

Loyola 2L

[Bill Henderson]

Loyola 2L,

You have earned quite a reputation on the Internet. I am putting your comment in my tenure file. Thanks, bh.

[anon]

A non-trivial portion of the first bump, of course, is those doing clerkships. Federal clerkships pay right around that bump - around 50K. If state clerkships are generally around that same bump - even if many are on the smaller end - then the 10% of grads that are included in this chart that are clerking play a big part in the bump, without necessarily sharing lasting financial difficulties.

[anon]

10:04, There's also an under-reporting problem. A lot of low paid law students don't respond to the salary surveys. One school is known for making it administratively difficult, for people who didn't get a job through OCI, to report salary information (OCI is where the top students get jobs.)

[David]

One would think that this sort of information would lead to a market correction. Lower-tiered schools should have enormous difficulty attracting students at high tuition rates. This should ultimately drive them to improve or leave the field.

I wonder if this does not happen not because students don't understand the tier system, but because nobody who applies to law school thinks they will be anything but number one in their class. In other words, are the students acting irrationally? The law schools are not (if they are in it for profit).

Also, the Illinois, Indiana, et al. students are making a great decision if they (a) cannot get into Harvard etc. and (b) can pay significantly reduced in-state tuition. I am an Illinois grad and only later realized how great leaving law school with $30,000 in debt (eleven years ago) was compared to so many others.

[Let's all be honest]

The message that needs to be conveyed clearly is that, outside the top 15 or so schools, attendance becomes an extremely risky proposition, especially where private schools are concerned.

Take Emory Law (or insert a private school of your choice outside the top 15-20: tuition approaching 40k a year, job prospects worse than its cross state rival UGA, and no placement power to speak of outside Atlanta for those outside the to 20%- this means that 4/5 of the class stand to graduate with six figure debt and no shot at making the big bucks...not great odds!

[Jake]

What about a place like Tulane, who USNEWs reports as having the highest median salary in the nation (with a small percentage reporting.) The school does not place better than everyone else, yet some poor future law student could be misled by these false figures.

At the same time Tulane places all over the nation, with a reach greater than the better ranking Emory. The school claims that over 1/3 of the attending students are offered $100,000+ jobs. Is Tulane's ranking off? Are they an anomaly? Is it all smoke and mirrors?

It is very difficult for a future student to wade through these numbers to figure out the facts.

[Busting UGA Troll]

Nice try UGA troll. Emory is ranked the same as GW at 22 so don't imply Emory is far outside of the top 15-20 metric you impose. Why don't you check out UGA's placement outside of Atlanta versus Emory's and tell me which one has the better placement.

[Anonymous]

I think it should also be pointed out that there is a self-reporting bias that may not be reflected in the chart: I would imagine graduates are more likely to self-report their income (since reporting is voluntary) when (1) they have a job and (2) they make more money. I also think some students may be inclined to report that they make more than they actually do.

Also, I attended a law school that claimed to have a high job placement rate with expected starting salaries matching almost any school in the country. I think these statistics were helped by the fact that the employment surveys were done right at graduation when the vast majority of those who even knew what they would be doing post-graduation were those with jobs at biglaw firms that they secured the prior summer, and their attendant high salaries. Those without jobs (or low paying ones) were obviously unlikely to report.

[joe]

I wish I had seen this before I started law school. As an unemployed recent grad with 90k in debt and waiting for bar results I just wish I could return my degree the way you return a pair of overpriced jeans you realize were a mistake.

[allen]

Most of the state clerkships are the equivalent of clerking for the local traffic court. They take tier 2 grads with less than stellar grades and these people have a nightmarish time getting a firm to hire them when their clerkship is over because everyone knows they didnt do anything impressive for the last years. Federal clerkships and the prestigious state clerkships are a minority of all clerkships. NJ couldnt even fill all their clerk openings 2 years ago.

[anon]

Joe hits right on the point. Too many students only begin to understand the job market generally and the law job market specifically after they have committed 3 years and tens of thousands in debt.

David's point about irrationality is part right too. The entering students just don't have enough life experience yet to have realistic expectations. Not really irrational, just uninformed, but looks like irrational behavior all the same. (it is entirely rational that an uninformed person would make a poor decision).

I also think that this same lack of information creates the conditions for the large exodus from law firms after year 3-4. They hit 27-28 years old, and like all 27-28 year olds, they realize a few things about life and need to change direction. Only now they have massive debt.

[Athena's Mom]

Am I the only person who entered law school not thinking about median salaries and the like?

In my view, law school gave me the knowledge and credentials I needed to enter into the profession. It was in no way a ticket to great wealth.

[Thinking about law school]

Professor Henderson:

Thank you for the insights on pay distribution and the report link. I wonder where academics fall in that range? I imagine it's somewhere in the "death valley" area; but, if you would be willing to provide some insight about legal academia, I would greatly appreciate it. Thanks in advance.

P.S. I'll be reading your SSRN articles on the LSAT later this evening.

[Bill Henderson]

No need to speculate:

http://www.saltlaw.org/EQ-Mar2007.pdf

[Thinking about law school]

Thank you!

[Law Student]

I'm curious about how the graph might look over time. Most of the law school graduates reporting high starting salaries will not stay in those positions for more than a few years. What do they end up making afterwards? In the end, is it substantially more than what those on the left of the chart above earn over the course of their careers?

I realize that law schools probably don't keep track of that kind of data, but it would be highly interesting to know.

[Emory]

Tisk Tisk UGA Buster...I'm not a UGA troll, or an Emory hater...my point, put simply, was that Emory is far outside the metric because it, and its non-elite private peers, unlike the elite schools, offer little chance to those outside the top 25% of making enough to justify the 150k plus debt load...ie., Emory law (and everyone below)is probably not a sound financial decision for 3/4 of the student it spits out each year...because most students could earn close to the average salary of its grads by simply entering the job market out of undergrad and excelling, with out incurring the debt.

UGA offers similar job prospects as Emory at 10k a year for instaters, and 28k for the few out of staters that go there, and thus, is not a much of an unsound dice roll...that's all.

[Alex]

Could you tell me whether that chart "corrects" for cost of living adjustments?

[Salil]

While I know Bill is aware it, the thing people haven't pointed out is the opportunity cost of law school attendance. Sure, $85K in debt is bad, but the unemployed law graduate also gave up the chance to build financial or human capital in another area.