I am working on a series of interrelated projects on law firm economics. In my research, I recently ran across an interesting NALP data release on median associate salaries by year and firm size (2007 income). To visualize the data, I generated the trend chart below [click to enlarge]. As the saying goes, a picture is worth a 1,000 words.
The median salary spread for a 1st year associate at a 2 -25 lawyer firm versus
a 500+ firm is $77,000. When the reference group is a 51-100 lawyer law firm versus
500+, the differential is still a substantial $55,000 per year. Cumulatively, for all eight years of the associate track, the spread amounts to $631,000 for 2-25 vs. 500+ lawyer firms and $524,000 for 51-100 vs. 500+. In other words, the bimodal distribution discussed in an earlier post appears to hold fairly steady during the first several years of a young associate's career. In fact, most 8th year associates at firms smaller than 250 lawyers are making less than a 1st year associate at a 500+ lawyer firm.
Before readers (especially students) anchor on the dollars, it is worth asking whether the smaller paychecks translate into substantially fewer hours and a better work/life balance. There are two fairly good sources of data to address this question: (1) the After the JD Project, and (2) an ABA Young Lawyers Division Survey. Both of these datasets were compiled with the help of researchers from the American Bar Foundation. A related resource is the Young Associates in Trouble essay/study, which I c0-authored last year with David Zaring (Wharton). One of our central insights, amply supported by data, was the large variation in work environments among large law firms.
Graphics from these studies appear after the jump.
The chart below, which is from the After the JD Project, suggests a median differential of 2.74 hours per week for lawyers in 2-20 lawyer firms versus 250+, or 137 hours per year.
With the exception of geography (the researchers opted to focus on
particular markets that roughly matched proportions of
large, medium, and small markets), the AJD is a large random sample of
law graduates who passed the bar in 2000 (94% were class of
2000). The response rate is high (71%), which reduces the potential for non-respondent bias.
But it is important to remember that this data reflects lawyers in their second year of practice, which is likely to understate the hours differential. Presumably attrition is going to bite hardest on those with lower hours, since associates with lower hours may be on the short end of the internal labor market within firms (i.e., their services are in less demand by partners). As a group, 7th year associates probably bill more than 2nd year associates--not necessarily because they are sprinting to partnership (which they might)--but because they have survived at the firm for seven years precisely because they are in demand by partners. Unfortunately, the hours of fourth, five, sixth, and seventh year associates are not part of the calculations in the above table. Further, one of the limitations of the AJD study is the lumping together of all firms over 250 lawyers (which I address below).
The ABA Young Lawyers Survey, which is based on data from 2000, is a geographically representative sample of lawyers in the Young Lawyers Division. The response rate is lower (41%), and (per the methodology appendix) younger lawyers may have been slightly more likely to have responded. But the Survey includes associates at all levels of experience. The hours by firm size are summarized below [click on to enlarge]
Obviously, the propensity toward long hours is much greater at larger law firms, with 46.8% working at least 60 hours per week. Indeed, only 12.9% of the associates in 200+ law firms are working less than 50 hours per week--and it is fair to ask whether this is a group that is most likely to leave anyway, either because they have no interest in the "tournament of lawyers" or the internal labor market for their services is drying up. Moreover, we once again should wonder 200+ lawyers is the proper place to draw the line on what constitutes a large law firm.
But the bottom-line is this: 60 hours is a long workweek. For many people, eights years of this pace may not be worth the $631,000 (2-25 lawyer shop) or $524,000 (50-100 lawyer firm) pay differential. After all, these years are the prime of many lawyers' lives. Solving this work-life balance issue is the holy grail for this up-and-coming generation of young lawyers. On the one hand, this effort seems quixotic. On the other hand, as Wayne Gretzky used to say, you miss 100% of the shots you never take. On one level, we can all admire the temerity of youth.
Because marginal hours in excess of 50 (or 60) hours per week indisputably affect a lawyer's private life--family, friends, hobbies, exercise, volunteer work, etc.--perhaps it is no surprise that firms must pay a very high premium to control these few remaining marginal hours.
It is worth noting that many lawyers in smaller firms end up earning a comfortable living (e.g., in my recent ISBA survey, a median partner in a 2-5 lawyer firm in Indiana makes $112,500 per year and works approximately 49 hours per week; the 75th percentile earns $162,500 per year; the 90th, $225,000). For many young lawyers (but not all), patience and careful planning may be the best route to a practice setting that provides financial rewards, interesting work, and sustainable work/family balance. I encourage my students to keep their eyes open and take charge of their careers, starting now, while in law school.
Finally, it is worth questioning the common perception that all large law firms are harsh places to work. In our Young Associates in Trouble essay, which tapped into the Am Law Mid-Level Associate data, David Zaring and I found that the most elite law firms (we used the Vault Top 10) have significantly longer hours than the typical Am Law 200 law firm (61.6 versus 55.6 hours per week).
In the table below [click on to enlarge], several firm attributes are ranked on a 1 (bad) to 5 (good) Likert scale. Obviously, elite law firms pay more money and offer more prestige--but at the price of less desirable working conditions.
This table also shows that elite firms are disproportionately staffed by elite law school graduates. In other words, students with the most options often opt for prestige and money. Perhaps it is because Wachtell, Cravath or other elite shops rarely hire lateral associates. "Why not give it a try?," many law students reason. "It won't hurt my resume two years from now when I want out." Because the popular press is often fixated on Harvard, Yale and Stanford grads, etc, it is easy to get a distorted picture of life inside a large law firm.