More on Global Cities and Labor Market for Lawyers

My fascination with Global Cities continues.  As I noted in an earlier post, Global Cities are centers of international commerce that are defined by concentrations of advanced producers services--i.e., bankers, accountants, consultants, advertising executives, and, of course, lawyers.  As it turns out, a globalizing ecomomy has two geographic effects that move in opposite directions : (1) the decentralization of production, as companies piece together the most cost-effective way (often through elaborate subcontracting) to make and distribute their goods; (2) a  geographic centralization of corporate strategy functions to control more sophisticated global operations.   

Because of the complexity, scale, and stakes of most global ventures, hiring outside counsel is increasingly a matter of expertise (and value) rather than per-hour billing cost.  This expertise can only be acquired through exposure to a large volume of high-end matters.  Hence, a disproportionate amount of the most sophisticated U.S. legal work is performed in a handful of global cities.  And to access this human capital, firms (and ultimately clients) are willing to absorb labor and real estate costs that rapidly outpace inflation.   Although many Fortune 500 have exited these same high cost markets, agglomeration provides significant synergies for advanced producer services. 

Here is a graphic that summarizes the Top 10 U.S. markets in terms of growth of corporate lawyers.  The MSAs in green are global cities under virtually all the competing methodologies; the  other five metropolitan areas are on the cusp. [click on chart to enlarge]

Below the fold are additional graphics that show how these numbers appear to be trickling down to law students evaluating their future employment prospects.

Assuming that more lucrative high-end legal work is flowing to the larger markets, it is reasonable to expect that corporate lawyers in larger markets generate higher revenues-per-lawyer (RPL).  This table summaries RPL for Am Law 200 lawyers by marketplace (weighted by number of individual firm lawyers in each market):

As this chart shows, the typical corporate lawyer in the non-Global Midwest generates approximately $300,000 less in fees per year than his NYC counterpart.  If legal services in this market space were fungible, this gap would be much smaller due to arbitrage opportunities.

Obviously, Global Cities are excellent places for aspiring lawyers who want to acquire human capital that will eventually command a market premium.  Thus, if law schools in large markets offer a better entree to high-end corporate practice, we might expect, all else equal, higher demand for admission into these law schools.  A good proxy for market demand is the spread between the 25th and 75th LSAT percentile for entering students because, on balance, law schools favor students with higher scores in order to maximize their US News ranking.   Overall, we would expect schools with higher demand to have smaller 25/75 differentials.

This last table, which presents weighted averages (by JD enrollment) of OCI activity (from data in The National Jurist, Sept. 2005) and 25/75 LSAT differentials by USN tier,  is completely consistent with this hypothesis:  (1) law students attending schools in Top 10 legal markets have more OCI interview opportunities; and (2) it appears that the schools in these regions have the luxury of admitting more students with marginally higher LSAT scores.  This data corroborates earlier findings by Henderson & Morriss (2006) on the important of regional labor markets in attracting well-credentialed applicants.

Note the OCI activity for the Top 16 are roughly equal--plenty of OCI interviews for everyone.  (I separated out these national law schools because they have remained in the Top 16 since the first USN ranking in 1987.)  Outside the Top 16, proximity to elite corporate employers clearly increases a student's probability of getting an interview.   In other works, there may be a market efficiency and rationality that transcends US News rankings--at least for the majority of students who do not attend national law schools.

For those readers interested in the growing importance of Global Cities in the world economy--in my opinion, a great theoretical framework for understanding globalization generally--here are some great resources:

• Saskia Sassen, The Global City (Princeton 2001) (Univ of  Chicago Sociologist who  is the leading the Global Cities theorist).

• Neil Brenner & Roger Keil, eds., The Global Cities Reader (Routledge 2006) (outstanding anthology that draws upon several disciplines).

• Mark Abrahamson, Global Cities (Oxford 2004) (excellent primer that deftly combines economic and cultural facets of Global Cities).

• Saskia Sassen, ed., Global Networks, Linked Cities  (Routledge 2002) (excellent edited volume that captures the competing methodologies for defining Global Cities).

Comments

[William Henderson]

Gordon Smith asked "why these cities" as centers of legal expertise rather then, say, Boulder or Madison?

I try to answer that question here:

http://www.theconglomerate.org/2006/08/global_cities.html

[Gary Rosin]

Did you test to see if there is further intra-tier stratification as among "global cities" and the other Top 10 MSAs?

[D. Daniel Sokol]

I imagine this means that over time, the rankings of the US News will shift to schools that are located in these global cities. If this theory holds, we should expect to see a much weaker showing by schools in the Midwest by the time the 2027 rankings hit the stand.

[William Henderson]

Gary,

I had not thought about that. Here are three educated guesses:

1) Schools in the Top 16 in the "tail". There are comparable fewer students with 168 and 169 compared to 158 and 159. So for Top 16 scores, the 75th scores will tend to be higher.

2) Schools in the Top 16 are at the top of the heap and can afford to do more whole-person reviews after the median LSAT is locked in.

3) Lots of students apply to schools in both Tier 1 and Tier 2. If a student fails to get into a Tier 1 school, the next best shot at BigLaw employment is a Tier 2 school in a major market.

All this theories, of course, are mere speculation.

[Gary Rosin]

Nice work, Bill.

I see that, for each tier, schools in Top 10 MSAs have lower mean interquartile ranges (IQR) than other schools in that tier. What I find interesting is the differences in the mean IQR of Top 10 MSA schools as between tiers. The lowest mean IQR is for Tier 2,and the highest mean IQR is for Tier 1. Does your analysis suggest why that might be so?