New Lawyer Salaries and the Creation of the Bimodal Salary Distribution, 1991 to 2011

The NALP Bulletin has a really fascinating essay on the history of the salary distribution of new lawyers from 1991 to 2011. It’s only three pages long, and it’s worth a close look: It has very interesting stats on the history of the bimodal distribution of entry-level salaries.

The essay explains that back in 1991 to 1996, the salaries of freshly-minted lawyers followed something like a bell-curve distribution. Big-firm salaries were at the top, but there was no one fixed number and salaries at other firms had salaries somewhat below the big-firm salaries. I was a 2L summer associate in 1996, and this matches my recollection: The salaries for first-year associates at big firms were $86,000 in New York, $74,000 in DC, and other amounts in the $60k-$75k range in other markets. These salaries seemed sky-high to us law students at the time, but compared to the numbers today they weren’t that much over the median of all entry-level lawyers. According to the NALP survey, the median of all entry-level associates in 1996 was $40k while the biglaw median was $72k. Adjusting for inflation to 2012 dollars, that’s a difference between a median of about $58.5k for all entry-level lawyers and $105.3k for associates at large firms.

That changed by 2000, when the push to increase salaries as part of the Internet boom ended up pushing salaries at big firms in all markets to $125,000. The familiar bimodal distribution emerged quickly, with the standard salary of big firms of first-year associates in all markets hitting $160,000 by 2007-2009. From 2007 to 2009, the right-hand peak of the bimodal distribution grew and the left-hand peak shrank:

In the three years that followed — 2007, 2008, and 2009 — the right-hand peak shifted to $160,000, accounting for 16%, 23%, and 25%, respectively, of reported salaries. Meanwhile, the $40,000 – $65,000 peak shrank, accounting for 44%, 42%, and 32%, respectively of reported salaries.

But then things changed for the Class of 2010:

Things began to change in 2010, when the recession more fully impacted law firms, affecting the Class of 2010 in many ways, including a marked shrinking of summer classes in 2009. This resulted in the right-hand peak eroding back to 18% of reported salaries, and the left-hand peak bulking up to almost half (48%) of reported salaries. The erosion continued in 2011, with $160,000 salaries accounting for 14% of reported salaries, and $40,000 –$65,000 salaries accounting for over half (52%) of reported salaries.

With the market for new lawyers so bad, why haven’t salaries at the big firms dropped? Over at the NYT Economix blog, Catherine Rampell suggest that entry-level salaries are “sticky” because firms see those salaries as an indicator of status. Also, firms have effectively lowered salary costs by increasing the numbers of lower-paid non-partner-track attorneys and sharply cutting back the number of highly-paid associates:

[L]aw firms have been reluctant to lower their starting pay for these first-year associate slots, partly because they worry they’ll miss out on the best talent (even though that seems to be abundant) and partly because they are afraid of losing face. Not paying the standard top-tier salary is a tacit admission that you’re no longer top-tier.

Lawyers are by training (and nature, one might argue, given the choice to go to law school) risk-averse. Because no one wants to be the first mover in lowering that entry-level salary, firms have kept the salary and just hired fewer new lawyers.

It’s the perfect example of a “sticky wage” depressing employment, even though the “sticky wage” concept usually applies to jobs that people already have, not jobs they’re applying for. . . .

The growth in that left-side hump reflects not only fewer $160,000 jobs, but also the creation of new second-tier, nonpartner-track jobs.

Orrick, for example, hired a bunch of lawyers for new nonpartner-track jobs at its hub in West Virginia at salaries around $60,000. These lawyers perform a lot of the same kind of work that their $160,000 counterparts used to, but at lower cost to the firm (and to clients).