In some fascinating research by Joshua Holt of the BigLawInvestor site, data appears to show that when adjusted for inflation, Big Law first year salaries have only increased by 2.9% in the last ten years. Which raises the question: Is this due to more use of technology and the rise of legal process providers?
In fact, Holt found that when factoring in US inflation – which is essential if we’re to compare like with like – Big Law salaries in 2007 were substantially higher for first-year associates in America ($252,461 vs $205,000 today). The figures include the base salary and the annual bonus rate for each year. They are then adjusted to reflect ongoing inflation in the US economy.
As to the 2.9% increase from 2009 to 2019, this represents first-year associates on an inflation-adjusted basis and including the annual bonus in 2009 for a total of $199,136, compared to the same first-year associate in 2019, with total compensation of $205,000.
What does this mean?
The overall insight is that despite the current view that associate salaries are growing at an incredibly high rate – and it’s true that in the last couple of years they have jumped rapidly – when you take a longer term view and adjust for inflation, and factor in bonus levels, then there has been little growth in real terms over the last decade.
And, as Holt highlighted to Artificial Lawyer, junior associates back in the manic pre-crash days of 2007 were actually substantially better off then than they are now – in part due to larger bonuses driven by an overheated market that was just about to blow.
But, is this just a story of boom and bust? Or is there something else happening here? Have changes to the means of legal production had an impact as well? Here are some thoughts.
- Has more tech found its way into the work of junior lawyers over the last 10 years, in this case especially for US lawyers at large commercial firms? The answer has to be a strong: yes.
- Whether this is for improved legal research and KM assembly tasks; editing/redlining/proofing tasks; transactional review; or ediscovery-related tasks, there is more tech being used today than there was in 2009.
- Exactly how much is hard to quantify, but it’s clear from several years of market feedback that there is simply more tech-enabled work than before.
- In turn, over the last ten years there has been an increase in what we can call process providers (e.g. ALSPs, LPOs, ediscovery support centres, and law firms’ own process centres) and the use of paralegals, as well as greater use of on-demand paralegals/junior lawyers to deal with sudden surges in process work demand.
- This increase in specialised legal labour has taken on a notable amount of work demand that would otherwise have to go to law firm junior lawyers. I.e. it has sucked out some of the pressure on associate salaries.
- And we have also seen a steady increase among larger corporates to expand their inhouse legal teams – although how much tech these groups are using varies considerably. The main impact is simply a softening of junior associate demand as process work can be done more cheaply inhouse, as inhouse salaries are generally lower.
Overall, what this shows is that tech is likely playing a part, although it’s just one of several growing factors.
Artificial Lawyer asked Holt for his view. ‘It’s the base of the pyramid that is feeling the most tech pressure,’ he noted.
Interestingly, Holt added that what Big Law really wants is mid to senior associates. This means they have to ‘hire junior associates and train them, but it’s becoming increasingly difficult to justify the salary’.
One reason for the focus on mid to senior associates is that at this level they are generally seen as one of the most profitable fee earner groups, i.e. a solid charge out rate, coupled with a salary that has not yet reached partner levels, hence you can make more margin on ‘sweating the mid-level assets’ than other parts of the fee-earning mechanism as owners of a legal services business.
Another factor may perhaps be the massive supply of junior lawyers. Law schools are churning out young people with qualifications and massive debts. Many see a stint at Big Law firms as essential to help clear some of that debt before moving elsewhere, perhaps inhouse, or to a law firm with a less manic lifestyle.
This provides firms with a line around the block of people willing to take on the demands and pressures experienced at the base of the pyramid. But, it also creates an even longer line of people who can feed into legal process businesses and/or operate as paralegals.
To conclude, here are Holt’s additional thoughts on the subject:
‘What I think has been happening is that there is more pressure to keep the first-year associate salaries ‘lower’ as those cause the sticker shock with clients and generate the headlines, whereas the market has made it harder to keep mid and senior associates employed at law firms so those salaries have risen substantially faster proportionate to junior associate salaries.
The tech makes it easier to offload work that would previously have been handled by a junior associate, which in turn puts pressure on keeping first-year associate salaries low because clients aren’t willing to pay for ‘on the job training’. However, once those junior associates have developed skills as they transition to mid and senior level associates, they are being compensated more to take over the process of managing both the new tech tools and the junior associates.
‘I’m sure technology has played a role in why first-year associate salaries have only risen 2.9% on an inflation-adjusted basis over the past 10 years.’
What do you think? And if tech is really now having an impact on associate salaries will its effects grow stronger?