Putting the Squeeze on Lawyers

A research paper on large law firm economics called “Are We Selling Resumes or Results” and a general interest in what’s happening to mid-size law firms converged this week. I was particularly struck by the “bi-modal” chart included in the first publication, which immediately made me think about the squeeze on the middle of the profession. If mid-size firms are breaking up, or being absorbed by larger entities, then it may be that salaries will align themselves with those types of firms as well.

The full text of Professor William Henderson‘s research paper, Are We Selling Results or Resumes:  the Underexplored Linkage between Human Resource Strategies and Firm-Specific Capital has a great deal of information on salaries at large U.S. law firms, based on American Lawyer Media research.  It’s a fascinating look at how different practice areas are bubbling up to the most profitable law firms, and the less profitable areas are going to the less profitable firms.  Funnily enough, many of these seemed to be the sorts of practice areas that solo and small firm practitioners are commonly in – real estate, trusts and estates, general business law.  It’s almost as if these areas escaped the orbit of the generalist end of the profession, embedded themselves in the larger (and smaller) end of the profession, and are returning now that the large firmis have found better ways to make money.  Interesting discussion with the article’s charts at the Empirical Legal Studies blog.

I was drawn to the bi-modal graphic, though.  It reflects that median law salaries are still around $62,000, according to NALP 2007 data.  But the median occurs just before there is a huge trough in salary – it peaks in the $40,000s, drops, then rises again in the $130,000s.  Why are so few law firms paying salaries in that middle range?  If the mid-size firm is disappearing, perhaps so are the mid-level salaries for starting lawyers.

The Times Online reported in June, citing research done by BDO Stoy Hayward, that the United Kingdom could expect 100 law firm mergers in the next 12 months.  That seems a remarkable level of activity, but the article suggests that 25% of “small” firms and 10-15% of “medium-sized” firms will look at merger.  If the number of firms is going to go down but the remaining firms will be larger, it would seem that the UK could be moving towards a shrinking middle like the U.S.

Canada doesn’t seem to be experiencing this trend yet, based on my own take of the Federation of Law Society statistics.  In 1995, there were 95 firms with 11-25 lawyers, 22 firms with 26-50 lawyers, and 23 with more than 50 lawyers.  These make up less than 4% of Ontario law firms.  Cut forward to 2006, there is some growth (141 11-25 firms, 30 26-50 firms, and 31 50+ firms) but they still make up less than 4% of law firms.  The number of lawyers at firms with 11-50 lawyers represented 14.5% of the profession in 1995 and 16% in 2006.  It would be interesting to know if salaries in Canada, which are not reflected in the American Lawyer Media research, would experience the same bimodal effect.