Will Lawyers' Employment Prospects Ever Pick Up? Forum

[sf_39]

I don't think anyone can say it will or won't with a high amount of certainty. The economy is complicated, things change so quickly for the better or the worst. And I'm not just saying "o we'll get out of the recession" kind of thing but technology changes, industries change, and the world changes.

Frankly in law and many other industries there have always been times where the hiring trends have shifted and people have predicted this is the status quo. Sometimes they've been right, sometimes they've been wrong. Even the best economists tend to be wrong a heck of a lot because there's so many variables that affect how things will play out.

OP it's not the answer you want obviously. My opinion is that I think there isn't enough evidence to say with confidence the recent structural changes in the legal market will be a long term change that keeps hiring trends at roughly the current rate. That's based on my own research I've done. I could quite likely be completely off on my assessment. Nobody's ever going to prove something will definitely happen so OP you got to make your own call by doing your own legwork on the potential future legal market and how much risk in your life you're willing to take on.

[Monochromatic Oeuvre]

I mean, how do you feel about a profession where one of the top 10 competitors just laid off around 10% of its workforce when it has a profit margin in the high 30s and partners that take home somewhere in the neighborhood of $2M apiece? A profit margin of 37% or whatever was terrifyingly low to Weil because it sees its peer firms between the high 40s and low 60s. Industries with competitive markets don't have profit margins anywhere near that--show me an industry where dozens and dozens of businesses make a profit margin above 25%.

Law firms collude. Flat-out. I don't know if it rises to the level of illegality, but it makes them much more hesitant to raise associate pay than they would otherwise be if they were operating independently. Second or third-year associates in V10 firms generate in the ballpark of $1M revenue for their firm. They get back, what, 20% at most? Overhead is tiddlywinks compared to how much goes straight in the partners' pockets. There's very little middle ground in firm pay; you have a lot of associates under six-figures of debt who live middle- or lower-middle class lives, and you have partners, even the lesser of whom make gobs and gobs of money.

[guano]

I mean, how do you feel about a profession where one of the top 10 competitors just laid off around 10% of its workforce when it has a profit margin in the high 30s and partners that take home somewhere in the neighborhood of $2M apiece? A profit margin of 37% or whatever was terrifyingly low to Weil because it sees its peer firms between the high 40s and low 60s. Industries with competitive markets don't have profit margins anywhere near that--show me an industry where dozens and dozens of businesses make a profit margin above 25%.

Law firms collude. Flat-out. I don't know if it rises to the level of illegality, but it makes them much more hesitant to raise associate pay than they would otherwise be if they were operating independently. Second or third-year associates in V10 firms generate in the ballpark of $1M revenue for their firm. They get back, what, 20% at most? Overhead is tiddlywinks compared to how much goes straight in the partners' pockets. There's very little middle ground in firm pay; you have a lot of associates under six-figures of debt who live middle- or lower-middle class lives, and you have partners, even the lesser of whom make gobs and gobs of money.

1) define profit margin
2) parallel actions =/= collusion; see game theory for details
3) 2nd and 3rd year associates don't generate shit for their firm. They perform labor, for which they are royally compensated. Other than sports, music and movies, name one industry where a first year can make 6 figures and a third year can earn close to a quarter million dollars

[ScottRiqui]

3) 2nd and 3rd year associates don't generate shit for their firm. They perform labor, for which they are royally compensated. Other than sports, music and movies, name one industry where a first year can make 6 figures and a third year can earn close to a quarter million dollars

Is producing billable hours not "generating"? I don't see it as being fundamentally different from workers making widgets that their employers then sell at a profit to customers.

[guano]

3) 2nd and 3rd year associates don't generate shit for their firm. They perform labor, for which they are royally compensated. Other than sports, music and movies, name one industry where a first year can make 6 figures and a third year can earn close to a quarter million dollars

Is producing billable hours not "generating"? I don't see it as being fundamentally different from workers making widgets that their employers then sell at a profit to customers.

That's not generating revenue, it's creating product - the people selling the product are the ones generating revenue.
But, ignoring that, typical factory workers make, what, $50-$80k? Partners at the most profitable law firms make on average about 15 times what first years make. At a factory, 15 times that $50k would be equivalent to $750k. How much do executives at Fortune 500 companies earn?

[Samara]

I mean, how do you feel about a profession where one of the top 10 competitors just laid off around 10% of its workforce when it has a profit margin in the high 30s and partners that take home somewhere in the neighborhood of $2M apiece? A profit margin of 37% or whatever was terrifyingly low to Weil because it sees its peer firms between the high 40s and low 60s. Industries with competitive markets don't have profit margins anywhere near that--show me an industry where dozens and dozens of businesses make a profit margin above 25%.

Law firms collude. Flat-out. I don't know if it rises to the level of illegality, but it makes them much more hesitant to raise associate pay than they would otherwise be if they were operating independently. Second or third-year associates in V10 firms generate in the ballpark of $1M revenue for their firm. They get back, what, 20% at most? Overhead is tiddlywinks compared to how much goes straight in the partners' pockets. There's very little middle ground in firm pay; you have a lot of associates under six-figures of debt who live middle- or lower-middle class lives, and you have partners, even the lesser of whom make gobs and gobs of money.

Wat

Apparently, you've never heard of Jack Welch.

Show me a business model where the low-level employees are paid equal to the revenue they generate and I'll show you a failing company. This is how businesses work.

[ScottRiqui]

That's not generating revenue, it's creating product - the people selling the product are the ones generating revenue.

Okay, that makes sense. I agree with you in principle, although I still don't think it's wrong to think of producing labor or product as "generating", because without the labor/product, there's no revenue at all.

If I run a landscape company, and I pay my crews $50 for a job, and charge the client $100 per job, I don't think it's wrong to say that a particular crew "generated" $15,000 in gross income for me if they did 300 jobs in a given year.

But again, that's just semantics - I don't disagree with you on any substantive level.

[jkay]

typical factory workers make, what, $50-$80k?

Sweet mother of god.

[09042014]

Dingbat, that's a weird way to use generating revenue that really ends up meaning nothing.

[ScottRiqui]

Dingbat, that's a weird way to use generating revenue that really ends up meaning nothing.

I'm assuming you meant me, since I don't think dingbat's posted here. I don't think it's weird at all. Corporations frequently talk about particular divisions/departments within the company as being "money losers" or "generating revenue", so I disagree with your idea that only the people at the very top are "generating".

Simply put, if the products/labor coming out of a division allow the company to make more revenue than it takes to staff/run the division, then the division is generating profits for the company. I don't see how I'm misusing "generating".

[Samara]

Guano, is your favorite movie Glengarry Glen Ross?

[09042014]

I though guano is dingbat, have I been wrong?

[Samara]

I though guano is dingbat, have I been wrong?

You are correct.

[ScottRiqui]

I though guano is dingbat, have I been wrong?

Ah, never mind then. You may be right; I'm woefully ignorant about alts here.

[09042014]

I though guano is dingbat, have I been wrong?

You are correct.

I appreciate he kept a theme with his name change. Solid move on his part.

[guano]

Guano, is your favorite movie Glengarry Glen Ross?

I though guano is dingbat, have I been wrong?

[stillwater]

Guano, is your favorite movie Glengarry Glen Ross?

I though guano is dingbat, have I been wrong?

yo batshit, are you going to make a bold return to the legal community?

[guano]

Guano, is your favorite movie Glengarry Glen Ross?

I though guano is dingbat, have I been wrong?

yo batshit, are you going to make a bold return to the legal community?

I don't know. I keep thinking about it. Maybe.

[resilience99]

Legal employment will improve; however one of two things will get improvement going.

Option 1:the market will fix itself, which is what is happening now, reduced enrollment and overall slow economy growth. This process will likely take a toll on non-big law attorney salaries, and in the process lots of student loans unpayable.

Option 2: The ABA steps in and increases bar pass rates by penalizing law schools with low rates which forces them to either shut down or take quality applicants. This is the better option because it will likely result in many TTT and TTTT shutting doors, also increasing the current value of a law degree.

[stillwater]

Legal employment will improve; however one of two things will get improvement going.

Option 1:the market will fix itself, which is what is happening now, reduced enrollment and overall slow economy growth. This process will likely take a toll on non-big law attorney salaries, and in the process lots of student loans unpayable.

Option 2: The ABA steps in and increases bar pass rates by penalizing law schools with low rates which forces them to either shut down or take quality applicants. This is the better option because it will likely result in many TTT and TTTT shutting doors, also increasing the current value of a law degree.

okay, absolutely no chance of the latter considering the ABA accreditation board is make up of the lords of TTTs/TTTTs

[Monochromatic Oeuvre]

I mean, how do you feel about a profession where one of the top 10 competitors just laid off around 10% of its workforce when it has a profit margin in the high 30s and partners that take home somewhere in the neighborhood of $2M apiece? A profit margin of 37% or whatever was terrifyingly low to Weil because it sees its peer firms between the high 40s and low 60s. Industries with competitive markets don't have profit margins anywhere near that--show me an industry where dozens and dozens of businesses make a profit margin above 25%.

Law firms collude. Flat-out. I don't know if it rises to the level of illegality, but it makes them much more hesitant to raise associate pay than they would otherwise be if they were operating independently. Second or third-year associates in V10 firms generate in the ballpark of $1M revenue for their firm. They get back, what, 20% at most? Overhead is tiddlywinks compared to how much goes straight in the partners' pockets. There's very little middle ground in firm pay; you have a lot of associates under six-figures of debt who live middle- or lower-middle class lives, and you have partners, even the lesser of whom make gobs and gobs of money.

1) define profit margin
2) parallel actions =/= collusion; see game theory for details
3) 2nd and 3rd year associates don't generate shit for their firm. They perform labor, for which they are royally compensated. Other than sports, music and movies, name one industry where a first year can make 6 figures and a third year can earn close to a quarter million dollars

1. Profit/total cost. Or however else it's defined by those who are compiling the statistics. Is there some doubt as to what it means apart from the very minor discrepancies between profits and partner compensation, when regarded as a percentage of what partners do eventually take home?

2. It's fine if you don't want to call it "collusion" when there isn't strong evidence of outright agreements not to increase associate pay, but perhaps it would be better defined as "business dynamics created by the firms themselves who maintain an oligopoly on access to corporate clients or others with the means to sustain a practice, which winds up compensating associates far less than if they operated in a marketplace governed by orthodox economic principles in which the compensation to an actor approaches the net profit that actor generates." Would that be better? It conveys the same point as to why associates receive such a low percentage of what they generate.

3. Obviously they do if they're being billed at $500/hour. Yes, it's more than the stand-alone value they would generate if they didn't work with partners, but even in the absence of partner assistance the associates are still generating substantial value. Also, the fact that other industries are nowhere near as profitable as Biglaw, and therefore can't afford to compensate BA holders to the same extent, is not consequential to the argument of whether or not there is a maldistribution of wealth within Biglaw and, if so, how to remedy it.

Apparently, you've never heard of Jack Welch.

Stack ranking is pretty much the exact opposite of the lockstep system associates operate in, as a group. Having a second tier which you can only access via sufficient seniority is an entirely different model than a merit-based system in which an employee's compensation approaches his or her generated marginal revenue.

Show me a business model where the low-level employees are paid equal to the revenue they generate and I'll show you a failing company. This is how businesses work.

The pay does not ever become exactly equal, due to the necessity of economic profits (profits - opportunity cost) to remain above zero. But in a standard free market, it does tend toward it, particularly when a firm can't generate revenue outside of human capital.

[Samara]

You were criticizing Weil for layoffs while maintaining high profit margins. I was showing that that happens all the time. Actually, I think the Welch model is pretty similar to what biglaw does. Partners are the A executives, the rotating crop of associates are the B executives, and people who get pushed out early are the C executives. And you only get 7 or so years to prove you are an A executive.

Further, even the most profitable companies cut divisions that aren't profitable. The Weil layoffs weren't across the board, they were limited to offices/practice areas that failed to or stopped turning a profit that justified their expense.

[Monochromatic Oeuvre]

You were criticizing Weil for layoffs while maintaining high profit margins. I was showing that that happens all the time. Actually, I think the Welch model is pretty similar to what biglaw does. Partners are the A executives, the rotating crop of associates are the B executives, and people who get pushed out early are the C executives. And you only get 7 or so years to prove you are an A executive.

Further, even the most profitable companies cut divisions that aren't profitable. The Weil layoffs weren't across the board, they were limited to offices/practice areas that failed to or stopped turning a profit that justified their expense.

Okay, fair. I didn't intend to insinuate that I was criticizing Weil in particular, just that it's emblematic of the state of the industry. The more important point to take away is if Weil can make those cuts, anyone can, so associates shouldn't count on maintaining a job for even five years with 100% certainty.

I see your point about the Welch model. I'd argue that it doesn't operate within the GE system, where reviews were done annually. If Biglaw did that, a second-year associate could be on the partner track, which makes it less like the system, but meh.

And yes, the cuts were concentrated it what we believe to be the unprofitable divisions of Weil. Just wanted to emphasize that it carries an extra risk when the current hiring model makes transitioning to a peer firm so difficult, even if an associate wasn't fired for cause. So the Weil associates that were fired are probably screwed. But c'est la vie.

[Samara]

You were criticizing Weil for layoffs while maintaining high profit margins. I was showing that that happens all the time. Actually, I think the Welch model is pretty similar to what biglaw does. Partners are the A executives, the rotating crop of associates are the B executives, and people who get pushed out early are the C executives. And you only get 7 or so years to prove you are an A executive.

Further, even the most profitable companies cut divisions that aren't profitable. The Weil layoffs weren't across the board, they were limited to offices/practice areas that failed to or stopped turning a profit that justified their expense.

Okay, fair. I didn't intend to insinuate that I was criticizing Weil in particular, just that it's emblematic of the state of the industry. The more important point to take away is if Weil can make those cuts, anyone can, so associates shouldn't count on maintaining a job for even five years with 100% certainty.

I see your point about the Welch model. I'd argue that it doesn't operate within the GE system, where reviews were done annually. If Biglaw did that, a second-year associate could be on the partner track, which makes it less like the system, but meh.

And yes, the cuts were concentrated it what we believe to be the unprofitable divisions of Weil. Just wanted to emphasize that it carries an extra risk when the current hiring model makes transitioning to a peer firm so difficult, even if an associate wasn't fired for cause. So the Weil associates that were fired are probably screwed. But c'est la vie.

Absolutely. The larger point is that even biglaw is not safe and you should always be prepared for getting canned.

[09042014]

You have to factor in that the partners aren't just equity holders, they are employees too. Their profit is their compensation for the work they do too. So the profit margin is higher than a corporation would be because a corporation would be paying these partners millions in salaries and bonuses like banks do. So instead of it being profit, it'd be an expense. But really it's the same thing.