Thursday, September 22, 2005

What About The Hours?

by Tom Bozzo

Via Conglomerate, here are some interesting historical data points on starting salaries for New York lawyers:
Conglomerate: Law Firm Salaries: Danny Sokol, who is here at Wisconsin as a Hastie Fellow, pointed me to this interesting passage from Marc Galanter & Thomas Palay, Tournament of Lawyers 24 (1991):
Starting salaries at the largest New York firms were uniform; the ‘going rate’ was fixed at a luncheon, attended by managing partners of prominent firms, held annually for this purpose. Salaries rose from $4,000 in 1953 to $7,500 in 1963. The era of the arranged ‘going rate’ and incremental raises ended abruptly in 1968 when the Cravath firm unilaterally raised salaries to $15,000 from a scheduled going rate of $10,500.
Just for fun, Danny adjusted the value of $4,000 in 1953 to present-day dollar[s] using the Consumer Price Index and came up with $27,840.02 (or $29,423.22 here). Kaimi Wenger, who just left Cravath for academe, tells me that associates at Cravath now start at roughly $125,000 per year and receive a bonus of around $15,000.

I got the larger figure converting the 1953 starting salary to 2005 dollars using the BLS CPI calculator.

A couple things are notable. First, when cartels work, they can work big, supposing Cravath's '68 adjustment to have moved pay in the direction of, but not in excess of, the value of the first year associates' marginal products. Another is how "real" (inflation-adjusted) salaries have changed since Cravath broke away from the salary-fixing cartel. Also using the CPI calculator, the 1963 salary converts to about $48,150 in 2005 dollars; the 1968 "going rate" converts to $59,220 now, with the 1968 post-cartel salary at Cravath worth $84,600.

From 1953 to 1963, then, the inflation-adjusted "going rate" increased by about 5% per year. The increases decelerated slightly, to 4.2% per year, up to 1968, at which point there was a one-shot 43% increase, at least at Cravath. (Q: when Cravath finked, did the other firms immediately follow suit?) Since then — it's been a long time since 1968 — the annual average increase in the "real" starting salary is only 1.37% (based on $140,000), or 1.06% p.a. excluding the signing bonus.

A commenter at Conglomerate wonders what the hours were like in 1968. So do I. The going rate itself, I'd assume, was rationalized in part as dues-paying en route to nice houses in Scarsdale and membership in clubs where the martini glasses were properly chilled and the staff would discreetly get members to their trains in the unfortunate event of overindulgence. (*) I'd think of the fifties and sixties work culture as being, by and large, less demanding of open-ended commitments of time to the office gods than at present — at least in theory, as I also believe that digital time-sucks give present-day employers who value maximum time-at-desk above all else their marginal productivity comeuppance — but I don't know to what extent law firms led or followed the broader phenomenon.

The hours question also bears on how well this group of young New York lawyers have done. As unexceptional as 1.37% real annual raises might seem, it's something like twice the increase, after inflation, of the wages and salaries component of the Employment Cost Index for white-collar workers over the last couple decades. (Yes, overall wage growth has sucked.) It's not so great, though, if they're being lashed to their desks to the tune of a few hundred extra hours a year versus their sixties predecessors.

(*) I'm thinking of "Harold Lampson," Jack Lemmon's attorney in How To Murder Your Wife, here. The first act of that movie makes it look really, really good to be a wealthy bachelor in 1960s New York.
Another thought...can salaries not only reflect additional hours but also the capitalized cost of law school loans? I have no data, but seem to recall that the cost of education is rising faster than inflation...
Cathy, I think another of the Conglomerate commenters brought that issue up. One way of thinking about that (warning: snark approaching) is that if that were true, then humanities PhDs would be richly compensated.

Good question as to whether the capitalized cost of a law degree has been increasing faster or slower than other graduate and professional degrees, though. I'd wonder about increasing supply of law graduates as a partial explanation for the slower rate of real salary increase, though for this corner of the legal profession, the supply from top corporate law programs may be the more relevant quantity.
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