2015.90: Poor Unfortunate Souls

The other day I met a University of Texas Law School first-year student. He told me about a legal research project that included a budget—the students were to keep track of their time, value it at 250 (imaginary) dollars an hour, and stick to an imaginary $4,000 budget.

When he thinks of quitting, he says, he thinks about that $250 per hour.

I’m not entirely sure UT Law is doing a good job of explaining the economics of the practice of law to its 1Ls. The expectation that a young lawyer will get $250 an hour is false.

The median income for lawyers licensed two years or less in private practice in Texas is about $69,000. Call it $34.50 per hour, assuming an unrealistically light 2,000-hour year. In-house counsel makes more money at every age. New lawyers in-house make a median $78k a year, and the 2,000-hour year is a little more credible for them. The top earners are lawyers with 61 to 65 years of experience working as in-house counsel; they make a median $278k a year, though I hope they aren’t working 2,000-hour years in their 80s.

Nationwide, the median starting salary for 2014 law grads was $63,000, but 13.3% of 2014 law grads were not employed ten months after graduation. ((This report makes the assertion, unsupported and contradicted by the same organizations’ numbers—and frankly risible—that “Salaries of $160,000 accounted for 31% of reported law firm salaries, the same as in 2013″ so take this with a grain of salt. Things are probably much grimmer than NALP wants you to believe.”))

So what is this $250-an-hour number? It’s a squint-and-tilt-your-head-just-right figure. The high salary for first-year associates, paid by some big (more than 700 lawyers) firms, is $160k; Call that $80 an hour. ((We’ll call it that, but know that it’s a lie. Those associates aren’t working 2,000-hour years.))

When a client pays a big firm for an associate’s time, not all of the money goes to the associate. About a third goes to the partners, about a third goes to overhead, and about a third goes to the associate. ((This guy says 20%.)) So those few firms that are paying their associates $160k might be billing their clients $250 an hour for those associates’ time.

Paying that rack rate is a sucker’s bet for the client. ((Except for social proof, which might give the client the feeling that it’s getting more, since it’s paying more.)) It’s a great deal for the firm, which gets its clients to pay it to train the associate. And it’s sweetheart deal for the first-year associate, who has no skills that couldn’t be offshored for a small fraction of that billing rate. She’s not getting $250 an hour, but $160k a year is a lot more than she’s worth to the client.

In any case, few first-year lawyers get jobs that pay even $160k a year.

So why does UT Law present this problem in terms of a $4,000 budget and $250 per hour, rather than, say, a $400 budget and $25 per hour, which would be more realistic for most law students, or a neutral forty-blue-chip budget, and five red chips per hour?

Could it be that the school wants its students, when they feel like quitting and depriving the law school of all that sweet, sweet student-loan money, to think about that $250 an hour?

Could UT Law be … tricking its students?

3 responses to “2015.90: Poor Unfortunate Souls”

  1. I suspect it’s more to drive home how quickly costs of employing professionals add up. My quick-and-dirty estimate for engineering time is $100/hour, and that already gets pricy FAST.

    It also encourages you to look hard at where you save money (“we saved 100 kW-hrs of electricity, this week, and it only took one engineer 5 minutes each day!” is an abject failure).

  2. Thank you for addressing a problem with lawyer salaries that I’ve been trying to explain to people- non-lawyers and prospective attorneys- for the better part of the last couple years.

    I’m a fifth year attorney over in FL and even now I’m only making $51K+. To be fair I’m in the government which is known to pay a lower rate, but I actually did not take a pay cut when I made the move from private practice earlier this year. In fact, I am technically making more with all the benefits I’ve gained in addition to my salary.

    The usual response to the horror stories in private practice for newer attorneys is “find a better position” but almost every private practice boutique down here will only give you $40K-50K even if you’re 5 years out like me. Now, there is nothing wrong with that number as it’s a perfectly livable salary in most other situations. But the debt created by law school makes it hard to manage for a number of people… and god help you if you go solo straight out of law school.

    I’m adding you to my list of favorite legal blogs alongside Popehat and Techdirt.

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