March 26 2007 Legal Blog Roundup

However, we all know that when taxes are raised and the price of something goes up, it's the consumer—in this case, the client—who really faces the music. Some feel the new salaries are outrageous compared to the salaries of judges who also don't get bonuses and that legal professionals may start leaving the bench to join law firms.

The news even made it to Congress when Justice Anthony Kennedy, testifying before the Senate Judiciary Committee, remarked that law clerks leaving the court made more money in their first years in law firms than judges do. In the March 1 issue of The American Lawyer, Arik Press summed up the situation of the first-year associate: "There is […] a price to taking the king's shilling […] going to work at a 'lifestyle firm' means not having a lifestyle."


Erik Mazzone's Blog currently features an entry entitled "The Dark Side of Increasing Associate Salaries", which tells part of the real story of first-years becoming overwhelmed—and perhaps even committing suicide—as a result of 16-hour-per-day workloads. Now, all that made me wonder, "How can it be a 'salary raise' if the workload is increased at the same time?" I mean, a salary raise means more money for the same work, doesn't it? If it's more money for more work, then it's not a salary raise but a workload increase in which the rate of payment remains almost the same.

So what do such high salaries mean? While the effects are many and include the advertisement of firms, the attraction of new talent, the pressuring of smaller firms, and the encouragement of lateral recruitment, these incredible salaries seem to me to indicate that legal services are viewed by firms as Giffen goods. A very old economic theory attributed to Sir Robert Giffen says that when consumers are not in a position to judge the quality of goods in a market, only the price needs to be raised to get an increase in demand. It's considered to be an exception to the normal rule of demand being inversely proportionate to price.

There's no doubt that in the legal market, clients are rarely in positions to judge the quality of services and their worth. So the recent salary increases may be attempts to justify trying out the Giffen-goods approach. That's what I think. Higher salaries mean higher fees charged and greater demand for the Giffen goods—thanks to Simpson, Thacher & Bartlett.