From Summer Associates to Starting Pay, a Week of News to Feel Good About: Is the Drought Over?

In contrast to most of the last two years, which have given us a drumbeat of negative news about legal hiring, the legal market has seen a promising week.  Among the stories: five major firms reported that they anticipate hiring more—in as couple of cases, considerably more—summer associates in 2011 than they did in 2010; several firms that had cut initial salaries for new associates have ramped them back up in major markets, though as two  stories (one in Above the Law and another in the ABA Journal) point out, there are some vagaries in that conclusion for certain firms;  and several firms reported 100% offer rates for 2010 summer associates.

Let’s take these stories in order of increasing importance.  Some mean less than others.  The 100% offer rates would have seemed unexceptional a few years ago and the fact that this is taken as big news is probably more an indication of just how thrashed the recent legal hiring market has been.

The recently released summer associate numbers are better news but there are a few qualifications.  First, they are extremely preliminary; though the firms that announced an increase are significant players, any five firms make up a small part of the market.  In addition, that increase is over against a 2010 class that had been drastically smaller across the market.  On the bright side, the recent announcements may exert pressure on the remainder of the market to follow suit.  That’s good news for current 2Ls, not only for those who want to begin their legal career at large firms but also for the rest of the legal market, owing to the dominance of big firms in determining the general state of the legal market.

The best and (economically-speaking) simplest news, but also the most uncertain, is the return to pre-crash starting compensation levels.  If it’s true (and any 2L should be very careful to make sure that what’s being given up front with the left hand isn’t being taken away behind the back with the right hand of intricate “merit pay” formulas or other qualifications), it indicates that law firms are willing to pay more (or at least as much as they used to) to attract talent.  That indicates an increased demand for legal services at big firms.  That’s also consistent with what I hear from lawyers at large firms—the vast majority are much busier than they were before Memorial Day and none are less busy (and the summer is typically a slower season).

So, great news for 2Ls overall, and consistent with Advise-In’s qualified optimism about the legal employment market in the medium term, i.e, for those about to enter law school in 2010 and 2011.

On the other hand, it hasn’t caused me to revise the “qualified” part of Advise-In’s “qualified optimism.”  There are a few reasons for that.

First, as we saw with recent years’ layoffs, rescinding of offers and offer deferrals, legal employers retain a lot of flexibility to determine start dates, to say nothing of whether there will be a start date, even after putative offers are delivered.  A significant motive for early announcements of anticipated increases in summer associate hiring is better public relations.  There’s nothing wrong with that, but until the cash is in the bank account, employers can always pull back.  And, of course, one of the firms trumpeting its 100% summer associate hiring rate was one of the biggest job-cutters of recent years.

Second, the data is limited and preliminary.  We’ll have to see who follows and who doesn’t.

Third, all of this data should be kept in historical perspective.  Nothing indicates a return to the salad days of the middle of the last decade or the turn of the millennium.  It’s better news than we’ve seen but it’s still a tighter market than we’ve seen for most of the past fifteen years, though better than the last year or two.  In this time of transition and uncertainty, current and prospective law students should be extra careful about who they’re listening to.  There are still cheerleaders for the market whose mental model is still the boom years.  Conversely, there are gloom-and-doom prognosticators whose mental model is 2008-2009.  It’s not that either is not worth listening to but if you do, you should factor in where we are now when valuing those views.  And the most valuable sources are those who take a careful view of where legal hiring is likely to be based on historical analysis of where it’s been and where it is now. 

Finally, and most important, the legal hiring market isn’t independent of the economy as a whole.  There is a tendency is any specialized market to consider that market as free-standing.  The legal market self-evidently isn’t independent.  Although certain parts of the legal market are countercyclical (bankruptcy and restructuring, for example, and in the past, certain areas of litigation), the overall health of the legal market depends on the health of the economy.  Bad economy, worse legal market.  Good economy, better prospects for new lawyers. 

The good news-bad news volatility in respect of the current legal market is in line with the same volatility in news about the economy in general.  And the economy is clearly not out of the woods yet, at least in the U.S. and most of Europe, major drivers of the legal market.  The current U.S. economy is a little like Neil Young’s “Alabama,” with a wheel in the ditch and a wheel on the track and, maybe, the other two where they should be (which, weirdly, makes Lynyrd Skynyrd more right than not, too).  The legal employment market is, in large part, reactive to that larger economic picture.  Our qualified optimism was, and continues to be, linked to the assumption that the economy will not re-enter recession in the next 1-3 years.

So, we’re sticking with “qualified optimism.”  The recent news is certainly better than the alternative and justifies a small sigh of relief.  But not yet a big one.

~ by Kyle Pasewark at Advise-in Solutions on August 5, 2010.

2 Responses to “From Summer Associates to Starting Pay, a Week of News to Feel Good About: Is the Drought Over?”

  1. […] news includes some law firms announcing the restoration of larger summer associate programs.  I don’t put too much weight on that, since firms can change (and in recent years, have changed) their minds at the last […]

  2. […] uptick in law firm on-campus interviewing at top schools, increases in offer rates for 3Ls and the rumored reinvigoration of summer associate programs, among others.  All good news, one would think, but Chamberlain declines (correctly, in my view) […]

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