Undercurrent of Lateral Hiring is Good Sign for Law Firm Employment Market

Lateral hiring of associates at law firms (from small to large firms) increased 61% last year.  Although the increase was hardly universal, with 25% of reporting firms indicating that their lateral hiring last year had declined, a 61% increase is a lot, and it follows two consecutive years of decline in lateral hires.

We’ve seen declines in the overall legal employment numbers in the last couple of months and, of course, reported increases in lateral hires don’t change that bad news.  So, do associate lateral hires numbers matter for the employment market at U.S. law firms, especially for soon-to-be law school graduates?

The answer is yes, for a few reasons.  First, because law firms are often first stops for recent law school graduates, so what’s going on at firms—at least in the near term—matters more for law school graduates than overall legal market trends.  In the medium-to-long run, the larger market numbers are more significant.  Second, and more important (especially because law firms are major drivers of the overall market), an increase in lateral hiring signals pressure on the labor supply at the hiring firm and, after the hire, that pressure largely transfers to firms whose associates were plundered.  (Of course, lateral hires that occurred because a firm went bust—and there were a few of those in 2010—wouldn’t signal the same kind of pressure, and better data would categorize such hires differently.)

 While the labor pressure reflected in associate lateral hires (partner laterals are a different matter altogether) wouldn’t be expected to show up immediately in overall legal employment numbers, associate lateral hires are like a current running underneath surface waters that eventually changes or accelerates surface currents.  Here, the sub-current indicates that there is excess demand in a significant part of the market and that the current supply of lawyers isn’t sufficient to meet that demand.

And it’s not the only indication of excess demand.  M&A activity, a major part of major law firms’ corporate practices, has also experienced a year-over-year increase in the first quarter of 2011.

All of that is good news.  On the other hand, it hasn’t yet (apparently) materially influenced the surface current of the U.S. law employment market.  And there may be other undercurrents that will be affected before changes on the surface are noticeable.  For example, I expect fewer law firms this year to defer new associates’ starting dates than did in 2010.  That’s another way to meet excess demand that doesn’t move the needle on overall employment of lawyers.  But although the undercurrents aren’t yet expressing themselves at the surface, they do seem to be moving in the right direction.

~ by Kyle Pasewark at Advise-in Solutions on April 7, 2011.

One Response to “Undercurrent of Lateral Hiring is Good Sign for Law Firm Employment Market”

  1. […] week I talked about a positive undercurrent for U.S. legal employment, namely that law firm lateral hiring jumped sharply in 2010.  I said then that I thought that the next good sign would be that many law firms that had delayed […]

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