Firms had already begun to set billable hour targets and minimum requirements for their partners and associates. Conventional wisdom at the time held 1500 as the maximum number of hours lawyers could reasonably expect to bill, equating to just over 30 billable hours per week making modest allowances for vacation, sick leave, personal time, etc. (It is worth noting here the many studies showing that associates bill two hours for every three they spend in the office, bringing the in-office expectation of a 1500-hour year toward 50 per week.)
When raising rates proved difficult and insufficient, firms responded by increasing their billable hour targets and requirements, such that the average New York lawyer in the mid-1980s billed 20-30% more than her 1960's counterpart, for a total of 1800-2000 hours annually. (Recall that this equates to 60- to 65-hour work weeks). Chief Justice Rehnquist, describing this quantity of hours as "staggering," likened increasing billable hours to "treating the associate very much as a manufacturer would treat a purchaser of one hundred tons of scrap metal: if you use anything less than the one hundred tons that you paid for, you simply are not running an efficient business."
Nonetheless, the hour escalation continued through the following decades, with smaller firms in smaller markets pushing towards 2000 while attorneys at large firms in large cities commonly billed between 2000 and 2500 hours.
"[R]eliance upon the billable hour is responsible for the pyramid structure of the modern law firm."
A firm's leverage ratio is the number of income-generating employees who do not receive a share of the profits divided by the number who do. This is generally understood as the ratio of associates to partners, but recent years have seen an upward trend in non-equity partners, attorneys of counsel, and other intermediary designations.
Leverage is an important component of the profits-per-partner calculation, because associates and other nonequity employees increase the numerator without affecting the denominator. Put simply, the more (profitable) associates there are, the more profits are generated, and the fewer the partners, the more money each partner gets to take home.
Economists will recognize this as a classic up-or-out "tournament" structure, where a large number of junior employees compete for a high-paying but scarce senior positions. Junior employees accept a lower fixed salary (relative to the income they generate for the firm) in exchange for a chance at "winning" a high-paying spot.
In a tournament-based firm structure, as the number of junior positions grows relative to the number of senior positions available (i.e., as the leverage ratio increases), the likelihood of winning the tournament decreases. Therefore, in order to maintain (or, in the case of law firms, increase) the number of the junior employees while compensating for a reduced chance of winning, firms must increase either the size of the prize or the incentive to enter the tournament; i.e., either profit per partner or associate salaries. Since the number of associates drives the amount of profits a firm makes and therefore the profit per partner, the only choice of firms was to raise associate salaries.
The combination of 1) deteriorating working conditions under onerous billable hour requirements and 2) reduced likelihood of making partner led to a sharp and steady increase in associate starting salaries. At large firms, first-year associates made $10,000 in 1968, $71,000 in 1988, and $160,000 in 2008. For a comparison with median household incomes at the time, see Figure 1.
Figure 1. In 1968, law-firm salaries, at $10,000, were slightly above the median household income of $8,630. By 1988 the disparity had grown: first-years at large firms made $71,000 while the median household took in $32,190. The gap widened further in the next two decades, as incoming associate salaries hit $160,000 but household income rose only to $50,303. Figures were taken from www.census.gov and have not been adjusted for inflation.
During this time, large firms also grew to occupy more prominent positions in the legal labor market: today's law graduates are three times as likely to earn a large-firm salary than twenty years ago.
While salaries have remained stable the last four years, perhaps signaling that a ceiling has been reached, there is no way to know. Once the current recession ends, law firms may look quite different (as discussed infra). All we know is that the end of skyrocketing associate salaries has been predicted at numerous stages but the practice has proceeded, undaunted
  McCollam, supra note 11.
  Rhode CWRLR 665 at 711
  Schiltz, supra note 28, at 893-95.
  Bruck & Canter, supra note 8, at 2096.
  Rehnquist, supra note 29, at 153.
  Schiltz, supra note 28, at 893.
  McCollam, supra note 11.
  Gilson & Mnookin, supra note 1 at 584.
  For a more thorough list of "off-track" positions, see George P. Baker & Rachel Parkin, The Changing Structure of the Legal Services Industry and the Careers of Lawyers, 84 N.C. L. Rev. 1635, 1641 n.11 (2006)
  Schiltz, supra note 29, at 901.
  See generally Marc Galanter & Thomas Palay, Tournament of Lawyers: The Transformation of the Big Law Firm (1991); Marc Galanter & William Henderson, The Elastic Tournament: A Second Transformation of the Big Law Firm, 60 Stan. L. Rev. 1867 (2008); Gilson & Mnookin, supra note 1 at 575-86.
  Gilson & Mnookin, supra note 1 at 584-85; Bruck & Canter, supra note 8, at 2096 n.49.
  Bruck & Canter, supra note 8, at 2096-97.
  William D. Henderson, Are We Selling Results or Résumés?: The Underexplored Linkage Between Human Resource Strategies and Firm-Specific Capital. 9-10 http://ssrn.com/abstract=1121238
  See, e.g., Seth Rosner, "Professionalism and Money," 78 A.B.A.J. 69, 72 (May 1992) ("The explosion in lawyers' numbers and lawyers' incomes has ended. It is unlikely that those days will return."). At this point, there were 750,000 lawyers, and first-year salary at large firms was $75,000. Id.
Building a Better Legal Profession (BBLP) is an organization based at Stanford Law School. BBLP is a national grassroots movement that seeks market-based workplace reforms in large private law firms. For more information, visit BBLP's Web site at www.betterlegalprofession.org.
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