How to Bail Out Truckers and Lawyers

Steven Pearlstein has an interesting column in the Washington Post discussing ways to reduce some of the sting in the labor market during a recession.  As Pearlstein notes, an alternative to significant layoffs during downturns in the labor market is to spread the pain by reducing pay and hours.  The Teamsters have just made such a deal with YRC Worldwide, including a stock purchase by employees, and we've obviously seen similar concession in the auto industry among others.  Pearlstein then analogizes the trucking industry to law firms:

You may have read that in recent years, the competition among major law firms to attract top talent became so intense that first-year associates were paid as much as $180,000, plus bonus, at the top Wall Street firms -- in some cases, more than federal judges make.

By any standard, it is a ridiculous amount of money. One reason the firms could afford to pay it is because corporate clients are billed at equally ridiculous rates of $250 an hour for greenhorns. The other reason is that the associates are expected to routinely put in 60 and 70 hours a week if they want any chance of making partner. The result has been a system that basically overcharges clients while leaving stressed and overworked associates feeling as if they are trapped in a gilded cage.

With the drought in deal flow and securities work, however, any number of these white-shoe firms have had to retrench. Underperforming partners are quietly being "de-equitized" (a euphemism for being kicked out of the partnership), associates have been laid off, offers of employment to new associates have been rescinded and summer programs for law students are being curtailed. In just the last few weeks, a number of firms have even frozen pay for associates at current levels.

The more interesting question, however, is why the firms haven't gone further and significantly reduced the pay of all associates, as well as the number of hours they are expected to work, along the lines of what the Teamsters and YRC have done. That way, firms could avoid further layoffs and perhaps even continue to hire a modest number of new associates. More significant, the plan might actually put an end to the arms race in associate pay and allow associates to get a life.

Undoubtedly, there would be some highly desirable law school students who would decide not to apply to a firm that dares to break from the pack and reduce associate pay. But given the high levels of dissatisfaction among law firm associates, it's a pretty good guess that there would also be a sizable number of top graduates from top law schools who would flock to a prestigious firm that offers a healthier trade-off between pay and lifestyle. It should tell you something about the legal business that no major firm has had the courage or the imagination to try it.

Personally, I've never understood how savvy corporate clients accepted these huge law firm billables so quietly--although some clients have pushed back more in recent years (Wal-Mart being a prime example).  I don't expect to hear about associates have more spare time soon, but it's an interesting thought.

Hat Tip:  Dennis Walsh

-JH