Quick quiz:   Q1:  If you made $125,000 in 2000, how
much would you have to make in 2005 to have the same purchasing power
(straight CPI adjustment per the Minneapolis
Fed)?

A1:  $141,250.

Now add in this observation,
from one of the leading law firm recruiters in London (in the context
of an analysis of associate attrition rates at the UK’s top
50 firms): 

“Candidates are calling the shots again,” said [Joanne] Street
[of Hays Legal]. “Law
firms have to be very careful about looking after their associates
because, as confidence in the market picks up, people will start moving
around again.”

One more data point: 

There is speculation that
Cravath, Sullivan & Cromwell, et al., will be paying $30,000 year-end bonuses
to first-year’s.

Are we in, then for another "ratchet round" of starting salary
boosts?   Arguing the case for:

• Just do the math per the Minneapolis Fed; we’re overdue.
• As reported yesterday with the NLJ
  250 total lawyer headcount at those firms is up 4.4% year over
  year, its best showing since 2000.  But last time I looked,
  the elite law schools (Harvard, Stanford, Yale, Columbia, etc.)
  haven’t been boosting their graduate numbers at all.  Increased
  demand, meet stable supply.
• Starting MBA’s from blue-chip schools going to the Goldman-Sachs’
  and McKinsey’s of the world can pull down $150,000/year without blinking—and
  they only have two years of student loans to pay off, not three.  Smart
  24-year-olds are going to figure out this arbitrage and stay away
  from law school unless something gives.

Arguing the case against:

• Firms have just now finally digested the financial hit they took
  (and the associate billable-hour expectations boost) imposed on them
  by the 2000 salary spike; they’re too smart to put themselves back
  behind that same eight-ball again so fast.
• Variable costs (read: bonuses) are always and everywhere preferable
  to fixed costs (salaries).  So firms will proclaim they are
  holding the line on salaries while making the adjustment under the
  covers in bonuses.
• It’s just plain irrational for all the name-brand firms to march
  in lockstep on starting salaries.  After all, what you can get
  for $125,000 in New York will
  only cost you $80,000 in San Diego
  (but it will cost you $123,000 in Hong Kong)—and in general
  associates’ salaries have outpaced inflation over the long run.

Where do I come down on this?  With ambivalence.  Clearly
the vast majority of very junior associates are money-losers for their
firms, and starting them at (say) $140,000 would only make a bad situation
worse.  On the other hand, those associates have options (business
school, for one) and the firms do not (no MBA’s need apply).  I
predict a break in the logjam, accompanied by "Stop me before I kill
again" protestations from senior partners. 

Extra-credit bonus quiz:  Q2:  If you made $15,000 in
1968 (the notorious Cravath Spike), how much would you have to make
in 2000 to have the same purchasing power?

A2:  Only $74,250.

We have, in short, seen this film before.