There seems to have been a spasm an unusual concentration of articles recently advancing the theory (I generalize) that all is well in BigLaw and that in fact even the universally acknowledged cost/benefit mismatch of a JD degree is mistaken.

Regular readers know that I’m the last person to be apocalyptic about the legal industry writ large, but I also would like to believe I apply rigor in analysis and tough love in attitude, so when sloppy happy talk comes front and center I feel compelled to respond.

Law schools first:

I haven’t really entered the “Law school NPV—positive or negative?” debate and I don’t plan to start. It’s of enormous import on many levels, from the tragic human toll to the socioeconomic policy questions it raises, but it’s simply a bit far afield for me to give it the attention it deserves. And I’m not going to do a half-baked job. Still, for the yin and yang of this debate, I refer you to (first pro and then con):

The Economic Value of a Law Degreethe abstract of which reads in haec verba:


This is a powerpoint presentation of “The Economic Value of a Law Degree” that was originally presented at the American Law & Economics Association Conference on May 18, 2013.

The full article is available here:

Legal academics and journalists have marshaled statistics purporting to show that enrolling in law school is irrational. We investigate the economic value of a law degree and find the opposite: given current tuition levels, the median and even 25th percentile annual earnings premiums justify enrollment. For most law school graduates, the net present value of a law degree typically exceeds its cost by hundreds of thousands of dollars.

We improve upon previous studies by tracking lifetime earnings of a large sample of law degree holders.Previous studies focused on starting salaries, generic professional degree holders, or the subset of law degree holders who practice law. We also include unemployment and disability risk rather than assume continuous full time employment.After controlling for observable ability sorting, we find that a law degree is associated with a 60 percent median increase in monthly earnings and 50 percent increase in median hourly wages. The mean annual earnings premium of a law degree is approximately $53,300 in 2012 dollars. The law degree earnings premium is cyclical and recent years are within historic norms.

[And the “money quote”—Bruce]: We estimate the mean pre-tax lifetime value of a law degree as approximately $1,000,000.

And to: Why the “Million Dollar Law Degree” Study Fails, by Brian Tamanaha, which concludes:


For [the authors’] study to have predictive value, they must establish two points: 1) that their 16-year slice is sufficiently representative of law grad earnings over time to be considered a “historic norm”; and 2) that the next generation of law grad earnings will resemble the earnings period captured in their study. They did not make either argument—indeed they assumed away the first—and the weight of evidence is against them on both.

Full disclosure: I side resoundingly with Tamanaha (and it’s not because he drops my name in the good company of Bill Henderson, Richard Susskind, and Steven Harper).


Now, on to the matter closer to hand for Adam Smith, Esq.: Whether BigLaw is “alive, well, and rich” or whether there may be reason to snap to attention and kill the attitude of comfortable complacency.

The article du jour on this topic is “Don’t Bury Big Law Just Yet” (whence the “alive, well, and rich” line). One correspondent characterized this piece to his readers as “It is official.  Everything is just fine in BigLaw. The American Lawyer just told us so.” Here’s the lead from the piece and a bit more (emphasis mine):

Headlines like “The Last Days of Big Law” are great—eye-catching and search engine–optimized. If only they were true. While it’s always easy to use “anecdata” and argue, loosely, that the fate of one individual firm, say, the late Dewey & LeBoeuf, is a harbinger for the industry as a whole, that’s actually not the case when it comes to big law firms.

[…] A deeper look at how the largest firms are doing, short-term and long-term, shows resilience and growth.

Take the latest results from The Am Law 100 for 2012. The 100 biggest law firms, ranked by their gross revenue, continued to post revenue and profit gains even as the U.S. economy sputtered.


As my colleague Chris Johnson pointed out, some $2.4 billion was wiped from The Am Law 200’s collective top lines in 2009—the first fall in overall revenue since we started tracking law firm financials more than two decades ago. But that amount was recouped within 12 months, with total group revenue rising $3 billion in 2010 and continuing to grow at a CAGR of 4.1 percent over the past two years.

Finally, there’s this:

History shows exactly how durable this industry is. In 2012, as part of our 25th anniversary coverage of The Am Law 100, we looked at the firms that appeared on our first ranking in 1986 and compared it to the 2012 roster. Sixty-nine firms appeared on both lists, while 12 firms moved to the Second Hundred. The group of 81 firms generated $6 billion in revenue in 1986 and $58 billion in 2011.

[…] But make no mistake, the giant law firms in this country are alive, well, and rich. Rumors of their demise are greatly exaggerated.

Shall we take “a deeper look,” as we’ve been invited to do, and see what we find?

Let’s start with the “history shows” paragraph. Here’s an example of survivorship bias elevated to doctrinal encyclical. We can stipulate that 69 of the original AmLaw 100 firms remained there 25 years later (or 81 of what would have been the AmLaw 200?—no, that’s not quite right, is it?—hard to tell on the information given) but what of the other 31, call it one-third of the universe in question?

  • Did they fail?
  • Did they merge with other AmLaw 100/200 firms?
  • Did they just slide into unranked purgatory?

The methodological flaw is one you could drive a bus full of credulous AmLaw partners through, and introducing the error of survivorship bias is so widely recognized in statistical analysis that it has its own Wikipedia entry: “Survivorship bias is the logical error of concentrating on the people or things that “survived” some process and inadvertently overlooking those that didn’t because of their lack of visibility. This can lead to false conclusions in several different ways.”

More precisely for present purposes “In finance, survivorship bias is the tendency for failed companies to be excluded from performance studies because they no longer exist. It often causes the results of studies to skew higher because only companies which were successful enough to survive until the end of the period are included.”

In short, the “$6 billion/$58 billion” numbers, while they look like data, are anything but.  It’s hard to know what they mean beyond, more or less, “firms that survived and remained at the top for 25 years survived and remained at the top.”

But this part is too easy. Of far greater interest is to dig into those CAGR numbers and see where they lead.

For purposes of this exercise, I simply took the posited relevant time frame of 2009—2013 (in AmLaw rankings) at face value. And I also assumed that CAGR was the best measure of growth in revenue, since it’s also cited approvingly (“continuing to grow at a CAGR of 4.1 percent over the past two years”).

I did, however, make two changes:

  • Rather than limit the CAGR analysis to the past two years, and glide over the uglier first two, I calculate the CAGR for the full four-year period
  • And I adjust for changes in lawyer headcount among the AmLaw 100, and for inflation.

Here’s what you get.

Total revenue for the AmLaw 100 firms:

  • 2013 AmLaw 100: $73,400-million
  • 2009 AmLaw 100: $64,809-million
  • CAGR of revenue over the four-year period: 3.16%

Now, let’s adjust for inflation and AmLaw 100 lawyer headcount changes:

  • CPI increase in total over the four year period (per the BLS): 8.84%
  • AmLaw 100 headcount growth: 80,773 lawyers 2009—86,941 lawyers 2013, or a total growth of 7.64%
  • Combined headcount/inflation growth (8.84% + 7.64%): 16.48%

The acid test:

  • A total growth of 16.48% (headcount and inflation combined) over four years equates to a CAGR of 3.89%. 

In other words—adjusted for headcount growth and in constant dollars—the AmLaw 100 were not even holding their own during the 2009—2013 period. Indeed, their revenue growth rate would have needed to be 23% higher than it was just to keep even with inflation and headcount growth.

But while we’re at it, I take issue with the 2009—2013 period as the most meaningful timeframe. By 2009, we were already into the trough, so one can rationally expect the numbers to be better, or less bad, than they would be if we compared the AmLaw 100 immediately before the Great Reset (2008) to the most current data (2013).   Either it was the intent to produce better/less bad numbers, or the chosen timeframe was selected without much thought: Neither inspires confidence.

So let’s do the analysis over what I believe to be the more meaningful timeframe:  2008—2013.

Total revenue for AmLaw 100 firms:

  • 2013 AmLaw 100: $73,400-million
  • 2008 AmLaw 100: $64,451-million
  • CAGR over the five-year period: 2.63%

Controlling for inflation and AmLaw 100 lawyer headcount changes:

  • CPI increase in total over the five year period (per the BLS): 12.62%
  • AmLaw 100 headcount growth: 77,818 lawyers 2008—86,941 lawyers 2013, or a total growth of 11.72%
  • Combined headcount/inflation growth (12.62% + 11.72%): 24.34%

The “acid test,” namely calculating the CAGR of the “correction factor” (taking into account headcount growth and inflation): Growth of 24.34% over five years equates to a CAGR of 4.45%

Actual CAGR of AmLaw 100 revenue (again): 2.63%.

As expected and predicted, starting one year earlier makes the picture even uglier. Now, rather than needing to have grown their revenue 23% more than they did (2009—2013), firms would have needed to have grown their revenue 69% more than they did simply to “stay even” over the 2008—2013 period.

If this is resilience and growth, then I should have been a professional athlete; I could count on the bar being lowered every  year and still be able to set annual records at the new diminished height.

Finally: We all know that averages mislead.

And in today’s environment, averages mislead more than ever. If anything is true about law firm performance in the post-Great Reset era, it’s that dispersion has never been wider. We have more highly outperforming winners and more poorly underperforming laggards.

But if you want to generalize?  Out of “alive, well, and rich,” the evidence seems to support one for three.

In baseball, come to think of it, that’s not a bad batting average.

Update (30 July):

A reader who’s a better statistician than I writes from London:

Dear Bruce,

I enjoyed your article (as always). I think, though, that the numbers are actually slightly worse than you suggest, since the headcount increase and inflation increase should be multiplied.

So over the four-year period, the combined headcount and inflation increase is not 16.48%, but 17.16% (1.0884 x 1.0764 = 1.1716), CAGR of 4.04%; and over the five-year period, not 24.34%, but 25.82% (1.1262 x 1.1172 = 1.2582), CAGR of 4.70%.

This gives us the following comparison calculations:

  • Four-year “comparable” (2009-2013):  Actual AmLaw 100 CAGR of revenue:  3.16% vs.  a required “steady state” CAGR of 4.04% (a 28% shortfall in revenue growth)
  • Five-year “comparable” (2008-2013):  Actual AmLaw 100 CAGR of revenue:  2.63% vs.  a required “steady state” CAGR of 4.70% (a 79% shortfall in revenue growth)

That pro athlete career is looking better all the time.


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