Lawyers may belong to the only industry in the world where starting salaries cluster at two peaks along the landscape of income a junior lawyer can expect to receive out of law school.
For those that aren’t familiar with the Bimodal Salary Distribution Curve, above is the latest chart from National Association for Law Placement, showing the starting salaries from the Class of 2014.
The chart is probably the single most important marker when discussing lawyers and personal finance since lawyers start at such dramatically different points of income.
But before we talk too much about what you can do with the income you have, I did some digging and thought it would be interesting to write a little about the history of that curve.
Looking Back: Has It Always Been This Way?
Twenty-five years ago the legal industry had a much different distribution of starting salaries. Those salaries followed a typical mountain peak followed by a sloping curve, which is generally what you’d expect to see for starting salaries (i.e. almost everyone is clustered at the lower end of the range with a few all-stars finding a higher salary).
The 1991 chart looks like a normal salary distribution with the median slightly ahead of the largest peak thanks to some lawyers that managed to command salaries in the $70-$90K range upon graduation.
By 1996, there really hadn’t been much of a change except to note that a slightly lower percentage is clustered at the beginning (i.e. smaller mountain peak) which suggests that more lawyers were finding higher paying jobs.
But only four years later, we have the fully developed twin mountain system that we live in today.
What caused the shift?
According to William D. Henderson, it was two factors: (1) the growth of the corporate legal services market and (2) the adherence to the “Cravath” system which aims to hire the top graduates from the top schools to create an elite law firm.
Ironically, Cravath’s “system” for getting the best and brightest has now been adopted by every large law firm that provides full-service highly-specialized legal services, with the result being that all law firms follow Cravath when it comes to salary.
On one hand, you could argue that Cravath gave up on the idea of differentiating itself from its peers or, on the other hand, you could argue that every other major law firm has adopted the model without truly understanding its intent.
Regardless of how we got here, the dual track system for lawyers seems here to stay. Even the salary increases from mid-2016 did little to differentiate the law firms since almost all adopted the higher “Cravath” salary.
Law Students and the Bimodal Salary Distribution
What does this mean if you’re in law school?
It means you better understand the bimodal salary distribution curve is going to apply to you too, which means you might end up with the high paying job or you might not.
More importantly, look at how many jobs there are in the middle. Almost none. This is lost on a lot of law students who think they may not end up with a high paying “biglaw salary” but also assume they won’t end up with a low paying salary either. The real glut in legal salaries is everything between $65,000 and Biglaw.
Lawyers have been cramming this information down the throats of law students and pre-law students for the past few years (decade?), so you would think that everyone is aware of the potentially bleak financial outlook for some lawyers but I still run across pre-law students all the time that think all lawyers are rich.
Regardless, if you’re in law school, you need to buckle down on law school expenses in a big way. Forget about taking the bar trip. While law school can be a lot of fun (well – you’re not working) you’re risking a world of financial pain if you don’t develop a financial plan. Don’t think that your loans will eventually be forgiven either. The government is step ahead of you on that one and it’s not at all clear that following the IBR/REPAYE path is a great deal.
Bimodal Salary Distribution for Practicing Lawyers
How does the salary distribution curve effect you if you’re a practicing lawyer?
Well, for one, it’s only a representation of starting salaries. Many lawyers that start on the lower end of the cluster end up growing their salaries over time. As a whole lawyers earned a median salary of $115,820 in 2015, which means that incomes will likely go up over time.
Planning for a gradual increase in your income is important because it may change your income-driven repayment plan calculations when you stop assuming that you’ll be making $50,000 for the foreseeable future.
Update: As pointed out in the comments, I left out the part that high earners also need to be planning for a decrease in their salary (duh!). Neither end of the spectrum lasts forever, so planning your financial future on an income of $65,000 or $180,000 has some serious flaws.
Let’s talk about it. What are your thoughts on the bimodal salary distribution curve? Let us know in the comments below!