An Obsession With Prestige
The legal industry, arguably more than any other sector, is obsessed with prestige. Only the top law students from the most renowned universities get the job offers from the sought-after Am Law 100 firms. In order to retain the prestige that these big law firms have built, they must consistently hire the top paralegals year after year. In such an incentive-based industry, the biggest differentiator between one job offer and another truly comes down to the highest starting salary, creating a cyclical problem where firms consistently must raise starting salary to uphold their reputation.
Competitive Starting Salaries
Probably no other example explains how competitive wages affect the legal pricing structure more than the Gunderson Dettmer case. Back in the late 1990’s, at the height of the dot com boom, Gunderson Dettmer emerged on the West Coast to provide Silicon Valley with much-needed legal services. At the time, only firms in Boston, New York, and D.C. were paying the top national wages, while firms outside of the “big three” were offering substantially less salaries. In an attempt to attract the top legal talent from around the U.S., Gunderson Dettmer decided to dramatically increase their pay scale to match the ones in New York. As expected, other West Coast firms started to follow with similar wage structures until finally the large New York firms had to increase theirs dramatically to compete. The lasting effects of this move are still Simply put, in an industry where prestige is everything, to attract the top talent, you must be willing to pay the top prices.
“Sticky” Pricing Structure
It is said that law firm billing rates only go up or sideways, they never go down. Sure, this may have to do with the massive rise in law school tuition costs (which have risen nearly 300% in the last three decades), or the legal industry’s obsession with prestige and rank as explained above, but regardless of the reasons, doesn’t it seem obvious that this is a glaring flaw in the system? It’s economics 101 that when demand goes down, prices must adapt in order to retain consumers. Seeing as law firms would rather let people go than lower wages, the pricing structure within the legal industry simply hasn’t stayed competitive within the context of this recent recession.
You Get What You Pay For
I’ve always compared shopping for a lawyer to shopping for a tattoo artist. Sure, you could find a cheaper person that does a similar job, but do you really want to risk a bad result just to save a few hundred dollars? Like tattoos, felonies are permanent and it’s worth the extra cash to have them dealt with properly. Attorneys with a high ratio of wins and a history of collecting large settlements is going to charge more than someone whose services fall below the average. The legal industry, in its current state, does not allow for much leeway as far as cost-benefit go, but new telelegal services are starting to emerge on the market, providing cheaper distribution channels and business models, which translate to cost-savings for the consumer.
The operational costs associated with a dense legal case can really stack up. Between research and writing costs, legal research tools, and overhead costs for staffing, there’s a lot that a lawyer must cover with his hourly charge.
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