<p>Cellardwellard, allright, now we may have actually made some progress! It seems to me that you’ve made a convincing argument as to why the billing arrangements may be a product not of purely economically rational forces, but are rather a product of legal mandate, and are therefore represent a key market distortion.</p>
<p>But your logic stream lacks a crucial link that I highlighted before: what do billing rates have to do with how employees get paid? What you’ve discussed are legal restrictions upon how clients are billed. But as far as I know, legal restrictions determine how individual lawyers within a particular firm are supposed to be paid. Law firms are free to pay individual attorneys as much or as little as they please. No direct relationship necessarily exists between how a client is billed and how individual employees are then paid from those bills. </p>
<p>As a case in point, secretaries at a law firm aren’t invoiced to clients as itemized billable hours. But they are nevertheless surely performing some work to support client cases (even if that consists of just answering phonecalls and making photocopies). More importantly, they are still being paid. Surely they’re not working for free. </p>
<p>Again, what that demonstrates is that there is no clear and direct relationship between how a client is billed and how the law firm then pays its employees. If a law firm decides that it wants to divert a chunk of its fees to pay a multi-million dollar bonus to one of its secretaries (in the style of Erin Brockovich), I doubt that anybody can stop them. </p>
<p>So here’s what a savvy biglaw firm could do. They could simply announce that they’re only paying, say, $80k for brand-new associates. {Lest you think that pay level outrageous, remember that Federal clerkships pay even less, yet are still able to attract top candidates.} Granted, that will mean that many top graduates won’t join, although given the widespread unemployment within the attorneys ranks nowadays, I’m sure that some graduates from even top law schools will still take the offer. To backfill the remainder of associates, the firm then states that they will vastly increase the hiring of experienced associates - possibly by raiding from other law firms or prosecutors offices/DOJ, or aggressively hiring former state/Fed clerks. These experienced associates are (presumably) actually worth their high salaries, so it entirely rational to employ them. Leave the ‘training costs’ to other (stupid) biglaw firms who insist on paying them.</p>