Graduate Degree Disappointments: Professional Firms Create Two Tier Jobs To Cut Clients' Costs

The demand for relentless cost cutting in the still emerging post-crisis

working world is confronting graduates of professional degree programs in law and business with a harsh new reality. Many of the $100,000 a year jobs in law, finance and consulting have disappeared. New grads, saddled with tuition debts in the hundreds of thousands are finding that the jobs available are paying less than they might have received from a good unionized training program (not that there are many of those lying around).

The challenge this presents society is what it does to morale, to cohesion and to views of the political system. Resentment of real or perceived inequities may be building and companies license to operate as currently conceived may be at stake. In the meantime, recent grads are swallowing hard and taking the available jobs in hopes that they will lead to someting better.

Catherine Rampell reports in the New York Times:

"The nation’s biggest law firms are creating a second tier of workers, stripping pay and prestige from one of the most coveted jobs in the business world.

Make no mistake: These are full-fledged lawyers, not paralegals, and they do the same work traditional legal associates do. But they earn less than half the pay of their counterparts — usually around $60,000 — and they know from the outset they will never make partner.

Some of the lawyers who have taken these new jobs are putting the best face on their reduced status. “To me there’s not much of a difference between what I’m doing now and what I would be doing in a partner-track job,” said Mark Thompson, 29, who accepted a non-partner-track post at Orrick, Herrington & Sutcliffe when he could not find a traditional associate job. “I still feel like I’m doing pretty high-level work — writing briefs, visiting client sites, prepping witnesses for hearings.”
Asked whether he hopes someday to switch onto the partner track, given the higher pay for this same work, he is diplomatic. “I’m leaving all my possibilities open,” he said.

Lawyers like Mr. Thompson are part of a fundamental shift in the 50-year-old business model for big firms. Besides making less, these associates work fewer hours and travel less than those on the grueling partner track, making these jobs more family-friendly. And this new system probably prevents jobs from going offshore.

But as has been the case in other industries, a two-tier system threatens to breed resentments among workers in both tiers, given disparities in pay and workload expectations. And as these programs expand to more and more firms, they will eliminate many of the lucrative partner-track positions for which law students suffer so much debt.

Mr. Thompson is one of 37 lawyers in Orrick’s new program, which is based in this small Rust Belt city an hour southwest of Pittsburgh. An international firm headquartered in San Francisco, Orrick is one of a handful of law firms, including WilmerHale and McDermott Will & Emery, experimenting with ways to control escalating billing rates.

“For a long time the wind was at the back of these big law firms,” said William D. Henderson, a historian at Indiana University-Bloomington.

“They could grow, expand and raise rates, and clients just went along with absorbing the high overhead and lack of innovation. But eventually clients started to resist, especially when the economy soured.”

For decades, firms used essentially the same model: charging increasingly higher rates for relatively routine work done by junior associates, whose entry-level salaries in major markets have now been bid up to $160,000 (plus bonus, of course), a sum reported by the big law schools. Even under pressure to reduce rates, firms are reluctant to lower starting salaries unilaterally for fear of losing the best talent — and their reputations.

“Everyone acknowledges that $160,000 is too much, but they don’t want to back down because that signals they’re just a midmarket firm,” said Mr. Henderson. “It’s a big game of chicken.”

So now firms are copying some manufacturers — which have similarly inflexible pay because of union contracts — by creating a separate class of lower-paid workers.

At law firms, these positions are generally called “career associates” or “permanent associates.” They pay about $50,000 to $65,000, according to Michael D. Bell, a managing principal at Fronterion, which advises law firms on outsourcing.

These nonglamorous jobs are going to nonglamorous cities. Orrick moved its back-office operations to a former metal-stamping factory here in 2002, and in late 2009 began hiring career associates. Costs of living are much cheaper in Wheeling than in San Francisco, Tokyo or its 21 other locations, saving $6 million to $10 million annually, according to Will A. Turani, Wheeling’s director of operations.

“It’s our version of outsourcing,” said Ralph Baxter, Orrick’s chief executive. “Except we’re staying within the United States.”

Similar centers have cropped up in other economically depressed locations. WilmerHale, a 12-office international firm, has “in-sourced” work to Dayton, Ohio.

“There’s a big, low-cost attorney market there,” said Scott Green, WilmerHale’s executive director. “That means we can offer our services more efficiently, at lower prices.”

What’s good for clients, of course, isn’t quite as good for those low-cost lawyers. Lower salaries make it even more difficult for newly minted lawyers to pay off their law school debt — like the $150,000 in loans that David Perry accumulated upon graduation from Northwestern University School of Law in 2009.

Mr. Perry, 37, became a career associate at Orrick after unsuccessfully seeking public service work (which would offer the option of loan forgiveness). But he says he loves his “lifestyle job,” which enables him to work from home and spend time with his infant son while still doing interesting work.

“I didn’t have the strong desire to make loads of cash,” he said. Other career associates at Orrick said they too were content, even if this track was not their first choice out of law school.

Heather Boylan Clark, 34, was a seventh-year associate at Jones Day before applying for a career associate position after the birth of her second child. She makes 40 percent less than before, but says she still does “challenging work,” and, more important, has greater control of her schedule.

“I’m not killing myself to be hitting specific numbers of billable hours in any given year,” said Ms. Boylan Clark, a graduate of the University of Virginia School of Law. “Now I’m always home for bedtime.”

To some extent, firms have been using lawyers off the partner track for years, known as staff attorneys, although usually on an ad-hoc basis. Executives at Orrick were quick to clarify that the new class of career associates should not be confused with such attorneys, and emphasized efforts to make career associates feel valued.

“There are no second-class citizens at Orrick,” said Mr. Baxter. “This is a career path for people who want it because they prefer the attributes.”

But while Ms. Boylan Clark and others switched from partner tracks at other firms, Orrick has not encouraged associates on its partner track to switch to career associate out of concern that it would seem like a demotion, according to Laura Saklad, Orrick’s chief lawyer development officer.

“That’s just about perception, though,” Ms. Saklad said. “These are not second-class jobs, but the program is so new that they may be perceived that way.”