Why Are Lawyers So Expensive Even With The Excess Supply Of Lawyers?

A few quick thoughts (am about to go into a meeting):<p>1. Lawyers are <i>not</i> immune from market forces. This is easily seen at the micro level: a new practitioner with no established reputation can charge $800 per hour and see where that gets him (of course, precisely nowhere). On the macro level, law has been a boom business ever since at least the 1960s when expansive liability theories came to be widely adopted by the legislatures and the courts. So, what used to be regarded as a dispute over garbage at the local dump becomes a massive environmental enforcement action by which dozens of parties face multi-million dollar liabilities; what used to be a distribution chain in which only the end-point seller typically bore liability to the consumer becomes massive product liability suits going back to the manufacturers and imposing strict liability on them in ways that can ruin a multi-billion business; what used to be the $.25 that a cab driver overcharged you because of some shifty trade practice becomes a major class action in which all the vendors in the area are swept in to face a protracted legal fight and potentially substantial damage exposure; etc., etc., etc. The point being: the legal landscape has changed dramatically and, for example, the Big Law firm that I worked at in the early 1980s grew from 23 lawyers in 1965 to about 250 in 1980 and is today over 1,000 lawyers. Demand is up in a huge way over the decades and law remains a boom business in this respect (certainly Big Law remains so) notwithstanding the recent economic calamities that have beset us all. That is the main reason why the very high fees are charged: because businesses are willing to pay them (when they are not, overt or disguised discounting occurs with great regularity).<p>2. That said, I am no fan of the Big Law model and have expressed my criticisms at some length elsewhere (see, e.g., <a href="http://news.ycombinator.com/item?id=1648342" rel="nofollow">http://news.ycombinator.com/item?id=1648342</a>). I also have stated in some detail why I think the large firms have been left reeling from the recent economic shock and how this has caused a general revulsion against the billable fee structure used in these firms (see <a href="http://news.ycombinator.com/item?id=1649507" rel="nofollow">http://news.ycombinator.com/item?id=1649507</a>).<p>3. In reality, the legal field is pretty diverse and price does matter for those who consume legal services (why shouldn't it?). The providers of those services who remain stuck in old ways will need to adapt to the short-term problems but they obviously hope to keep the old structures in place in hopes that the good old days will return. For the broader legal market, however, there is already wide variety in the range of services and pricing offered. As a consumer, you need to do your due diligence and shop around. In the broader market, lawyers want your business and will adapt as needed to get it.

So, Forbes is republishing Quora answers now? This must be part of that new strategy where they try to gain more traffic (<a href="http://www.forbes.com/sites/kashmirhill/2012/02/16/how-target-figured-out-a-teen-girl-was-pregnant-before-her-father-did/" rel="nofollow">http://www.forbes.com/sites/kashmirhill/2012/02/16/how-targe...</a>) with other people's content (<a href="http://www.nytimes.com/2012/02/19/magazine/shopping-habits.html?pagewanted=all" rel="nofollow">http://www.nytimes.com/2012/02/19/magazine/shopping-habits.h...</a>).

This may not apply to the world of corporate lawyers the answer seems to be about, but at a smaller level, there are enormous switching costs involved in moving away from, and training a new lawyer.<p>And it's not a free market. In a free market, the consumer can walk away from a purchase. Most times individuals or small businesses need a lawyer, they are in no position from walking away. They need a lawyer. And they need to stop spending time searching, and get on with resolving.<p>So a lot of claims from lawyers that they operate in a free market are really not true. They mistake what are basically extortion/price gouging rates for free market pricing.<p>And the search is expensive too, with few (?) lawyers willing to offer 30 min to an hour of their time to discuss your needs for free. This is another factor in increasing switching costs for the consumers.<p>And of course, price is used as a signal for quality in a market in which quality is very hard to measure by most consumers. Sure I got a great deal on a lawyer, he only charges $150 per hour. Hmm, Your lawyer charges $400 per hour? Now, I'm not so confident.

To some extent, lawyers (or, more accurately, law firms) are Veblen goods -- meaning that their services are perceived as being better if they're more highly priced and exclusive. There's a general perception that a high-priced lawyer is a top-notch lawyer, and that skimping on such lawyers carries a huge deal of legal risk.<p>This dynamic plays out particularly in the BigCorp world, and especially if there's ever a perceived threat of litigation. (The idea that a competitor would hire "the best of the best," or "an army of lawyers," or "top guns," drives your own desire to pay for same).

Part of the reason might also be that the law has become so complex (as well as, in my opinion, intentionally obfuscated) that it demands a certain amount of resources to engage it at all. If you can't meet that level, its best not to engage it at all.<p>You can't launch a satellite halfway into orbit to save a few bucks. You go all the way, or stay home.

The unobvious but major thing missed is that hiring the wrong lawyer is far more expensive than an additional $300 per hour.<p>Since the only way to know if you are hiring the right lawyer is to base it on brand, top firms have a lot of pricing power and middle firms dissapear.

the way I had lawyer, dr, etc. fees explained was that they can charge so much as you often don't get a second chance.<p>If your life is on the line for an operation, you want the best doctor available.<p>Your life on the line in a trial, you get the best lawyer available.<p>This has a trickle down effect. Or put another way, if you don't get a second chance, things had better go right the first time. Fear is a powerful motivator.<p>Want that dream house?<p>Better make sure the paper work from the forclosure is done properly. Sure you can try to do it yourself or with a budget firm, but what if they make a mistake. Your dream house is gone.<p>Want to make sure your kids are protected in case of your death, better get the best lawyer you can to do your will. Sure, you can print a form off the internet, but we've all seen that go wrong. Don't your kids deserve peace of mind during the troubling times surrounding your death?

A: Because they get other jobs that meet their income requirements.<p>People who make it through law school usually aren't idiots. So if they fail to achieve a satisfactory career in Law, they move into other areas. Attorneys work in government as political appointees, lobbyists and policy people; they work as corporate managers; they run businesses in areas other than law, etc.<p>Also consider that the barriers of entry for lawyers are high. Referrals are a huge source of business, so it's difficult to start a new firm without alot of capital.

There is one restriction in particular which I believe has a huge effect on the legal industry's slow pace of change -- only lawyers may own companies which provide legal services to clients (vs. in-house counsel). So, want to start an online, virtual law firm? Either act as a referral service or make sure you never want a non-attorney to have equity in your company. Why does this rule exist? I haven't a clue.

Traditional supply-demand economics just doesn't explain the behavior of "middleman" industries, such as lawyering, real estate agenting, etc.<p>Traditional supply-demand economics assumes a 1:1 ratio where there is one buyer and one seller and there is some amount of economic surplus that the two parties play tug-of-war with. Traditional supply-demand economics works great when buyer and seller negotiate directly.<p>But in middleman industries, the middlemen can hop on either side, and play for either team. They are able to effectively scope out surplus from either or both sides, predatorize the weaker side with almost _no risk_ to themselves, and destroy a lot of the potential <i>realized</i> value between the original parties in their process.<p>So basically it creates a "parallel" economy where prices aren't determined by supply or demand, but rather by fear and a kind of high-stakes prisoner's dilemma between buyers and sellers where buyers and sellers bear all the risk and lawyers and agents reap all of the rewards.

Having worked some recently with lawyers, their chief value is similar to that of the historical value of having assassins on the king's payroll. The power is not in using the assassins, which is expensive and dangerous, but in that people are more scared to provoke and escalate with someone known to employ assassins.

Before we talk too much about why lawyers are so expensive, it's worth checking out how much they actually get paid. It's the weirdest salary chart you'll ever see:<p><a href="http://www.nalp.org/salarydistrib" rel="nofollow">http://www.nalp.org/salarydistrib</a><p>Basically it's the sum of two separate curves -- a bell curve centered around $45,000 a year, and a sharp, sharp peak up at $160,000.<p>What's going on here? Well law is two separate markets -- the bell curve is the 90% of lawyers who compete on cost in a more or less normal market, and the sharp peak is the 10% of lawyers who work at BigLaw firms that march in lockstep at $160,000 for new associates.<p>So for the 90%, the answer is that law is a highly competitive market. You're paying $150,000 in tuition to get a job that averages $45k a year when you start, and won't go up too fast. You're doing largely hard, boring work, it sucks to do without support staff, and it's time-consuming to do right. If the product costs a lot, it's not because the lawyer is overpaid -- it's because that's how much it costs to produce. Lawyers who drop below that price go out of business.<p>For the 10%, they're in a weird parallel universe where the cost of their service is <i>almost totally irrelevant to their clients</i>. They're handling international mergers, billion-dollar divorces, and Federal indictments of entire financial firms. The question of whether the lawyers charge $300 or $600/hr is like the question of whether your parachute costs $50 or $100 before you jump out of a plane. If there's the slightest chance that the $100 parachute is safer, you go for it. That's why the starting salaries march in lockstep -- no BigLaw firm can afford to let people think that the cream of the crop from Harvard Law is being hired by their competitors. They'd lose all their business if anyone else had a clear edge. But this only relates to a small minority of lawyers.<p>...<p>To disclose my own bias, this article/conversation is strange to me because I took a big pay cut to go from programming (which I could do before I graduated from college) to law (where most of my lower salary goes to student loans). I knew I would. I didn't join the BigLaw 10% (which I would have hated), but I'm getting to work on things that matter to me, and I'm proud I made that call. But to see a bunch of programmers talk about why lawyers have it so good ... yeesh.<p>This isn't to say that law can't get easier or cheaper. There are huge wins to be had from automation here, and I always turn into the resident tools guy wherever I work. I've had to get pretty good at VBA of all things, and 1000 curses on that misbegotten tongue. (Jashkenas, are you listening? Need a project after CoffeeScript?) I also think law school needs to get a lot cheaper -- like college tuition in general, it's been growing at twice inflation for decades, and that can't be right.<p>One other thought -- the bar is indeed a protected guild, and I'm not sure where I stand on that, but there are reasons for it. First and foremost, <i>you will never know whether your lawyer has done a good job.</i> If you hire a programmer, there may be problems behind the scenes, but you can more or less tell whether they've done what you hired them to do. If you hire a lawyer, and you lose your case, you will often have not the slightest idea whether they were competent -- there's just not enough signal for most laypeople to analyze in most cases. Even my own supervisors often have no idea whether I've done my job right. They ask me a question, I answer it, and without repeating the work I did they have no way of telling whether I'm right or how long it should have taken to complete.<p>Requiring education, examination and licensing is one way to address that problem. It definitely raises the price. In theory it also lowers the chances that you're buying snake oil. Something to consider anyway.

There are all sorts of reasons, but first and foremost is the lack of transparency in all things legal. This is why I'm working on PlainSite (<a href="http://www.plainsite.org" rel="nofollow">http://www.plainsite.org</a>). The opacity creates the illusion of difficulty, the need for (arbitary) specialized knowledge, and uncertainty as to the real price because so many factors are hidden from view.<p>For example: you're expected to follow the law even without knowing what the law says. When you want to find out what the law says, it's not easy--it's certainly not available in a standardized format. When you want to interpret what you find, assuming you find it, that's not easy either. Courts interpret things in new ways all the time.<p>The federal court system charges you to access public information contained in court proceedings, with limited exceptions--that is, if you even know where to look for it. See <a href="http://www.thinkcomputer.org/20120209.pacer.pdf" rel="nofollow">http://www.thinkcomputer.org/20120209.pacer.pdf</a>. The interface is terrible and hard to use. The way in which you write lawsuits is obscure, counterintuitive, and creates additional needless work.<p>In addition to all of these factors, and perhaps because of them, lawyers (especially at big firms) have institutionalized fraud. It's taken for granted that legal billing is often fraudulent. If you charge $500 per hour and your system only resolves to the tenth of an hour, that means if you spent four minutes writing an e-mail, you can charge for 0.1 hours, or $50. But really you only did $33.33 of work. That's a nice cushion. But what actually happens is that an attorney might do 45 minutes of work and round it up to an hour--even though that work is formatting in Microsoft Word that the client could have done; or printing out a Word document in order to scan it in as a PDF. Still seem worth $500 per hour?<p>For those lawyers not at large firms, they're covering expenses (such as law school) that are enormous. High rates are a necessity, and who would charge far lower than market rates anyway? It might be interpreted as a signal that something is wrong.<p>Of course, don't for a minute think that paying $800 per hour will get you a better lawyer than paying $300 per hour. It might. Either way, you'll be paying someone in a staggering number of cases to unscientifically guesstimate What The Government Might Do, when the answer is, "who knows?". That doesn't mean all lawyers are the same; some are definitely better than others. But it has nothing to do with price.<p>More lawyers could afford to charge reasonable market rates, and not work for large firms, if it weren't for the ABA mandating that you have to attend a law school (that results in huge piles of debt) or clerk for years (four in California) in order to join the bar. See <a href="http://www.nytimes.com/2011/10/25/opinion/are-law-schools-and-bar-exams-necessary.html" rel="nofollow">http://www.nytimes.com/2011/10/25/opinion/are-law-schools-an...</a>.<p>Lawyers know, too, that you can't get rid of them (also thanks to the ABA), and so you're locked in. There's a monopoly on business representation, for example. See <a href="http://www.plainsite.org/issues/index.html?id=137" rel="nofollow">http://www.plainsite.org/issues/index.html?id=137</a>. It's absurd.

The same reason professional athletes make so much money even though high schools and colleges are full of kids who want to play for a living. Just having a good lawyer isn't enough - he needs to be <i>better</i> than the lawyer on the other side.

There are a few things to add in here (IANAL, but I'm close to quite a few).<p>A major element is billable hours.<p>When you want to reduce a bill for a client, during bad times or whatever, you can always under-bill the number of hours spent. Or change the mix of high-low-rate hours expended. Reducing the number of hours billed doesn't (necessarily) reduce the number of billable hours you can credit the attorneys.<p>While you can have equal salaries across departments, you have bonuses, which depend on how many hours you billed. Also, #billable hours is a great sort criteria for who's first on the shit-list and first on the promote-list.

I used to "hire" law firms regularly for my clients. What's not being mentioned here is that since in most cases the individuals _choosing_ the law firms for large financial and M&#38;A transactions (which represent the real meat of the "big law" business) generally aren't directly paying the legal fees, there's relatively little incentive for them to push for lower prices. (And if I remember correctly, if those legal fees are part of a financing transaction, they don't count against the businesses "normalized/adjusted" income, either.)<p>If I'm the CFO of a company that's doing a $500M financing round, am I really going to choose a lesser law firm to save maybe $100K in bills? I'm already probably paying the bankers $5M or more to do the deal in fees (arguably, that's the real gouging, given that the work doesn't really scale with the deal size but the fees do.) If I choose a cheaper firm, and they mess up (and frankly, all the firms make mistakes, especially when you have junior associates drafting filing docs) it could cost me my job.<p>(The most cost-conscious clients I've seen were entrepreneurs or at least majority owners of businesses - they saw those fees as coming right of out their own pockets, so they tried to do whatever they could to keep them down)<p>In-house counsels are definitely trying to push down costs by doing more things internally or offshoring more mundane stuff like day-to-day contracts. But at the same time, most of your in-house counsels come from a big law firm, so they're unlikely to break away completely, either.

Surely that's an opportunity for a new firm? The demand is obviously there (plenty of people don't see a lawyer for financial reasons), as is the supply (apparently).

This whole argument that this is "not a free market" is silly. None of the factors pointed to here would actually limit choice or restrain price movement. It is a free market, but that does not mean that the market lacks information asymmetries that would artificially morph prices.<p>As Antone points out, there is a strong quality perception issue. Ironically, it is the Bottom Line Law Group that is fighting this perception of quality on a daily basis (vs a Wilson or Fenwick). Thus it does not matter if the supply increases if the consumer perceives the bottom-end as an inferior good.<p>This skewed perception is rooted in a total lack of transparency in the legal industry. This lack of transparency limits the consumer’s ability to find lawyers like Antone, and keeps the cost of standard information and a simple opinion high.<p>I agree with Antone that the industry is on the brink of change, but it is a BIG messed up industry. Change will come in many forms within the industry's mirco verticals. It will come from networks of smaller more specialized law firms such as the Bottom Line Law Group, and from innovations which create more transparency in the industry to find qualified attorneys and access quality information.

Any way this market can be disrupted? Maybe through some more efficient/decentralized/AI-based services that would do much of the lawyer's jobs, forcing them to reduce their billing rates?

The article doesn't address what could be the most important factors.<p>First, your relationship with a lawyer is a personal relationship. And it's hard to break a personal relationship over a yearly price increase of single digit %.<p>And lawyers regularly wine and dine and become "friends" with their clients. The client really thinks that the lawyer likes them. If you've ever worked in sales you know what I mean by this. Lawyers are nice and friendly and that insures the loyalty of the client. When I was in high school I delivered gifts to the clients of a small law firm. I remember the partner deciding who got what gift (based on amount of work). This wasn't a bribe. Just a thank you to insure ongoing loyalty. (Maybe some were bribes of course).<p>Remember rates aren't doubled they go up a little each time they are raised. If you are already paying $400 per hour you aren't bolting for $425/hr. It's not like rates are doubling in a year.<p>The other reason is FUD. People convince themselves and rationalize that a certain lawyer at a certain rate will get the job done. They are afraid of switching lawyers and having a bad outcome.<p>So the above is certainly one of the things that keeps legal rates high.<p>What about new startup lawyers? Well the way any professional service works you start out with whatever work you can get at whatever price you can get (let's say). Then as you gain clients you slowly wean yourself from the low priced clients (by taking longer, not returning calls etc.) and they get the message. This leaves you with the best clients who you can raise rates on (because they like you and are fearful of changing).<p>So even if there was a group that charged low rates (to corporate buyers) over time their rates would rise as well. Because of the person factor I mentioned in the first paragraph.<p>Finally, even though lawyers can now market (I remember when they couldn't) they won't "sell" in the traditional sense. If I sell a service (like web hosting web design or unix sysadmin) I can pickup the phone and call people. I can go door to door. I can place ads. Lawyers can place ads of course but that's not the most effective way to sell personal services. Then you are waiting for someone to contact you. Selling is selling. If lawyers were ethically allowed and it was acceptable practice to "cold call" I believe you would see rates dropping in certain types of work.

My naive understanding is that only lawyers can own and operate a law firm. In other words one can't form the equivalent of an HMO and hire a bunch of lawyers and pay them a salary and offer legal counsel to individuals.<p>I believe this is mandated by bar associations on ethical grounds, though I find it absurd. This artificially inflates the cost of legal services.

Because there are no H-1B lawyers.

To respond to one point in the article:<p>&#62; Associate salaries are not an efficient, free market.<p>That is probably true, but the evidence supplied in the article supports an inference the opposite of the one made by the author. If everybody in New York pays $160k as an informal arrangement, that suggests artificially low salaries, not artificially high ones. Why would a bunch of firms act informally in concert to artificially drive up their costs?<p>And associate salaries, of course, have only an indirect effect on legal fees. The price of a good is directly influenced only by supply and the demand curve. The costs of making the good are irrelevant except to the extent they influence supply. Clients, of course, don't care what associates make. The amount they will pay for services is entirely a function of their demand and the supply of law firms willing to do the work.

The legal field isn't really amenable to simplistic economic analysis. With all due respect to thinkcomp, the idea that licensing requirements are what is driving the cost of legal services is totally wrong.<p>First, legal services generally aren't that expensive. If you need someone to help you draft a deed to some property, you can probably get that work done for cheaper than you would pay an engineer to design you a retaining wall on that property. When people say legal services are expensive, what they mean is that high-end corporate legal services are expensive.<p>Second, corporate legal services is not expensive because of limited supply. There are about 45,000 JD's graduated each year, and maybe 3,000-4,000 are hired at big firms that do corporate work. The rest work for far less money, in the $45-$60k range. If you wanted to start a firm doing corporate legal services at low cost, paying attorneys $80k a year (half the going rate of a first year at a large firm), you would literally drown in job applications. While in a platonic sense there is a supply constraint in the legal field, it has a practical effect more akin to crash safety regulations in cars than something that actually constrains supply to drive up prices.<p>If the state bars got rid of the requirement that lawyers attend an accredited law school, there would be almost no change in the cost of legal services at the top. Big firms hire the large majority of their associates from only 20 or so schools, out of the 200 that exist. Why would adding a category of potential hires below the huge group of people already not getting hired drive down salaries?<p>The price of high-end legal services is insensitive to the supply of lawyers for the same reason the price of Apple products is largely insensitive to the number of Korean competitors in the market: 1) brand is tremendously important; and 2) there are actual differences in the quality of the product.<p>Re: 1) Because it is difficult to tell whether your lawyer did a bad job or whether you just had a bad case, branding and signaling becomes tremendously important. It is that branding and signaling that makes companies keep going to firms that hire primarily from the top schools, even when there is nothing, legally, that prevents them from taking it to firms that have more diverse hiring standards.<p>Re: 2) The adversarial nature of law means that there is an arms race for the smartest people. While a lot of even high-end legal work can be very routine and boring, some of it can be very complex. That 10% of legal work that requires out-thinking the opposing counsel can have major repercussions for companies, and as such companies are willing to spend the money to ensure that their lawyers are smarter (at least on paper) than the opposing party's lawyers.

Think about this. If you have too many doctors, they run out of sick people and their prices go down. They don't go out and start injuring people to make business for themselves.<p>Lawyers do just that. If they don't have work, they can attack innocent citizens to create work for themselves. Frivolous law suits create new market pressure for more attorneys. Whenever you see slip-n-fall attorney commercials, that's just an window into the parasitically-based ecosystem that lawyers operate in.<p>Failing that, lawyers are the most likely profession to go into politics and create more laws that need what to sort them out? Oh yeah, more lawyers.<p>It's a troubling profession that needs to be considered carefully when you're making decisions about the economic impact of laws upon society.

Same reason so many of us here can bill out at several hundred dollars an hour even though there is an unlimited supply of people calling themselves computer programmers who will happily try to do the same job for $7/hr.<p>Valuable stuff is worth paying more for.

For anyone interested there is a good book called 'The End of Lawyers?' by Richard Susskind, a visiting Professor at Oxford, that discusses the ways in which technology will gradually commoditize many elements of traditional legal practice.<p><a href="http://www.amazon.com/End-Lawyers-Rethinking-Nature-Services/dp/0199541728" rel="nofollow">http://www.amazon.com/End-Lawyers-Rethinking-Nature-Services...</a><p>Chapters<p>1. Introduction - the Beginning of the End? 2. The Path to Commoditization 3. Trends in Technology 4. Disruptive Legal Technologies 5. The Future for In-house Lawyers 6. Resolving and Avoiding Disputes 7. Access to Law and to Justice 8. Conclusion - the Future of Lawyers.

The fee overage acts as insurance. Since the downside of legal services (no matter the competence) is significant, consumers believe the extra money they are paying will help mitigate any unfortunate circumstances.

Simple, because government keeps passing more and more laws that create more ways to become liable. While there may be growing supply of lawyers, there is a growing demand due to this explosive growth of new laws. Stop the government from controlling every inch of our lives, and you will see lawyers getting cheaper.<p>I also agree with the previous reply that this article only deals with the 10% of lawyers who work in big firms. The other 90% of lawyers that don't work in big firms are out there competing everyday for your business and are charging reasonable rates.

HN, help me make up my mind: is an abundance of lawyers to be seen as a necessary component of a complex society? Or is it a symptom of decay? Are lawyers necessary agents of the greater good or are they vampiric rent-seekers on a byzantine legal morass?<p>I'm not trying to be clever; I genuinely want to figure this out.

The supply of lawyers is high, but the supply of good, experienced lawyers with good reputations is lower.

What I found interesting in dealing with layers: they charge high rates even for standard contracts, EULAs etc. and when asked if one is safe with their advice, only tell you that courts can decide in whatever way they want - so no.

I would add:<p>1) Pay can be high with win/lose stakes<p>2) Different pay models (contingency)

Supply Induced Demand. They're out there, so you need one too. The other guy has 2, you better get 2, too. No such thing as an "excess supply."

This article misses one point, law school is expensive!<p>Students generally will want to pay their 6-figure debts with a matching salary.<p>When you don't have to worry about a huge debt, it allows you to be riskier and try other avenues, such as public interest, or work in small lesser known industries

Who said there is an excess supply of lawyers?

It's why Legalzoom is doing so well.

Perhaps it is because lawyers are, by definition, the experts at defending dubious practices.

"Back to Econ 101. What happens when you double the price of something? Demand for it decreases."<p>Pretty sure what he's describing is sliding the supply curve straight up, which has exactly the opposite effect.