Why doesn't the law of supply and demand seem to apply to certain professionals?
May 11, 2010 9:59 PM   Subscribe

Why doesn't the law of supply and demand seem to apply to certain professionals? For instance, there seems to be an abundance of lawyers. I've never met a lawyer who was too busy and had to turn down work. Yet they all seem to charge $250-500 or more an hour. I've also looked for programmers and designers. It's extremely difficult to find anyone good, and when you do, they're almost always too busy to take any additional work. Yet they still charge much less than lawyers. What factors are causing this?
posted by lsemel to Work & Money (33 answers total) 21 users marked this as a favorite
I'm not quite sure if this is what you're asking, but one thing to consider is that it takes at least 4 years of college + experience to be a "good" programmer that you would want to hire. And obviously law school takes quite a bit longer than that. It seems to me that any sort of reaction to current market demand would take years to show any result in supply. It's not like you can wake up one day and say "The world needs more programmers. I'm going to become one and start looking for jobs next week."
posted by DMan at 10:10 PM on May 11, 2010

"For instance, there seems to be an abundance of lawyers. I've never met a lawyer who was too busy and had to turn down work. Yet they all seem to charge $250-500 or more an hour."

There are definitely lawyers who are too busy, and have to turn down work. My firm has done it many times. Also, the hourly rate includes a lot of overhead, like the cost of the lawyers' office, Westlaw (costs a fortune), secretaries, etc. etc.. And there's not really an abundance of good lawyers -- not the kind who can justify (and get away with) charging high hourly rates.
posted by mikeand1 at 10:12 PM on May 11, 2010 [1 favorite]

Perhaps the barriers to entry in law? Namely requirements to pass the Bar, and the pre-requisite in most states that in order to take the Bar, you have to have a J.D. Which means a lot of money spent on tuition. That drives up the cost to get the training for practicing lawyers.

Meanwhile, someone could develop pretty good programming skills with minimal (or even no) college and no certification or other barrier to entry to practice in the field.
posted by darkstar at 10:12 PM on May 11, 2010

Because the law of supply and demand tries to impose rationality on the inherently irrational thing that is human nature?

And/or you may be wrong: I've never met a lawyer who was too busy and had to turn down work

Lots of us working in law firms never seem to have enough hours in the day (and night and early morning and next day and on until you bring a sleeping bag to keep in your office). And lots of us working as public defenders barely have the time to sleep at night, let alone keep a client off death row.
posted by sallybrown at 10:13 PM on May 11, 2010 [1 favorite]

Why doesn't the law of supply and demand seem to apply to certain professionals?

The classic laws of supply and demand are really bounded by a number of assumptions that do not apply in the real world. In economics lecture-land lawyers (for example) are priced in such a way as to clear the market. In the real world there are tons of constraints which are happily assumed away.

Off the top of my head: you can't just become a lawyer because the demand is outstripping supply at a particular price level. The friction involved in moving in or out of the field means that prices other than the market-clearing price may be supported.
posted by pompomtom at 10:13 PM on May 11, 2010 [1 favorite]

So, in essence, yeah -- there really are supply/demand factors at play. The cost to get the training is one of the key ones.
posted by darkstar at 10:14 PM on May 11, 2010

Clearly, as a freelance programmer, if you have all the work you can handle and more, it would make sense to raise your rates until you deterred enough people that you had spare time, thus maintaining or even increasing your income while reducing the amount of work you do.

There are a couple if plausible reasons why programmers don't do this:

- Programmers like programming and don't want to do less of it, but lawyers don't like lawyering.
- Lawyers have more business sense than programmers.

Another explanation is that lawyers have a functional cartel, complete with "bar associations" that prevent genuine competition. Any shlub can call themselves a programmer, so they genuinely compete with each other. (Yes I know that there's more to professional legal bodies but restrictions on who can be a lawyer really do impede competition, even if they're there for other reasons).

Another explanation is that people don't trust cut-rate lawyers (or doctors, for that matter), but for whatever reason, they believe programming should be cheap. So lawyers have to price themselves high to win work, whereas programmers don't.
posted by i_am_joe's_spleen at 10:14 PM on May 11, 2010 [3 favorites]

I don't mean that snarkily - but your question is fundamentally flawed. First you cite no specific credible statistics except your observation. When talking about economics, our individual obervations are not useful. For example, your observation about lawyer rates is incorrect. Lawyers make a wide range of salaries an charge a wide range of fees, using multiple different fee structures. You may want to read up on the "contingent fee" agreement for an example.

A more useful question might be: how are salaries and hourly rates for professions determined?

And of course the answer is: a million different variables. But at the end of the day it is market forces and in response to the laws of supply and demand. So for example MY observation from inside the legal profession is not that lawyers everywhere are charging so much money. I have observed my classmates remain jobless for months and years. My school's career services office told one of my classmates to consider Starbucks as an option, because that came with health benefits. And still another friend from a top 20 law school was given a public interest deferrment for a year since there was no work for her to do in LA. But if you want cold hard statistics about what lawyers actually earn, check the law school askme's out. They often cite the different salary statistics for lawyers. You'll quickly see that the "lawyers charge a lot" generalization just doesn't hold up.
posted by greekphilosophy at 10:21 PM on May 11, 2010

I've never met a lawyer who was too busy

Well, right there, one of your premises is seriously flawed.
posted by Jaltcoh at 10:22 PM on May 11, 2010

(also, I'd imagine that lawyers would not consider themselves fungible)
posted by pompomtom at 10:24 PM on May 11, 2010

Programmers are expensive because we aren't very good at determining how long a given job will take. This is in part because customers often don't know what they want until they've got something in front of them to see what's missing. So we have to charge taking into account that we might end up spending much longer than we had planned. Or we could charge by the hour, and every time the customer changes their mind, charge for all the time that making the changes takes. Of course, either way, it's hard for us to take on multiple clients, because (a) there is a fair amount of mental effort in switching between projects and (b) we can't commit to finish project B by a given deadline if project A still might require a lot of time before that deadline.

Also, the supply of good programmers is low because being a good programmer requires (a) raw ability and (b) many hours of practice.
posted by novalis_dt at 10:27 PM on May 11, 2010

When you consult a lawyer, it involves serious stuff, oftentimes stuff that can have a severely negative impact on your future, and perhaps your freedom.

When you consult a programmer, you may need something important done... but it's likely nowhere near as important for what you would hire a lawyer for.
posted by azpenguin at 10:32 PM on May 11, 2010 [4 favorites]

You're misunderstanding the "law" of supply and demand.

You seem to think that if there is excess supply of something (ie lawyers who are not already too busy to take new clients), then its price should be cheaper than some other good or service that seems to be in short supply (computer people).

Basic microeconomics doesn't say that, though.

What it says is that in equilibrium and in perfect competition, price equals marginal cost. The price of an hour of lawyering is exactly equal to the opportunity cost of providing that hour of lawyering to you, and the price of coding a hideous flash interface to your photos is equal to the opportunity cost of providing you that flash interface. In both cases, the opportunity cost of the value of highest alternate use of the resources and people's time that it took to provide the good.

And it's entirely possible for the marginal cost of lawyering to be $200/hr, while the marginal of programming is less than that.
posted by ROU_Xenophobe at 11:01 PM on May 11, 2010 [2 favorites]

Many people who train as lawyers end up doing something else, it's quite a flexible qualification. So while the 'supply' of graduates might match demand, not all those graduates will become and remain practising lawyers.

I have also heard anecdotally from friends in the legal profession in the UK that law practices delibarately do not match their 'supply' of lawyers with the demand for their services, because this keeps prices high and means the incumbents make more money (albeit only by working long hours).
posted by girlgenius at 11:12 PM on May 11, 2010

but one thing to consider is that it takes at least 4 years of college + experience to be a "good" programmer that you would want to hire. And obviously law school takes quite a bit longer than that.

It only takes a short two years of law school to get a law degree. This argument is far more applicable to doctors. Anyway, my explanation is that being a lawyer sucks (really sucks) and there is fierce competition for lawyers from the best schools which validate the fees. Let's not forget that programmers are competing globally.
posted by xammerboy at 11:29 PM on May 11, 2010

Many of the classic professions in the United States seek economic rent. That is, they establish artificial barriers to entry (bar admission, medical board exams, public accountancy certification, etc.) that limit the supply of professionals. This drives up cost.
posted by mr_roboto at 11:36 PM on May 11, 2010 [1 favorite]

Another explanation is that lawyers have a functional cartel, complete with "bar associations" that prevent genuine competition. Any shlub can call themselves a programmer, so they genuinely compete with each other. (Yes I know that there's more to professional legal bodies but restrictions on who can be a lawyer really do impede competition, even if they're there for other reasons).

This is the main answer.

Programmers used to be quite a bit more expensive than we are now. But the problem is that people hear my rates, and then compare them to what they'd find on offshore coders from rentacoder or elance, and they tend not to pay my rates. This isn't true for people who actually understand software development, but it is true for the majority of people who just have an idea and think programming is basically just typing in a fancy text editor.

So the lawyers have a local cartel that keeps prices high, and I have to compete with people in the developing world for whom $10,000 is a princely annual salary.
posted by Netzapper at 11:43 PM on May 11, 2010 [1 favorite]

Programmers are a lemon market. There's a wide range of skills among programmers. Many of them are very poor, and a few are very, very good. Most people who hire programmers aren't able to tell the good from the bad, so that uncertainty is reflected in the prevailing wages.

Lawyers have higher barriers to entry, so the least talented lawyer on the market is probably a lot better than the least talented programmer in the market. I've hired a fair number of programmers, and I've evaluated lots of people who seem to be unable to write simple programs.
posted by chrchr at 12:03 AM on May 12, 2010

Why doesn't the law of supply and demand seem to apply [...] there seems to be an abundance of lawyers. [..] Yet they all seem to charge $250-500 or more an hour.

Let's say I'm lawyerin' 45 hours in a week and charging $250 an hour. I could work 50 hours, and I could charge less than $250. Why wouldn't I?

1. By lowering my rates to get a bit more work, I might end up with less money in my pocket overall (i.e. if I reduce my prices by 12% to get 11% more work).
2. By working 5 more hours a week, I might miss time with my family which I value at precisely $249.99 per hour.
3. Once I have a certain amount of money, I might be happy with my income; no point in making more money if I don't have anything to spend it on, especially if making that money is a bunch of hassle (If you've got money in a savings account that earns less than the highest possible interest rate, then you know what sometimes you know sometimes people will miss out on a bit of money to avoid a bunch of hassle).

In other words, the answer to "why don't lawyers charge less to get more work" may be "because no individual thinks it would be in their self-interest"
posted by Mike1024 at 12:44 AM on May 12, 2010

Best answer: Your evidence is flawed but your intuition is right.

Programmers are much closer to a competitive market than lawyers are: if you want programming work done you can easily hire someone from anywhere in the world, no special credentials or certifications required; buyer beware, but also buyer be free, as it were.

In the legal field there are among social pressures against working in ways that would put price pressure on the rates of other lawyers.

For people looking for a lower-pay but higher-quality-of-life legal job can work for the government or for nonprofits or as an in-house lawyer, etc.; such gigs typically are salaried. This works out so that the effective hourly rates are lower -- what you'd get by calculating hours worked versus rates paid, less overhead and so on -- but there's no "hourly rate" that is being quoted or considered.

The legal field also takes a lot of steps to ensure that the very bottom end of the market is satisfied without quoting low hourly rates. These mechanisms are fairly varied:

- there's small claims court for truly small potatoes claims; no lawyers needed (and often not allowed), legally binding judgments awarded. This cuts out a lot of demand for low-budget, low-stakes lawyering (the "it'd be worth $100 to get my neighbor to repair the part of my fence that got torn down when his ill-maintained tree fell upon it" type of lawyering)

- the state supplies public defenders to the very indigent at zero cost; this means that there is no demand for very cheap criminal defense lawyering (say $20/hr or so), b/c the target customers get lawyers for free

- for many types of civil suits lawyers work on a contingency fee basis. This means the lawyer will take your case for no (or almost no) upfront cost, but then they take a large chunk of anything you win in the case. This further reduces the demand for cheap paid lawyering, b/c for most candidates for contingency representation the contingency approach is more economical (even if we were comparing it to like a $50 / hour lawyer)

- for certain types of problems lawyers work pro-bono, meaning they take the case for free as a kind of public service (usually the case is something that can be vaguely said to be charitable or in the public good); this further undercuts the demand at the very lowest end

The above factors alone account for a lot of the discrepancy you've noticed. There are a few other dynamics at work. Perhaps the largest is what my wife calls "plastic surgeon syndrome" (not sure if there's an official term for it). The gist of it is:

- just like with, say, getting major cosmetic surgery, law is a field where you pretty much only get "one chance" to get it right; yes, it can be possible to appeal if you lose, but you can't keep filing the same suit over and over again until you get it right (just like you in theory can get repairs / retries on some cosmetic surgeries, but you really can't keep getting nose jobs until it looks right without a risk of it coming out really freaky and fake)

- since you only really have "one shot" -- and since legal issues tend to be serious issues -- people are risk-averse; they try to find the best lawyer they can afford, rather than the best lawyer relative to an overall price/performance metric. It's not worth saving $100/hour on a case if you wind up losing

- the consequence of this is that low-end lawyering just doesn't work: it seems like a bunch of these unemployed recent law-school grads could go into business as budget lawyers -- 40-50/hour for basic stuff -- but the demand's just not there, b/c anyone willing to pay for a lawyer isn't going to feel comfortable getting a budget lawyer for anything, on the "i'd feel like an idiot if I lost this case b/c the budget lawyer was no good" theory. (Incidentally, this is part of the dynamic behind pro bono work: young attorneys can only get involved in more "serious" work by finding people who can't afford representation and representing them for free; this lets the attorney build up more-substantial experience than would otherwise be the case)

...and, finally, there's a tendency to not bother competing with the competition. EG: there is the "divorce store", there's nolo press, and there are various online ways to get basic stuff done (like incorporation) that might typically require a lawyer. Rather than try and compete directly with such "competitors" (eg: by lowering prices) you tend to see the legal field basically ignore them, or wave them away while proclaiming "you get what you pay for". This tends to work: better to keep rates high and lose some marginal amount of work than drop rates.

So in a nutshell that's your answer: the legal profession has barriers to entry and a regulatory infrastructure in place that lets it shape the basic contours of its marketplace to suit its own needs. It uses those tools to ensure that legal work paid-for on an hourly basis doesn't face too much downward price competition basically by siphoning off the demand for cheap legal work via other means (public defenders, pro bono, contingency) and by siphoning off lawyers who might be interested in such work into employment arrangements that don't quote hourly rates (salaried work). The remainder pops out of basic social dynamics (risk-aversion due to the one-shot-only nature of legal proceedings).

Posner's written extensively on this topic, usually putting it into the framework of "the legal field as cartel" and similar; in this case "cartel" is meant as a technical term (from economics), though one chosen deliberately for its derogatory connotations. Arguing whether or not the system as it is is in the best interests of the general public is not worth addressing here; as you might imagine you can find plenty of lawyers (and legal scholars, etc.) have already taken up every side of the case and said everything there is to say on it. That they haven't reached a verdict on it shouldn't be surprising, as all legal argumentation is ultimately just appeal to authority, and therefore incapable of yielding definitive answers when there's no authority to provide answers.

Compared to the medical "cartel" the legal "cartel" isn't doing too badly, though: you can't lay all the blame entirely at the medical cartel's collective feet, but the fact remains the healthcare system in this country has become so problematic it has required incredible amounts of federal intervention to try and improve the situation, with no end in sight in the near future (and I say this as the spouse of a physician); by comparison, the legal cartel has left us with the most lawyers per capita, but other than that seem on balance mostly harmless (expensive, perhaps, but harmless).
posted by hoople at 5:03 AM on May 12, 2010 [75 favorites]

I'm surprised that no one's mentioned this already, but being a lawyer isn't free. Lawyers may charge in excess of $200 an hour for their work, but that isn't mostly take-home pay.

Let's say I want to set up a solo firm. Unless I work out of my house, which looks really unprofessional and is not going to attract clients, I need office space. That's probably going to run me north of $1000 a month. Throw in utilities with that and we're at $1200-1300 (commercial telecom is expensive). Then I need access to either Westlaw or LexisNexis, without which it's basically impossible to practice law today. Call that $1000 a month for a full package. Add additional, basic office stuff (printing, computers, stationary, etc) plus some marketing costs (yellow pages ad at the minimum) and we're up to a basic, bare minimum monthly cost of $2700/month, or $32,500 a year. Add in CLE and bar membership fees plus legal malpractice insurance and you're looking at a minimum of $35,000 in costs just to be able to do legal work at all.

But that involves me doing all of my own printing, paper filing, answering all my own phone calls, keeping my own calendar, etc. That's not a terribly good use of my time, as a bunch of that stuff will interfere with my ability to bill. But as a paralegal is going to cost me at least $40,000, I'll probably just have to do without.

At 2000 billable hours a year--which will probably involve well north of 3000 hours in the office--I need to charge $17.50 an hour just to cover my costs. I don't actually have a salary at this point, I'm just covering my costs. But work isn't that easy to find, especially if you aren't in a big firm, so most lawyers are lucky to get 1500 billables. Now we're at $24 an hour. I'm not in a firm, so I don't have to do profit sharing or pay associates or anything like that, but we're looking at something like $20 an hour just to have an open law office.

Then there's the issue of costs. Doing discovery and prosecuting cases costs actual money, not just labor. Compiling 10,000 page discovery requests, even at pennies a page, adds up pretty quickly. Doing this electronically is way more convenient, but not necessarily any cheaper. Expert witnesses can charge $4000 a day. If I'm taking this on contingency, I'm not actually getting paid by the hour--indeed, I'm not getting paid at all if we don't win--but the costs come out of my client's part of the recovery. But if I'm billing by the hour, I pay all of those myself. So I've got to factor that in to any hourly rate.

But I'm lucky if I'm going to be able to charge $100 an hour as a solo practitioner. $85 an hour isn't unlikely. Hell, I may not even be able to bill hourly at all. Most solo guys and bit-piece small firms just charge a flat fee for particular types of legal proceeding. $250 for a divorce, $500 for a custody dispute or CPS appeal, $300 for a DUI, etc. So depending on rates and billables, my annual revenue is probably something like $130,000-150,000 a year. Knock the $35,000 of fixed costs right off the top and we're down to $95,000-115,000. Factor in costs of prosecuting cases and you could be looking at $40,000-60,000 gross income. Before taxes. And I'm going to have to pay self-employment taxes, so that's not as much as it looks. It's more than the national average, but only just enough to squeak out a middle-class living in today's economy. There's also the issue of debt. I currently owe Citibank about $1000 a month to service my student loans, and at this rate I'll be paying them off until I'm 45. That's be a huge chunk of a middle five-figure income. Believe me, I know.

This is, believe it or not, where many lawyers wind up. Not necessarily as solo practitioners, but in small firms, bringing down less than $100k a year. Median income for attorneys in the US is about $110,000.

Mid-size and large firms can charge significantly more, but their costs are also significantly higher. Prosecuting a class-action lawsuit is going to take hundreds or thousands of man hours, which means retaining support staff. These cost anywhere from $50,000-90,000 a year and can't be billed. But there isn't any other way of managing a multi-million-dollar lawsuit. It just has to be done. Biglaw, white shoe firms, the sort you see in skyscrapers in most major urban areas, can charge anywhere from $250-1000 an hour depending on the nature of the work, the market, and the client. And as was mentioned above, though there are plenty of lawyers, there aren't all that many good lawyers, i.e. lawyers who are able to manage really big-ticket transactions and lawsuits competently.

All of that being said, there is currently downward pressure on the legal market. The big firms have laid off thousands of attorneys in the past two years, and they've slowed their acquisition of new talent significantly. But being an attorney is neither easy nor cheap, and requires significant investments of both time and money, so attorneys will always be able to charge more than professions which require less up-front investment.
posted by valkyryn at 6:44 AM on May 12, 2010 [16 favorites]

The answers here seem to concentrate on lawyers (and bring to mind an old joke: "There's not enough business in this town for one lawyer, but there's more than enough for two") but a similar scenario occurs in medicine, at least in the US. Basically, if there are a lot of specialists and expensive equipment in a given area, there is a lot of pressure to use it, even if the benefits are questionable. Patients want the latest technology they have seen on the news and want to be treated by a specialist rather than jack-of-all-trades like an internist or family practitioner, administrators want expensive machines like MRI scanners or surgical robots used as much as possible in order to quickly recoup their costs and start turning a profit, and physicians want to use the latest cutting edge tools as a matter of professional pride and intellectual curiosity (as well as wanting to provide what is thought to be the best possible care for their patients). If insurers or other payers try to limit this they are accused of rationing (which they are doing, although it may well be justified) and made out to be the bad guys, so instead they pay for all this advanced technology and just raise the premiums for their customers. The end result is the most expensive health care in the world. A couple of examples: ear tubes are more commonly placed in children in areas where the supply of ENT surgeons compared to primary care physcians is relatively high; McAllen, TX has a relatively large and sophisticated medical center for a town its size, utilizes it extensively, and also has some of the highest medical costs in the country.
posted by TedW at 6:50 AM on May 12, 2010

I'd imagine that lawyers would not consider themselves fungible

You would be wrong. Ask any recently unemployed 2009 or 2010 law school graduate with $150000 in debt and 0 job offers.
posted by T.D. Strange at 6:52 AM on May 12, 2010

But everyone's missing the biggest point: lawyers can help keep you out of jail. This is significantly more important (somtimes life or death important) than what you would hire a programmer for. Of course the fees will be different!
posted by Eicats at 7:14 AM on May 12, 2010

A young associate at a reasonably big firm earning $100,000/year (for roundness's sake) is billing 2,000 hours, which means he's working 3,000 hours. He's being billed out at $250/hour, which brings in $500,000 in income. However, he's only actually making $50/hour billed or $33/hour worked. The rest of that is going to overhead -- office space, Lexis and Westlaw, secretaries, paralegals, computers, partner profits.

Even at the bottom end, I worked as a legal clerk in college reviewing depositions and using a highlighter (woooo!); I made $10/hour and was billed out at $35/hour.

Also, anecdotally, charging low rates as a lawyer brings in "bad" clients, who have skewed expectations of what the legal system can accomplish for them and who, often, can't afford the $50/hour of the low-rent lawyer times the number of hours the task will take to accomplish. Rightly or wrongly, many lawyers use rates to screen clients. It's simply easier and more pleasant to work with clients who understand at least the basics of the system and who won't sue the lawyer if the case is (legitimately) lost. Even my malpractice insurer has some polite, read-between-the-lines language in their "avoiding lawsuits" information about using rates to exclude bad clients who will want to sue you; many lawyers simply aren't willing to deal with "unsophisticated" clients and rates are a way to ensure that.
posted by Eyebrows McGee at 7:51 AM on May 12, 2010

There’s been some good discussion of barriers to entry and overhead in a law practice, and I think a lot of previous answers have spelled out a lot of the underlying economics of the legal market.

Let me talk about pricing issues for the work done by large law firms. It is extremely difficult to apply the idea of perfect competition to legal services billed by the hour. Among other things, the market is extremely slow to react (reach equilibrium), hourly rates are sticky, and consumers (clients) have imperfect pricing information. Also, the market for legal services is highly stratified / segmented. Lawyers are not fungible goods, and an antitrust litigator is absolutely not comparable to a lawyer who handles pharmaceutical regulation.

If a corporation is looking to handle a complex lawsuit, and is considering Firm A with partner rates of $500 per hour and associate rates of $300 per hour, and Firm B with partner rates of $350 per hour and associate rates of $200 per hour, that is NOT the only factor driving cost. Looking at those factors, you can’t tell which one is cheaper. Will Firm B (with cheaper hourly rates) engaged in “New York” style billing practices and staffing (sending three lawyers to a hearing when one might do just fine)? Will Firm A outsource scutwork to really cheap contract attorneys (and pass on those savings to the client)? Does Firm A have a lot of experience with this type of lawsuit, meaning that the lawyers’ time to prepare the case would be a lot lower? Or will Firm A take a “scorched earth” view of litigation, vastly increasing costs?

In recent years, legal services have been priced by the billable hour, which is a crappy way of capturing value. Since lawyers are compensated based on how many hours they bill, it rewards inefficiency if not policed well by the client.

Plus, higher hourly rates do not necessarily translate into quality. Big-name law firms in New York charge out third-year associates at higher rates than partner rates in secondary legal markets. Which lawyer is more qualified? Which provides the better value?

I know of a law firms whose lawyers raised their hourly rates significantly, and explicitly fired a bunch of clients who were giving them commodity-level work. Over the next year, billable hours INCREASED, as did client development (and profitability). What the legal business consultants would say is that the lower rate / commodity level work operated as market signaling (indicating quality). And that at the higher rates, the firm moved into a different market altogether. Higher price (hourly rate) led to higher utilization of services (demand).

Dissatisfaction with the billable hour has led many corporate legal departments to demand alternative fee arrangements. It is certainly a trend that many are writing about (and clients are using in fee negotiations with law firms). But pricing alternative fee arrangements has lots of imperfect information (uncertainty) associated with it, too.

tl;dr – legal market is complicated, don’t assume simple microeconomic supply-and-demand applies.
posted by QuantumMeruit at 8:13 AM on May 12, 2010

A 5:1 billout to take home is terrible for the consumer---most consulting firms I know of (engineering, environmental, scientific) do it for 3:1 on average, good shops can manage it for 2.5. Some of these are very large (5000+) multinationals. Engineering firms also have very high infrastructure requirements: IT, admin, maketing, just like law, but also machine shop and actual materials costs too.

They manage it, I think, because cost pressures from the client side are very high. There are a lot of consulting engineers|scientists|environmental assessors out there, and this keeps prices low. A starting salaries range from 25k to 40k (at least in Canada). Senior PEs might make 60 to 80, partners/principals, more of course.

Cost expections do seem high in law if that's the case.
posted by bonehead at 8:24 AM on May 12, 2010 [1 favorite]

Bear in mind that the really good programmers probably don't work per hour. They start companies, write software, and then make millions selling the software.

The best programmers probably make more than lawyers, because you can only charge so much an hour, while if you write a really popular iPhone app you could make a couple of million bucks for a month's work.
posted by musofire at 9:53 AM on May 12, 2010 [2 favorites]

Asking for $250-$500 per hour is very different from being paid $250-$500 per hour.

When I was working in a sandwich restaurant to help pay for school, my boss pointed out to me that he could always spot a lawyer based on the clothes they wore and what they ordered in the restaurant. The folks in suits ordering $1.98 hot dogs were almost always lawyers, and the folks in blue jeans and scruffy shirts ordering the $7.98 roast-beef-and-cheddar sandwiches were almost always software engineers.

Of course, we weren't exactly the most upscale restaurant in the area...
posted by sbigelow at 11:52 AM on May 12, 2010

Asking for $250-$500 per hour is very different from being paid $250-$500 per hour.

For the most part, it's not, if you're referring to the billing rates for most major law firms. These firms tend to have their bread buttered by major corporate clients, e.g. Target, Qwest, etc. They're billed monthly, and they pay monthly, otherwise the next month's work doesn't get done and the deal falls through or nobody makes the court appearance etc. Perhaps ironically, it's the sole practitioner doing a $500 divorce who is way more likely to get stiffed on fees, which is why many of them ask for retainers or payment up front.
posted by craven_morhead at 1:01 PM on May 12, 2010

For instance, there seems to be an abundance of lawyers.

Despite conventional wisdom, I found using Job Voyager (which works from Census data) that the fraction of the U.S. population working as lawyers and judges has remained about the same since 1850. In view of the much-increased complexity of the legal landscape in the past 150 years, it could be argued that there is now an under-supply of lawyers.

On preview, I see that Job Voyager has changed their visualization methods to make it easier to read smaller percentages, and note that the fraction of lawyers and judges has almost doubled in the last 30 or 40 years from about 0.3% to about 0.6%. Oddly, the fraction in the mid-20th century was lower than in the late 19th century..
posted by exogenous at 6:12 AM on May 13, 2010 [1 favorite]

Two things: it is easier to price the value of a lawyer, which leads to overpricing relative to a programmer, and lawyers do work which provides more economic benefit individually.

First, a lawyer's value is easily priced. In litigation, the lawyer is either trying to get the demanded amount of funds or prevent the same amount from being turned over. In contract or other areas of law, the amount is the amount paid for a thing being contracted for. It makes it easy to price and easy to demand.

Not so for a programmer. The amount that new database will save your firm is unknown--it is essentially a leap of faith.

Second, lawyers provide more bang for the buck. My old bosses' uncle handled the Exxon Valdez oil spill case for Alaska. That's billions with a B and a team of a few lawyers handles that stuff.

I'll never forget riding in the car on a family vacation and asking my dad if I could read the papers in his briefcase. He was Corporate Secretary and Assistant General Counsel to a Fortune 250 company in the 1980's. The first document I pulled out was a loan agreement between his company and the First Boston for 250,000,000 dollars. I was astounded--two hundred fifty million? I asked if they were buying another company. He laughed "that's quarterly operating cash." Later in his career, he managed the negotiations to sell a division of the company to a corporation in France for 4,000,000,000 dollars in 1990 money. Programmers, by the nature of the tasks they perform are not required to deal with amounts like this.

Remember also that the vast majority of lawyers are not making giant sums of money.
posted by Ironmouth at 8:06 AM on May 23, 2010

While I think those are great points you make, this one isn't always true:

Programmers, by the nature of the tasks they perform are not required to deal with amounts like this.

If you work for any large enterprise -- say a trading bank -- you can and do write software where you can make errors that have severe financial consequences. If you write control software for machines, you can make errors that have several financial consequences or perhaps kill someone. True, many people don't, but then most lawyers don't work in the big time either.
posted by i_am_joe's_spleen at 12:37 PM on May 23, 2010

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