
Why Are Lawyers So Expensive Even With The Excess Supply Of Lawyers? - mirceagoia
http://www.forbes.com/sites/quora/2012/03/06/why-are-lawyers-so-expensive-even-with-the-excess-supply-of-lawyers/
======
grellas
A few quick thoughts (am about to go into a meeting):

1\. Lawyers are _not_ 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).

2\. That said, I am no fan of the Big Law model and have expressed my
criticisms at some length elsewhere (see, e.g.,
<http://news.ycombinator.com/item?id=1648342>). 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
<http://news.ycombinator.com/item?id=1649507>).

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.

~~~
Iv
The laws of market implies rational actors and decisions aimed at maximizing
revenues. Lawyers, especially new ones, may consider reputation more valuable
than cash. A begginer charging $800 an hour will get nothing. To maximize
profit should charge any price to get his first clients then go upward.
However, if he has the patience of trying to find clients for several months
and sticking to his initial price, he will end up getting one (there are many
irrational actors out there). That is not a profit maximization strategy but a
shortcut to high reputation and a gamble many lawyers may be tempted to do,
especially those that have a high self-esteem.

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

~~~
flyt
These answers are republished by Quora to Forbes, with permission from the
original authors. See this for more info: [http://www.quora.com/How-does-
Forbes-decide-which-Quora-answ...](http://www.quora.com/How-does-Forbes-
decide-which-Quora-answers-to-post-on-their-website)

~~~
mirceagoia
Indeed, that's the situation. There is a partnership.

~~~
andrewem
Slate appears to have a similar partnership, with the first such post
appearing earlier today: <http://www.slate.com/blogs/quora.html>

~~~
flyt
Huffington Post too: <http://www.huffingtonpost.com/quora/>

------
jerrya
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.

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.

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.

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.

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.

~~~
bane
"They need a lawyer. And they need to stop spending time searching, and get on
with resolving. 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."

It's interesting because the same fundamental problem is true of health care
in the U.S.

It's essentially, "they need a doctor. And they need to stop spending time
searching, and get on with not dying"

The market dynamics and model are entirely different with these sorts of
emergency industries. It's almost always "first available" and not "best
cost". Even with shopping around (when the luxury is available) the decision
is perceived quality first, cost second (or lower).

~~~
dantheman
There are both things that can be dealt with through a bit of planning. I.e.
determine a pool of potential lawyers you will use and in the same regard
determine a pool of potential hospitals/doctors you want to use. Then if you
need one, you've done the leg work and know where to go.

~~~
bane
Depends, this might work for some common cases, but there are lots of
different kinds of lawyers just like different kinds of doctors.

The lawyer I use for business is entirely different than the one I might use
to defend against a murder charge is entirely different from defending against
a traffic ticket is entirely different to sue on a trademark case is entirely
different from suing somebody for slashing my tires, etc.

------
jonnathanson
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.

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).

~~~
cobrausn
It seems to me that lawyers have a captive market - I mean, you're not going
to _not_ hire a lawyer when you need one, yes? And with the truckload of new
laws that enter the books every year, there will likely be no shortage of need
anytime soon.

It seems to me this 'salary matching' is basically price-fixing, even if
unintentional. If my only option is a $650 / hour lawyer or a more prestigious
$750 / hour lawyer, why not pay the higher price? I mean, legal matters can be
scary to those not well versed in the intricacies of the law.

~~~
rayiner
> It seems to me that lawyers have a captive market - I mean, you're not going
> to not hire a lawyer when you need one, yes?

It's not any more captive than any other sort of market. If you live in LA and
need a car, you're not going to not buy a car, right?

Corporations hire expensive lawyers for the same reason they get expensive
architects to do their interior design. It's a signaling mechanism.

------
noonespecial
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.

You can't launch a satellite halfway into orbit to save a few bucks. You go
all the way, or stay home.

------
wtvanhest
The unobvious but major thing missed is that hiring the wrong lawyer is far
more expensive than an additional $300 per hour.

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.

~~~
Anechoic
_The unobvious but major thing missed is that hiring the wrong lawyer is far
more expensive than an additional $300 per hour_

You could say the same for any number of industries - hire the wrong
structural engineer and that bridge or building will collapse, hire the wrong
nuclear engineer and attack sub might run out of power while engaging the
enemy, hire the wrong electrical engineer and the airliner's control system
may fail, etc - and yet only very few people in those industries can ask for
over $250/hr.

~~~
newman314
Well, if you think about it, when you deal with a lawyer, it invariably has to
deal with the law whereas the other professions only deal legalities as a
result and not primary purpose. So the relative consequence is not the same.

Similarly, with the police, because they are charged with law enforcement and
being equipped with guns is very different than dealing the local surly person
at the market.

That's why I'm of the opinion that certain professions need a lot more
oversight and avenues of recourse than others. One would be foolish to think
otherwise.

------
chollida1
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.

If your life is on the line for an operation, you want the best doctor
available.

Your life on the line in a trial, you get the best lawyer available.

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.

Want that dream house?

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.

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?

~~~
johngalt
This is the #1 reason, and the common explanation, but lets examine it
further.

You risk your life getting into your car every day. You don't pick the most
expensive car? Choosing air travel is commonly an exercise in finding the
lowest price, despite the inherent risks/fear of traveling 4 miles up at
500mph. Why are these commodities while preparing a will is not?

There are transactions/disputes that require highly skilled people to
direct/settle, but I wonder how many legal systems have been specifically
constructed to require guidance. How can we tell when something is costly
because it is complex or merely complex to make it costly?

~~~
chollida1
> You risk your life getting into your car every day. You don't pick the most
> expensive car? Choosing air travel is commonly an exercise in finding the
> lowest price, despite the inherent risks/fear of traveling 4 miles up at
> 500mph. Why are these commodities while preparing a will is not?

That's easy. The expense of a car or plane doesn't indicate it's safety,
infact it's usually the opposite, the more expensive the car or plane the
faster it goes and less safe it can make your trip.

With a doctor or lawyer more often than not the more you pay the better the
service/advice you get.

> There are transactions/disputes that require highly skilled people to
> direct/settle, but I wonder how many legal systems have been specifically
> constructed to require guidance. How can we tell when something is costly
> because it is complex or merely complex to make it costly?

Completely agree with this.

~~~
tomkarlo
> That's easy. The expense of a car or plane doesn't indicate it's safety,
> infact it's usually the opposite, the more expensive the car or plane the
> faster it goes and less safe it can make your trip.

> With a doctor or lawyer more often than not the more you pay the better the
> service/advice you get.

Do you know this, or do you just believe / hope this? I'd argue that the
actual quality of service delivered (not just how nice their suits or offices
are) is very difficult for customers to assess. At least with cars, there are
independent ratings agencies that will tell you that your more expensive car
is actually safer. (Doctors actually have stats like mortality and length of
hospital stay.)

~~~
chollida1
> Do you know this, or do you just believe / hope this?

Good question, the answer is obviously I can't say its' true for 100% of the
cases but do this thought experiment.

You are going to court against someone else, you get a public defender, your
opponent brings in a team of 10 lawyers costing $100,000 a week.

If the evidence makes the case look like its 50:50. What is your chance of
success? I think almost everyone would agree that its much lower than 50:50
after you factor in the lawyers.

~~~
tomkarlo
It's easy to do that thought experiment at the extremes, but that's not what
the article is about. It's talking primarily about corporate law, and a public
company isn't going to hire a public defender.

More realistically, you're a company and you choose a $400/hr law firm instead
of a $600/hr law firm. Are you necessarily going to get worse advice? I'd
argue that would often just depend on how much experience each firm has in the
particular subject you're hiring them for - and neither firm is adjusting
their rates based on that.

Just yesterday I came across a situation where a major law firm was working as
investor counsel on a type of deal they almost never advise on (because
they're the clients usual firm for other types of deals) - I'm sure they
didn't offer the client a discount because they have less experience than a
lot of cheaper, less prominent law firms.

~~~
chollida1
> It's easy to do that thought experiment at the extremes, but that's not what
> the article is about. It's talking primarily about corporate law, and a
> public company isn't going to hire a public defender.

Hmm, yes you are right.

Point conceded.

------
Duff
A: Because they get other jobs that meet their income requirements.

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.

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.

------
ShabbyDoo
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.

~~~
joshuaheard
This is true for most state-licensed professionals like doctors and
accountants. There are two main reasons for this.

The first is that a non-licensed person could easily bypass the license rules
by affiliating with a licensed person in name only and doing all the work
requiring a license.

The second is that licensed professionals have ethical and professional duties
to their clients that they are taught as part of their licensing eductation. A
non-licensed person may not know these duties, or be aware of their
rationales, and may try to influence the licensed person to violate them.

~~~
physicslover
I don't believe this is true for doctors, although, I could be wrong but I
think HMO's get around the restriction. The bottom line is that lawyers are a
protected guild with rules like the one mentioned above that artificially
inflate the value of their services.

------
shawnee_
Traditional supply-demand economics just doesn't explain the behavior of
"middleman" industries, such as lawyering, real estate agenting, etc.

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.

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 _realized_ value between the original
parties in their process.

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.

~~~
anigbrowl
_Traditional supply-demand economics assumes a 1:1 ratio where there is one
buyer and one seller_

That's not what 'ceteris paribus' means.

------
lionhearted
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.

------
JackC
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:

<http://www.nalp.org/salarydistrib>

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.

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.

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.

For the 10%, they're in a weird parallel universe where the cost of their
service is _almost totally irrelevant to their clients_. 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.

...

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.

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.

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, _you
will never know whether your lawyer has done a good job._ 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.

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.

------
thinkcomp
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
(<http://www.plainsite.org>). 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.

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.

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 <http://www.thinkcomputer.org/20120209.pacer.pdf>. The
interface is terrible and hard to use. The way in which you write lawsuits is
obscure, counterintuitive, and creates additional needless work.

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?

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.

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.

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
[http://www.nytimes.com/2011/10/25/opinion/are-law-schools-
an...](http://www.nytimes.com/2011/10/25/opinion/are-law-schools-and-bar-
exams-necessary.html).

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 <http://www.plainsite.org/issues/index.html?id=137>. It's absurd.

~~~
learc83
>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.

That's exactly the problem, regulatory capture of government protected guilds.
It's exactly the same with Doctors and the AMA, or electricians, hell in some
places even interior decorators.

If you've ever had to hire a commercial electrician, it's absolutely terrible.
Once they pull a permit and start working, it's extremely difficult to replace
them, and they know it.

Recently the general contractors in Georgia convinced the state to raise the
net worth requirement for contractors. They are already required to have
massive insurance coverage, so the only reason was to protect the incumbent
contractors from new competition.

Anywhere you end up with government sanctioned guilds ran by industry or ex-
industry people, you're just asking for regulatory capture and the resulting
protectionism.

~~~
rodyancy
Without a regulatory body it would be too easy for an unqualified person to
pose as an electrician, doctor, dentist or lawyer. Do you really want someone
with no experience or training wiring your house, pulling your teeth,
operating on your knee, or defending you at trial?

~~~
thinkcomp
If I want to represent myself or my company at trial, I should have that
right.

~~~
nknight
You have the right to represent yourself, but not another person or entity,
which is what you would be doing if you attempted to represent your limited
liability entity in court. It doesn't matter if you're the sole shareholder or
not, you and the company are not one and the same.

~~~
thinkcomp
Except that such logic seems to vanish in small claims court (where I can
represent my corporation), and before the USPTO Trademark Trial and Appeals
Board (where I can represent my corporation)...which means that it's really
not very logical at all.

~~~
nknight
The details of small claims courts vary wildly from state to state, but more
importantly, they're not courts of general jurisdiction. They have severe
restrictions on what they can and can't do, and the losing party is often
entitled to a de novo trial in a court of general jurisdiction.

The USPTO appeals board you mentioned is not a court at all. It is an
administrative body whose holdings are again subject to review in US District
Court.

------
tsotha
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 _better_ than the lawyer on
the other side.

------
lallysingh
There are a few things to add in here (IANAL, but I'm close to quite a few).

A major element is billable hours.

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.

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.

------
tomkarlo
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&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.)

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.

(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)

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.

------
simonbrown
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).

~~~
bane
There's a service that used to be called "Prepaid legal" with essentially a
small retainer, and a minimum guarantee of services, with favorable rates when
the service was used beyond that. It operated basically as a kind of legal
insurance.

<http://en.wikipedia.org/wiki/LegalShield>

~~~
puppop
Yes, some company offer that. Cheap, but you lose the case with cheap lawyers.
Penny wise, pound foolish.

~~~
isocpprar
Why do you think you automatically lose a case with cheap lawyers? If you are
bringing a weak case against someone, then perhaps using high priced lawyers
will be able to bully them into submission, but if the facts are with you,
then a competent lawyer should be fine. If some are so bad that you will
trivially lose, then perhaps the ABA/Bar has misrepresented their
qualifications?

~~~
puppop
You get what you paid for.

------
mfaustman
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.

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.

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.

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.

------
nextparadigms
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?

~~~
wavephorm
Docracy was posted to HN recently:

<http://news.ycombinator.com/item?id=3666478>

It's really limited or just starting out, no EULA's or anything that I can
personally actually use.

~~~
ubervero
Yep, we're getting started, but we might get an EULA soon, stay tuned

------
larrys
The article doesn't address what could be the most important factors.

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 %.

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).

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.

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.

So the above is certainly one of the things that keeps legal rates high.

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).

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.

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.

------
physicslover
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.

I believe this is mandated by bar associations on ethical grounds, though I
find it absurd. This artificially inflates the cost of legal services.

------
puppop
Because there are no H-1B lawyers.

~~~
mirceagoia
Do you think lawyers from other countries know US law? I don't think so. You
will pretty much have to start over in US.

~~~
ig1
You realize there are huge outsourcing industries (in the legal and accounting
sector among others) where workers in India, China, etc. are trained to learn
American standards, etc.

~~~
mirceagoia
Most of those are doing the grunt work. But when it comes to go in the court
who is going to go?

~~~
ig1
Most legal work is grunt work, the time spent in court is only a fraction of
what a lawyer does.

------
rayiner
To respond to one point in the article:

> Associate salaries are not an efficient, free market.

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?

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.

------
rayiner
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.

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.

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.

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?

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.

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.

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.

~~~
rprasad
_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.

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._

This. Agree that these are the primary factors in the insane legal costs for
high-value clients (corporations and high-net worth individuals). Also agree
that for most folks, it is possible to find a good lawyer to do a will for
under $500, an amicable divorce for under $800, or do all the filing to launch
a business for under $400.

------
crusso
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.

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.

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.

It's a troubling profession that needs to be considered carefully when you're
making decisions about the economic impact of laws upon society.

------
jasonkester
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.

Valuable stuff is worth paying more for.

------
johnnygleeson
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.

[http://www.amazon.com/End-Lawyers-Rethinking-Nature-
Services...](http://www.amazon.com/End-Lawyers-Rethinking-Nature-
Services/dp/0199541728)

Chapters

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.

------
pbreit
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.

------
joshuaheard
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.

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.

------
itmag
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?

I'm not trying to be clever; I genuinely want to figure this out.

~~~
DanBC
(Obviously, IANAL and I have no legal training).

In England people are encouraged not to go to law until they really need to.

People with family law problems (divorce, access to children, etc) are
encouraged, strongly, to use mediation before they go to court. This mediation
can be lawyer led, but it can also be led by other professionals.

People with employment problems usually need to filter through any internal
company policies before they go to law.

Rejecting pre-trial discussions is usually a bad idea.

Solicitors will tell you that going to law is a bad idea, and expensive, and
will often not get the result you want. I think, BICBW, that they need to do
this as part of their professional codes of conduct. They're tightly
regulated, and encouraging people to go to law if they're unlikely to win is
frowned upon.

Note that none of this is a barrier to effective law; once you need to go to
law you've usually had several discussions with solicitors and you know what's
involved and what to expect from your barrister.

There are separate tracks for quick and easy civil "small claims" cases, but
even these can sometimes be avoided by using existing legal protections. (The
very consumer-friendly "Distance Buying Regulations" or the credit card
protections, for example.)

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

------
Uchikoma
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.

------
jriley
I would add:

1) Pay can be high with win/lose stakes

2) Different pay models (contingency)

------
nwenzel
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."

------
bonesinger
This article misses one point, law school is expensive!

Students generally will want to pay their 6-figure debts with a matching
salary.

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

~~~
tikhonj
The article did mention student loans. Also, I can't help thinking that the
reason law school can be so expensive is that the students can then get
overpaid jobs and pay it back.

~~~
mirceagoia
The law school is as expensive as the medical school, or almost. While at
medical school you can understand the infrastructure you need to teach people,
what infrastructure you need when learning law?

------
GigabyteCoin
Who said there is an excess supply of lawyers?

------
shingen
It's why Legalzoom is doing so well.

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

------
kwekly
"Back to Econ 101. What happens when you double the price of something? Demand
for it decreases."

Pretty sure what he's describing is sliding the supply curve straight up,
which has exactly the opposite effect.

~~~
sp332
I think you have _marginal utility_ confused with _marginal cost_. For a given
supply, as demand increases, that causes an increase in price. But obviously,
increasing the price does not (usually) cause an increase in demand.

~~~
jerednel
If we're rationalizing this with economic principles, I think we can chalk it
up to "imperfect information".

Also demand is static regardless of price changes. Quantity demanded is what
changes. Apologies for the pedantry but don't want anyone reading too much
here and making that mistake on a econ test :)

