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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Friday, June 22, 2012

Illinois Law School Grads Face 'Dismal' Job Market

Chicago Tribune:  Loans, Lawsuits Pile Up as Law School Grads Face Worst Job Market in More Than 30 Years:

The Great Recession has wreaked havoc on the job market for law school graduates, but newly released data from the ABA paints a bleaker picture about entry-level employment than previously thought. Slightly more than half of the Class of 2011 — 55% — had found full-time, permanent jobs as lawyers nine months after graduation. It was the worst job market in more than 30 years, according to the National Association for Law Placement. The employment outlook wasn't looking much better for the Class of 2012, but official figures won't be released until next year.

For many 2011 graduates of Illinois law schools the job market was dismal. DePaul, IIT Chicago-Kent, John Marshall, Northern Illinois, Loyola and the University of Illinois did not meet the national average of 55% full-time employment.

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I am a partner in a very busy small law firm in Chicago. We are looking to hire a junior associate, but had a philosophical/economic debate this afternoon: is it better to try to hire 3 people at lower salary, or keep standards higher (eg school, GPA, journal) and hire 1 at higher salary; or just look for 1-2 year out laterals, who might cost more but, again, are likely going to have some track record behind them?

The newly graduated law students won't like the answer.

I did a back-of-the-envelope calculation--what is the absolute minimum fixed cost to hire a new associate, ignoring everything but direct salary-related costs?

To give an attorney a computer, various site licenses (eg Microsoft Office, Citrix), a blackberry, add them to various insurance policies (eg disability/heath/malpractice), etc. is $28,874 under my current rates from vendors (health insurance and malpractice are by far the biggest chunk of that). Add in some school supplies, business cards and other random bar membership and CLE expenses, let's round up to 30k.

Assign an office overhead cost of around 10K (based on rent per square foot plus customary costs like electricity, property taxes, etc.).

If they get a 1/4 share of a secretary, add at least another 10-20K.

We typically cut a lot of first-year associate time before the bill reaches a client. So assume 135K in the door if the first year bills a 2000 hour year with 65% realization at $100 per hour. We can probably expect better realization/higher rates from a lateral.

After the above costs, that leaves behind 75-85k. A 60K salary produces easily 15% in additional hidden salary costs (eg employer share of unemployment insurance, Social Security, Medicare, etc.), or 69k. So really, after taxes, the genuine value of a first-year attorney (aside from long-term promise) is enhancing the work-life balance of other more experienced attorneys.

A typical good starting salary for first year associates in Chicago around 15 years ago was, not coincidentally, 65K. That was rational in view of the above numbers.

Today, a 60k salary with automatic deductions of around 20% of salary (for contribution to social security, medicare of 7.6%, and a share of health insurance costs of around 12.5%) leaves behind 48k. Let's assume on the whole an average rate of 15% for federal income tax, 5% for IL state income tax, bye bye another 12k. So that newly minted lawyer has around 3K a month after taxes.

But, a 70,000 student loan bill brings you around a 1k-1.5k/month of payments. 140k in loans doubles that.

On the above economics, it is a significant risk for employers to take on that graduate as a genuine, full-benefits, full-salaried attorney. (And if the attorney turns out to be not-so-great, then the attorney will probably produce a net loss to the firm, because of what it will cost to get rid of that person, document poor performance with the employment attorney, etc). But students with a debt load much beyond 50k (assuming interest rates stay low) can hope to get ahead quickly with much less.

You can't depend on high realization rates or clients who let you raise their rates, so there are only 3 ways to achieve a better balance: (1) drop the health insurance; (2) make it really, really easy for firms to fire associates who can't cut it; or (3) cut the level of debt being serviced, which means law school tuition goes down, or students don't take on the debt in the first instance.

So the question for the law schools: are you going to cut tuition so you are more affordable to the less well off students, or will the competition for slots be reserved for those whose parents can afford tuition?

Posted by: Deeg | Jun 22, 2012 6:06:07 PM

What goes around, comes around, Deeg.

Posted by: Broke Law Student | Jun 23, 2012 10:21:35 AM

Billable rates of $100 per hour? Please. Associates bill at $300 hundred an hour, even at not very large firms.

Profits per partner are extremely high and going up.

The problem isn't that associates cost too much, or that clients pay too little. The problem is that Partners expect to make millions of dollars per year, and will squeeze everyone--associates, clients, law schools--to do it.

Frankly, it's surprising more law firm associates don't go out on their own compete with their former bosses. Associates typically bill in 3X in revenue of what they cost.

Posted by: Money Money | Jun 23, 2012 11:46:37 AM