The Economics of Practicing Law: A 2001 Snapshot

by Dianne Molvig

How much do lawyers charge? How much does the average attorney earn after being in practice for five, 10, or 20 years? What chunk of those earnings goes to pay staff salaries, rent, and other overhead costs? How do lawyers spend their time in a typical workweek?

Determining and presenting accurate answers to these and other questions is the purpose of the State Bar's 2001 Economics of Law Practice Survey. It provides data for countering many commonly held misconceptions about how lawyers practice. More importantly, it gives lawyers a tool for gauging how they're doing on the business side of their practices in comparison to colleagues with similar experience, working in similar settings.

"This is great information for management," says Tom Schumacher, managing partner of an eight-attorney law firm in New Richmond. How will he use the data? For one, he'll look at overhead costs. "I can pull figures right off our year-end statement," he says, "and see how we compare to the numbers in the survey. We can look at the areas where we're off, and figure out changes we could make to bring us more in line."

De Forest sole practitioner David Grove, chair of the State Bar's Law Practice Section, says he'll use survey data to help him adjust his rates. "I have a general feel for what competitors are charging in my area because we talk," Grove points out. "But with this survey, I now have information from a larger pool."

Private practitioners aren't the only ones who will find useful information in this year's survey. It also presents data on net incomes and time usage, for example, for attorneys in diverse job settings - government agencies, in-house counsel, legal service nonprofits, judicial clerkships, and more.

The remainder of this article highlights key survey findings. A word of explanation at the outset: Because respondents completed the survey in mid-2001, they gave current (2001) figures for hourly rates, time usage, and so on. When numbers had to be on an annual basis, such as net income and overhead, respondents provided 2000 data. Also, you'll find few comparisons to the 1998 survey (taken in mid-1999) because the two surveys differ greatly in the types of data collected and the target group.

Net Incomes

The average survey respondent is 46 years old and has been practicing law for 17 years. Among those working full-time, the average net income for 2000 was $94,501. The average for full-time private practitioners was $104,288.

Median net income figures are lower than the averages, which seems to indicate that a few extremely high figures inflated the averages. For all full-time attorneys, the median for 2000 was $79,000 - that is, half of the attorneys earned less than that amount and half earned more. Full-time private practitioners had a slightly higher median net income of $80,000.

Figure 1 shows year 2000 net incomes broken down in various ways for full-time attorneys in different types of practices. To see where attorneys' net incomes stand at various career stages, see Figure 2.

The gap between male and female lawyers' incomes persists. Overall, female attorneys working full-time earned 72 percent of what their male counterparts made in 2000 (a median net income of $60,000 versus $83,500). The prevailing wisdom explains this away by pointing out that, as a general rule, men have been in practice longer than women, so naturally their incomes are higher. Or could it be that women just are not compensated equally? As Figure 3 shows, the gap remains when comparing men and women who have worked in full-time practice for equal tenures. Figure 4 shows the same type of comparisons for full-time private practitioners. Overall, women in full-time private practice fared even a little worse, earning 62 percent of what men earned, although they earned slightly more than men in some subgroups.

How does this survey's gender gap compare to that of the last survey? Unfortunately, no direct comparison is possible. The 1999 survey polled only private practitioners, and it asked respondents for gross income, rather than net. Also, it did not separate out attorneys working part-time. Considering those factors, women's 1998 gross income was 51 percent of men's.

The disparities shown in the current survey's results could stir cries of protest. But State Bar President-elect Patricia Ballman, a Milwaukee attorney, cautions against drawing conclusions without looking behind the numbers. She's now been in private practice for 24 years, all of them in a big firm. As a single mother, she worked full-time but put in fewer hours than her male counterparts as she was moving up through the ranks. It always seemed fair to her that people who worked more, earned more.

"If I earn less now, it's because of my life choices," she says. "Even after your kids are grown, it's hard to get back to the level of your peers because you've given up years' worth of hours while you were raising a family. I know that sounds sexist, saying that men don't raise families. But we know the reality: Women still do most of the home chores and most of the child care."

Juggling those demands pushes some women to leave private practice, whether to not work outside the home or to take jobs, as government or in-house counsel, with more predictable hours. "It's not just women," Ballman adds. "We've had men leave our firm, too, for some of the same reasons."

Child care isn't the only distraction, notes Oshkosh attorney Alyson Zierdt. "Now we're seeing middle-age women attorneys, like myself, who have aging parents," she notes. Thus, various family issues affect women's - and men's - choices in their law careers and their earning power. What's more, younger lawyers, of both sexes, are conveying a clear message that they want a life, not just a career.

Meanwhile, private law firms are trying to operate in a more business-like fashion in order to survive. With that comes a demand for higher productivity. The push for more billable hours and the demand for a more flexible worklife seem on a collision course. "But," Zierdt observes, "I think there's a place for everybody. People who are comfortable with the productivity demands and recognize the commensurate financial rewards that go with them, will hang in there. Others will make other choices."

Billing Rates

The survey reports that 94 percent of private practitioners have an hourly rate that they use as a standard or starting point for computing fees. Among private practitioner respondents, the current average hourly rate is $146. Figure 5 shows average and median hourly rates by region and by city population. Usage of flat fees is prevalent for many types of legal services, as shown in Figure 6.

The 2001 hourly rate is up from $139 two years ago, for a 5 percent increase. In the six-year span between the two previous surveys (done in 1993 and 1999), the hourly rate increase was nearly 20 percent. This would seem to indicate a slowing of the rate of increase in the last two years, compared to the previous six years. This year's survey also found that only 46 percent of respondents had raised their rates in the previous 12 months.

"In a way this is consistent with what we see everywhere," observes James Wilber, principal at Altman Weil's Midwest office in Milwaukee, "which is the inability of lawyers to raise their rates by much. But I am surprised that the increase in Wisconsin is so little compared to what we see nationally."

Only 103 out of 573 private practitioner respondents, or 18 percent, say their firm has a policy for minimum billable hour requirements. Usually, such policies exist in larger law firms, but other firms have minimums as well; they just don't express them in terms of billable hours. "We look at actual collections," Schumacher notes. "We have three associates now, and we expect annual collections from each of them of $125,000. Then we run a report that tells us how many hours it took them to get there, which gives us an effective hourly rate."

Time Usage

The survey found that on average, full-time attorneys put in a 44-hour workweek, while private practitioners work 43 hours per week. Both the entire respondent group and private practitioners say that, on average, seven hours of their workweek go to noncompensable tasks. Many observers remarked that the numbers seemed low, especially for private practitioners, based on their own experiences and what they see among colleagues. "You have to work nine hours, eating lunch at your desk, to bill seven hours a day," Ballman notes. "And then there's work at night and on weekends."

Grove also believes that the normal private-practice lawyer's workweek may be longer than the survey shows. "I figure most work about 50 hours a week," he says. "They start early and work late, they're not just putting in eight-hour days." One can only guess at the reasons for the disparities between survey findings and what people perceive as the real lawyer workweek. Grove suspects it may be that many attorneys don't pay enough attention to how they actually use their time - especially the unbillable time. "The question is always," he says, "what do you count in that? Do you count the Rotary luncheon as networking and marketing, or do you just count it as lunch?"

But one point the survey numbers do make clear, says State Bar President Gerald Mowris of Madison, is that attorneys are generous in donating their time. Nearly 40 percent of respondents report spending from two to 45 hours a week in unbilled community service. "That's a lot. Then on top of that," Mowris notes, "they're doing several hours of pro bono work per year. It's gratifying to see attorneys giving that much of their time." Nearly two-thirds of respondents reported pro bono hours, ranging from one hour to a high of 520 hours per year.

Overhead Expenses