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As of this month, there are more lawyers in their twenties in London who can afford to dine at expensive restaurants and take luxury holidays. Linklaters last week became the latest City law firm to raise rates for its newly qualified juniors to £150,000 a year, while US rivals pay even greater sums.
This is quite a wage gap from young graduates in professions such as publishing and the arts, where £30,000 is considered a decent salary — but it assumes that the fortunate ones can get a break to relax. When you put in 50- to 70-hour working weeks, with your evenings and weekends often consumed by urgent legal deals for corporate clients, time is precious.
Nor are they as pampered as it might sound to the companies that foot the enormous legal bills to employ them, or to NHS junior doctors who are paid less than a third of that amount at a similar stage in their careers. After taxes and student loan repayments, the new associate lawyers for whose talents global law firms eagerly compete will retain £80,000, of which a large chunk will go on London rent.
Still, I am happy to see at least some of this squeezed generation being treated so well, with the prospect of receiving more as the years pass and one day becoming partners whose profit shares can reach £2mn at UK firms. It is a salutary contrast to other professionals with scant hope of such rewards, despite having attended top universities and working pretty hard themselves.
We can thank the US for making it happen. Linklaters followed Freshfields Bruckhaus Deringer, its rival “magic circle” City law firm. Freshfields has increased rates for lawyers who have qualified after two years of training by 50 per cent in the past five years under pressure from US firms. Quinn Emanuel, a US law firm specialising in litigation, raised its UK starting rate to £180,000 this month.
I once lived in New York next door to two junior lawyers who had attended Ivy League law schools and had just joined elite Manhattan firms. We had a friendly chat when they arrived and I hardly saw them again afterwards, since they spent most of their lives at work. The best evidence that they still existed were the pizza delivery guys who would call there late at night.
They were handsomely paid (the benchmark rate for newly qualified lawyers in New York is now $225,000 before bonus) but they had to sacrifice a lot. Associates toil away on legal discovery and preparing endless transaction documents. “They leverage their intellects to make a lot of money but the hours are often relentless,” says Chris Clark, director of the legal search firm Definitum.
Rewarding junior lawyers like this is profitable for US firms in London: “It sounds like a lot to pay, but it’s not,” says one senior partner. An associate lawyer may be paid more than £200,000 three years after qualifying but will also contribute 2,000 billable hours that can be charged to its clients at £400 or £500 each. That brings in up to £1mn in revenue for the partners.
It also means that young lawyers are in high demand: US firms have traditionally offered at least 20 per cent more to lure them as they qualify from training at firms such as Linklaters. They can outbid traditional UK firms because their large and profitable domestic market gives them deep pockets: the payouts to partners at top US firms can exceed $5mn.
This raises the question of whether magic circle firms are being forced into a contest with US rivals over pay that they cannot win. They pride themselves on offering a (somewhat) better work-life balance as well as broader opportunities, but money talks. One magic circle partner says that juniors sometimes protest: “If I am working this hard, I might as well join a US firm.”
The US presence in itself ensures that young lawyers in the City earn far more than other professionals can imagine, and close to the sums that junior financiers command. Were it not for the arrival of large US law firms such as Latham & Watkins and Kirkland & Ellis, the magic circle would not have had to ratchet up its pay rates for them and those further up the pyramid.
A similar phenomenon has not happened in the NHS, where junior doctors have been on strike over the past year for higher pay. These doctors also work extremely long hours, but they are employed by state-backed NHS trusts and need to emigrate to other countries to take advantage of better pay and conditions. Other health systems will not come to them in the same manner as US law firms have moved to London.
It is hard to argue that junior doctors are less valuable workers than corporate lawyers and do not deserve equal treatment, but they will not get it because there is no higher bidding alternative to the NHS. The lesson is rather stark: if you are a professional, work in a sector that competes globally or you will find yourself making much less money than you could.
Meanwhile, if junior lawyers get enough time off from work, they can take their friends out to dinner. They have worked for their good fortune, but they should spread it around.
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