Over the course of the past two years, aggregate demand by companies for legal services has declined. Companies, too, are pushing back on paying ever higher hourly rates for attorney services, particularly for the services of junior associates. Demands for alternative fee arrangements are on the rise. There also is a nascent trend toward outsourcing legal work to other countries, particularly India. These converging forces have compelled many law firms to find ways to cut costs.
Since law is a service business built on human capital, the single largest cost is the compensation of non-owner attorneys and support personnel. Hence, the massive number of law firm layoffs last year. According to Recorder affiliate The National Law Journal, the total number of lawyers working at the 250 largest U.S. law firms dropped by 5,259 from October 2008 to September 2009, a 4 percent decline.
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