Lawyers of the World Unite! You Have Nothing to Save but Your Jobs!

Yves Smith of Naked Capitalism submits:

A Bloomberg story reports that large corporate law firms such as Kirkland & Ellis and Jones Day are facing not merely pressure, but explicit client demands, to send junior level work overseas.

This is a more troubling development than might appear obvious at first blush. This sort of behavior confirms Princeton economist Alan Blinder’s views (dismissed in some circles as unduly alarmist) that 30 to 40 million US jobs are vulnerable to offshoring.

We’ve taken issue with the view that things will get quite that bad (although we don’t dispute that Blinder is directionally correct). Companies and analysts fixate on the wage gap between the US and, say, India, when the total cost savings are considerably less (managing work at a remove involves considerable oversight and coordination, as well as greater possibility of screw-ups). And the majority of companies that have outsourced work say they are disappointed with the results. In addition, the further offshoring goes, the more the wage gap will diminish.

But as with second marriages, hope, and the prospect of those juicy savings, trumps experience.

Law firms in particular may be hoist on their own petard. For years, they were able to in essence re-sell the same standard form documents that were tweaked for the needs of a particular client. Edgar, the SEC’s database, leveled that playing field by making the deal documents produced by top firms public. A lawyer I know regularly debates the merits of various firms’ forms based on his Web trolling, much to the horror of other attorneys. His favorite employment agreement? Linda Wachner‘s, the most egregious.

That cushion (and the well founded suspicion among clients that they were paying for the same underlying product multiple times) may have led to inefficient practices and structures at law firms and has certainly led to client pushback on costs (although at least so far, the very top tier, such as Sullivan & Cromwell, Davis Polk, and Cravath, appear unaffected. However, my probably imperfect recollection is that Davis Polk has sent some work abroad, so perhaps astute proactive moves, along with their considerable prestige, has forestalled client demands).

Offshoring is also eroding the quality of the workforce in the US. There are now hardly any entry level IT jobs in the US. They go to Indian or Chinese software engineers. Similarly, the legal and investment banking tasks sent overseas are the yeoman’s work that historically enabled young people to learn the profession. Fortunately, many service firms aren’t of a scale where this sort of outsourcing is viable, but nevertheless, it reduces the number of domestic training positions. It’s a hollowing out of service industries. The fact that is is now happening at the very large firms that do the most sophisticated corporate work begs the question of where their next generation of partners will come from.

Since outsourcing threatens even high-level career paths, the commonly-invoked remedy of re-training displaced workers may not be all that helpful.

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