Baumol’s cost disease and why law departments keep paying higher and higher hourly rates

    The Economist, June 28, 2014 at 11, writes about higher education’s future and observes that with colleges, it “suffers from Baumol’s disease – the tendency of costs to soar in labour-intensive sectors with stagnant productivity.”

That effect could diagnosis the malady of corporate legal services: what big-firm lawyers do is labor-intensive, in the sense that a person not a machine has to do most of it and output per hour hasn’t budged much. It takes about as long to review a contract now as it did ten years ago. Maybe more given the new legal risks that have reared up. It takes about the same amount of time to talk to a client about the facts and ask questions that bear on the legal issues. It takes time to read a decision and understand its rationale and reach. Baumol’s disease would predict that hourly rates will tend to soar for top-flight legal work. Despite much talk about alternative structures for law firms, or pressure by general counsel to deliver greater value (increase productivity, in other words), or software plus the internet, the productivity of lawyers doing complicated work has barely changed. Fees rise inexorably.

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