Monday, March 14, 2011

If You're a Lawyer, Move to a Metro Area With a High Median House Value

Analyzing Data on Top Lawyer Salaries by Metropolitan Area

A month ago, surprised at the lack of non-technical literature on the subject, I wrote a qualitative article titled How to Examine Numbers and Statistics Critically. Soon after I published the article on this blog, Google crawled” it and my blog was on one of the first few search results returned on the search phrases “how to examine numbers critically” and “how to examine statistics critically.” (That, by the way, is a strong indicator that there really is a lack of literature on the subject of examining numbers and statistics critically!)

Since then, I had been looking for an opportunity to write a quantitative – and technical – piece on analyzing data. I was lucky. Two weeks ago, I came across an article on the New York Times Economix blog which reported on ten metropolitan areas where lawyers enjoy the highest average pay.

Top ten highest mean wage of lawyers by metropolitan area

After taking a quick look at the table, I noticed that there did not seem to be a discernable relationship between mean wage and the other variables, so I decided to analyze the data using SPSS.

Relationships between Mean Wage and Number of Lawyers, Public Companies and Law Schools

Running a correlation test, I found that indeed, there is no statistically significant relationship between mean wage and the number of lawyers, public companies and law schools. However, the test also found that there are statistically significant relationships between:

  1. the number of lawyers in a metropolitan area and the number of public companies (p = .003);
  2. the number of lawyers in a metropolitan area and the number of law schools (p < .001) ; and
  3. the number of public companies in a metropolitan area and the number of law schools (p =.004)
Correlation test between mean wage of lawyers and the number of lawyers, public companies and law schools in a metropolitan area

Finding #1 is not surprising, since public companies tend to locate their corporate headquarters in “real” cities, and public companies (as well as the law firms that serve them) have a propensity to conduct many complex transactions that require armies of lawyers.

Finding #2 is not counterintuitive, because graduates of any discipline tend to stay in the metropolitan area where their schools are located due to the familiarity of the area, as well as to take full advantage of the networks they have built in the few years that they spent there.

Finding #3 is not unexpected, because the sample we looked at is small, and a majority have metropolitan area populations of more than 3 million. Big cities tend to have many institutes of higher learning and public companies, and among the many institutes of higher learning will contain a number of law schools.

A regression analysis shows that the number of lawyers, public companies and law schools are not good predictors of mean wages (sig. = .361 >.05):

ANOVA table of regression analysis

Considering Metropolitan Area Population and Median House Value

Dissatisfied with my findings, I decided to do a little research on my own. I hypothesized that due to the sheer volume of complex economic activities that take place in big cities, there is a higher demand for lawyers, and hence their pay should be correspondingly higher. Also, I thought that pay is very much a function of cost of living – the average lawyer in Upstate New York is unlikely to earn as much as his/her downstate counterparts even if they did the same amount and kind of work. Therefore, I ran the analysis again, this time including metropolitan area population and median house value data. The data are presented below:

Top ten highest mean wage of lawyers by metropolitan area

It was found that metropolitan area populations correlate with the number of lawyers (p = .003), public companies (p < .001) and law schools (p = .007). There was also a strong correlation between median house value and mean wage (p = .009). However, there was no statistically significant relationship between metropolitan area population and the mean wage of lawyers (p = .861), proving my hypothesis about the relationship between city size and mean wage of lawyers wrong.

Correlation test between mean wage of lawyers, the number of lawyers, public companies and law schools in a metropolitan area, the metropolitan area population, and the median house value in the metropolitan area

Running a linear regression analysis, I found that even though there is a strong correlation between median house value and mean wage for lawyers, the former isn’t a very good predictor for the latter (p = .498). What this means is that while lawyers may likely find their wages increasing if they move to a metropolitan area with a higher median home value, they can only make wild guesses on their pay rise/raise (if at all) based on median house value data. That is not surprising, given that lawyers don’t control the housing market, and that they are a small proportion of any workforce. I suspect that median house values are a better predictor of the wages of a less technical professional.


What Does This All Mean for Lawyers?

In practice, being unsure of wage increase (or decrease) may not be a problem. How many lawyers do you know will move to another metropolitan area without a job offer, in the hope that his/her pay will likely increase merely because the median house value in the other metropolitan area is higher than in his/her current one?

Even though there is no statistically significant relationship between the number of public companies and wages, if you’re a fresh graduate from law school, you may want to consider that you are likely to be hired more quickly in metropolitan areas with a higher number of public companies. That is because – as I mentioned earlier – public companies tend to locate their corporate headquarters in “real” cities, and public companies (as well as the law firms that serve them) have a propensity to conduct many complex transactions that require armies of lawyers.

Also, if you are a fresh law graduate and pay is important to you, make sure that you keep a lookout for openings in metropolitan areas where the median house value is high.

Limitations

The analysis was run using the data collected from ten metropolitan areas where average lawyer salaries are the highest. In the absence of further analysis, we may not conclusively extrapolate the findings to apply to all metropolitan areas, although there seems to be such an underlying trend.

There are many aspects to the practice of law (family law, criminal law, corporate law etc). The collection of data with regard to lawyer’s salaries does not take into account the wage differentials across different types of practices. As such, the findings may only apply to some types of lawyers but not others, although the findings generally hold true.
  

Data on median house value from:
http://www.dqnews.com/Charts/Monthly-Charts/CA-City-Charts/ZIPCAR.aspx



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2 comments:

  1. Well Its very informative and useful post. Use of "Regression Analysis" made this post very easy to understand. I understood everything within couple of minutes. What I think that this is fantastic way of doing data analysis of anything.

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