In early June, the prestigious Manhattan law firm, Cravath, Swain & Moore, announced it was raising the average salary for newly minted law graduates by nearly 13% to $180,000 per year. As expected, many of its competitors have followed suit, with some, such as Washington, D.C.-based Kellogg Huber, offering as much as $225,000. That 25-year-old lawyers with no experience can immediately be in the top 5% of U.S. earners (and within ten years in the top 1%) has generated some outrage, as well as claims that such salaries are needed to help overcome the high cost of law school.

But don’t blame these lawyers or the law schools. Lawyer salaries are driven by supply and demand, just like everything else. According to data from the Corporate Executive Board, the average hourly rate charged by major law firm partners nearly doubled since 2000, while average hourly wages for both blue-collar and white-collar workers have increased less than 20%. Lawyer pay has also outpaced economic growth, which has averaged less than 1% per year in real terms over this period.

So what’s wrong? On the supply side, the American Bar Association operates a state-approved cartel, which uses a licensing regime to artificially limit the supply of legal services. In a recent white paper, the White House came out against occupational licensing in general, and breaking the ABA cartel would be a good first step in addressing the staggering growth in lawyer pay.

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