The Puzzle and Persistence of Biglaw Clustering

Abstract

Elite U.S.-based global law firms (“Biglaw”) exhibit a high degree of concentration in the costliest commercial districts of superstar cities, especially two neighborhoods in Manhattan. This pattern has persisted despite both the dispersal of Biglaw clients across less-dense, lower-cost U.S. geographies and the development of telework capacity. Its stickiness suggests a puzzle: law is among the occupations most conducive to remote work, yet Biglaw prior to the coronavirus pandemic required in-person work in the priciest places—paying a premium on both of its biggest expenses, salaries and real estate. How might this equilibrium be explained, and what might change it?

This article contends that Biglaw clustering reflects a management preference for the exploitation of proven strategies over the exploration of novel and uncertain ones. It is often said that Biglaw is change-averse. Yet changes necessitated by the pandemic present an opportunity to assess the intensity of Biglaw’s traditional aversion to locational exploration.

By requiring that firms switch their employees to remote work for a sustained period, the pandemic eliminated two managerial barriers to change relative to a purely voluntary switch. First, the mandatory and universal nature of the transition reduced the transaction costs of coordinating teams and clients. Second, it allowed firms to avoid various costs that attend selective telework, such as adverse selection. Post-pandemic, Biglaw no longer faces a choice between exploit and explore strategies. It enjoys an equalized choice between two exploit options.

This article contributes a novel descriptive and theoretical analysis to a growing literature on the impacts of telework on cities, labor markets, and industries, and is the first to extend that literature to Biglaw. A post-pandemic Biglaw dispersal would destabilize scholarly understandings of agglomeration economies in general and skilled scalable services in particular. While the article expresses deep skepticism about that outcome, it identifies a mechanism—the replacement of an exploit vs. explore choice with two different exploit options—by which it might plausibly come about. Crucially, this mechanism posits not technology but management learning and innovation that occurred during the pandemic as the key driver, and thus can also partly expain why dispersal had not already taken place previously.

Keywords: urban economics, law and economic geography, locational economics, spatial economics, transaction costs, agency costs, information costs, Biglaw, telework, ICT, law and economics, private international law, COVID-19 pandemic, coronavirus, organizational behavior, innovation

JEL Classification: K00, K20, K40, R12, R30