in Law

Economics of Software Development v. The Practice of Law – A Rough Look at the Professions

The more you learn, the more you earn.

– Frank Clark

I recently heard the above statement attributed to Warren Buffet, presumably quoting Frank Clark. It seems like a fair statement, and generally true, given that over the course of a lifetime someone with a bachelor’s degree earns $1.19 million, twice as what the typical high school graduate earns, and about $355,000 more than what the typical associate degree graduate earns. Going from high school to a masters is worth $1.3 million, and going from high school to a professional degree such as an MD or JD can mean $3.2 million above the high school graduate. [1] About $4 million total.

With roles in Silicon Valley taking center stage the lavish salaries for interns and professionals alike, I don’t think we can peg software developers’ degrees in computer science to the 1.19 million in their life time. In fact, I don’t believe we really have any accurate data here except for to go by today’s numbers.

Reports such as the above are a generalization of the data, without a breakdown of the numbers, I’m not entirely sure how meaningful it really is. What I do know is that we’re talking about potentially an average, and that figure is dependent on the total number of entries. As of 2011, there are a reported 1.22 million lawyers in the United States with a production rate of 44,000 per year from law schools around the country. This figure is interesting because the Bureau of Labor Statistics reports that there’s about 759,800 jobs for attorneys in the country – they don’t specify if this includes attorneys in solo practice, nor does the 1.22 million figure specify if these are all active attorneys however.

But because I know that a majority of lawyers do not practice in big firms with big firm salaries, I can assume that the salary figure is within the ballpark of the median, and that the mean isn’t far off.

Assumptions

  • We’re in the United States.
  • Let’s assume that both the attorney and the software developer retires at age 65. I know a working 64 year old software developer is unfathomable, but let’s assume it’s so.
  • In regards to salary, I’m going to stick with the average, without accounting for crazy increases. I’m assuming rank and file for both.
  • That both the attorney and the software developer attended an in-state public college for all of their higher education and paid full sticker price. And both the attorney and the software developer had no gaps in their education.
  • Neither will take advantage of any of the income based repayment or public interest forgiveness programs for their student loans. In fact, both students will work in the private sector or for themselves in their careers.
  • The student loan interest rate is 5%.

Analysis

The attorney starts his career at the age of 25 (after undergrad at 22, and three years of law school), giving him 40 years of a career span. The software developer also graduates undergrad at 22, giving him 43 years.

OK, so going back to the lawyer, the $4 million salary over a span of 40 years is an annual salary of $100,000. Not bad.

But because this attorney attended undergrad at Berkeley ($51,216, @ $12,804/year) stayed there for Boalt Hall otherwise known now as Berkeley Law ($144,495, @ $48,165.50/year), it’s $195,711 in student loans for tuition alone.

-$195,711

According to the BLS, the median pay of a software developer is $93,350. The developer also attended Berkeley and owes $51,216 for tuition.

-$51,216

Screen Shot 2015-05-12 at 11.20.41 PM

 

Using a student loan calculator from the US Department of Education, the repayment on the student loan of $195,711 per month is $2,076 for the attorney. Given that he has an annual salary of $100,000, after taxes, his monthly income will likely come up to $5,500, leaving about $3,500 for the rest of his budget.

As for the software developer, the student loan payment is $543 a month on a student loan amount of $51,216 over a 10 year period. His monthly take home pay is $5,442 from an annual salary of $96,000. This leaves him with a figure of about $4,900 to budget with.

Take home pay after student loans

 

The take home pay difference between the two professionals is $1,400 a month, otherwise a yearly figure of $16,800. Because they’re both pragmatic, they invest a quarter of their take home pay in index funds employing a buy and hold strategy assuming a return of 5%.

The Security and Exchange Commission has a simple compound interest calculator in which I’ll plug in some numbers.

Screen Shot 2015-05-12 at 11.43.01 PM

 

After 43 year of employment, at age 65, the software developer will have saved $2,102,010 by investing in a fourth of his take home pay minus student loans.

Screen Shot 2015-05-12 at 11.45.30 PM

 

Given that the attorney didn’t start work until 3 years later, he’s only able to invest for 40 years. Also, because his take home pay minus student loans is less, he’s only able to invest $875 a month.

The difference between these two figures is $833,606, nearly a million dollars. Given my rather simplistic number crunching the attorney is already down close to a million in a career span.

The X Factors?

Both professions have X factors. The lawyer can make partner at a rather large, making a base pay of say $1,000,000 a year, and the software developer can take a company public as an earlier employee if not CEO, cashing in on his own millions. To note, law firms cannot go public based on ABA Professional Rules, to maintain the professional independence of a lawyer, no lawyer or law firm can share legal fees with a non-lawyer.

Side note: Baker and McKenzie, probably the largest law firm had $2.54 billion in revenue in 2014. The revenue of Facebook for the same year was 12.466 billion. For the record, B&K employs over 11,500 people, while Facebook as of December 2013 employee 6,337. (I got these from Wikipedia and Quora). For B&K, that’s about $173,000 per employee, and for Facebook, it’s $1,700,000 per employee when it comes to revenue figures. Yikes!

Law firms are owned by the partners, so that particular X factor is out. Lawyers can win multi-million dollar cases (common enough news wise – but almost all rank and file attorney will see none of this).  All the above are really just outlier X factors that should really be excluded from our conversation.

I’d argue that the software developer actually wins out when it comes to these reasonable unknown factors in a series of cursory opportunities. For example, the software developer is in no shortage of being able to freelance or find side projects that may take on a life of its own. At a starting rate of $100/hour for a competent software engineer, working a few hours a week alone should already be able to make up for the annual salary. Moreover, the software engineer’s work is more in demand not just by more everyday business people, but by more lay people as well. I see and hear inquires to get help on building web sites and apps often enough.

On the other hand, a lawyer’s work is more specialized, and if it’s more run of the mill, such as criminal or torts, they face heavier competition in general. An attorney will never get an inquiry to do an M &A from off the street. Conflicts are also abound, and making an error or omission here can get you in trouble with the bar.

A software developer’s role and work product is also more translatable to business as strictly a money making venture. A software developer’s final work product can be has a greater likelihood to be sold, even if it’s for a little. But an attorney’s work product is strictly a service that would be of no worth once it’s been rendered to a particular party. Odd isn’t it? What good was that one Motion for Summary Judgment you may have written last week? What about an appearance in court, or an appellate brief?

A software developer’s implementation of an API that can be reused by other developer’s applications is probably a lot more valuable.

I’ll admit that what I wrote may be an unfair or inexact comparison when it comes to the economics of the professions. But I’d like to think that this is a good look at some of the issues for someone choosing to enter either of these two professions or switching to one of them.

Anyone keen will probably suggest one pursue patent law, but that path isn’t as rosy as one might expect. That conversation is for another day.

Many law students I went to school with never really admitted that the prospect of earning lots of money was a motivating factor for attending. If it is deeply for you, so much so that it’s the primary factor, you should start your career in software engineering, then move on into business where you’d no longer be a rank and file software developer. You’ll fare better than in law, and you’ll have a greater chance of finding your true calling once you have many more options. But if you’re a true software engineer through and through, you’ll never likely work a day in your life, like they say.

 

Did you enjoy the post? Click below to find out more about

Quit Law and Code

Cover

Write a Comment

Comment

  1. I’m the opposite. With a Ph.D. in Computer Science (1989) and 25+ years experience, I started law school at 53 thinking law firms would be interested in someone who had started and/or operated several technology companies. In technology, it’s not a glass ceiling for age discrimination, it’s solid titanium. Even the statement above, “I know a working 64 year old software developer is unfathomable…” Why is that? So what’s happened since I passed the Texas Bar in January 2009: (1) No jobs with law firms. I don’t fit into that new associate model. (2) No jobs commercializing technology in either industries or universities. Most jobs went to males, 20 years younger, with half my degrees and none of my entrepreneur experience. (3) Have two starts-ups in Oil & Gas in an area that totally lacked automation (and have a patent). Have a reputation for cyber security policy–because I see the law through that technical prism (and have a pending patent in Norway). Most lawyers do not have technology background and do nut understand the nature of cyber attacks. I’m not sure how to fully monetize this, but I’m working toward that goal. (4) I’m on the Armand Hammer retirement plan. If you don’t understand that, google his name. (5) Sadly, I’ve had more discrimination against me the past 5 years than any other time in my life. I’m still female. I’m just an aging female. Onward and upward.