AI rewards some workers with higher pay, but it's squeezing legal fees for others
Artificial intelligence is simultaneously boosting wages for workers who can use it and threatening to compress earnings for those whose output it replaces, a divide that is now playing out sharply in the legal profession as major law firms face strong pressure to cut their fees.
Workers with AI skills now command a global wage premium of 62% over comparable roles that do not require those skills, according to PwC's 2026 AI Jobs Barometer. In Professional Services, that premium stands at 67%.
Yet major law firms are facing client pressure to lower their fees, as Wall Street banks argue that AI has eroded the volume of billable work that has underpinned Big Law's profits for decades, the Financial Times reported.
Morgan Stanley and Citigroup have told large law firms they intend to introduce new payment arrangements, while Goldman Sachs has asked firms to disclose how much time AI is saving them, with an expectation of sharing in those savings, according to people with knowledge of the matter cited by the Financial Times.
The pressure targets the so-called leverage model, under which firms maximise partner profits by billing hourly for work performed by junior lawyers on tasks such as research, document review, contract assessment, and litigation discovery.
But a February 2026 LexisNexis survey found that more than half of lawyers using AI tools are already producing that work faster. Junior lawyers are also increasingly turning to AI for legal research, first drafts, and document review, activities that have traditionally formed the basis of associate-level billing.
Average hourly billing rates for associates at the largest US law firms reached $798 this year, up 33% since 2023, according to legal technology company Persuit, with partner rates rising 29% over the same period, increases that clients are now pushing back against.
"If the number of hours they're working on a matter has come down because of AI ... our expectation is for costs to come down significantly per transaction," Adam Meshel, global head of legal at Citigroup, told the FT.
He said Citigroup had begun asking law firms to bid for work and to explain during that process how much they were saving through AI, adding that a new working model based on that approach would likely be in place within a year.
Morgan Stanley's general counsel, Eric Grossman, also told the Financial Times that top lawyers had "for a long time been compensated on the foundation of [associates billing for long hours]."
"Their compensation model is now extraordinarily unstable," Grossman told the news outlet.
He added that the bank would, by the end of this year, tender most external legal work through competitive bidding and alternative fee arrangements such as fixed fees.
Gretta Rusanow, head of advisory services for Citi's law firms group, told the FT a wholesale repricing had not yet arrived.
"We're not yet seeing a formalised, firm-wide shift towards alternative fee arrangements, but it is likely to come," she said.
"We're likely to see more of a hybrid approach ... [with] fixed fees for routine work and the billable hour for more complex work."
