Making peace and making money: economic analysis of the market for mediators in private practice.

• Author: Velikonja, Urska

1. INTRODUCTION

   In 1999, Frank Sander, a pre-eminent ADR scholar, was asked to evaluate the state of ADR. (1) His answer was that while "we've made amazing progress," we still "have a way to go." (2) One of his greatest concerns was about the long-term professional issues of ADR and mediation in particular. While there was an ample supply of people trained in mediation in 1999, there was not enough paying work for them. (3) Training courses were plentiful, but there were few mentoring and other job opportunities. Most people interested in mediation were advised to pursue their interest on a part-time or volunteer basis at night and over weekends, while keeping their day jobs. (4)

   To this day, making mediation a full-time career remains extremely difficult. Professor Eric Green, a law professor at Boston University and a successful commercial mediator, noted in a class lecture that there is "no career path in mediation." (5) For virtually all successful private mediators, mediation is a second or third career; most are in their fifties or older. (6)

   More interestingly, of those who decide to become mediators, eighty percent cannot make a living solely as mediators. (7) Aspiring mediators are constantly scrambling for work, but often must return to their old careers. (8) Fifteen percent "[keep] busy, make a [decent] living, but never quite break through." (9) The top five percent, however, are booked months in advance and can gross upwards of a million dollars per year. (10) This presents efficiency concerns regarding wasted resources on excess market entry and on mediation education, and distributional concerns regarding mediator income inequality. (11)

   In this article, I explore the market for mediators, in particular for mediators in private practice. (12) I argue that the private mediator market is similar to markets for entertainers or professional athletes, instead of the professional job markets from where many mediators are drawn; a few mediators at the top of the pyramid are wealthy, while the vast majority of mediators make little or no money. I explore possible economic explanations for why the market for mediators is a "winner-take-all market."

   Since mediation is not a licensed profession, there is little reliable data on how many Americans work as mediators, in what practice areas, and how much they earn, and even less empirical research. The data in this article is drawn from public sources--Bureau of Labor Statistics, American Bar Association, Association for Conflict Resolution, and court mediator rosters--and from surveys and interviews conducted with ten successful mediators and dispute resolution scholars in private practice. (13) The interviews were conducted either by telephone or by e-mail in March and April 2008. Because of limited data, the article does not provide complete empirical answers, but rather asks questions to be explored further in the future.

2. THE MARKET FOR MEDIATION SERVICES AND FOR MEDIATION PROVIDERS

   The market for mediation has significantly grown and matured over the last thirty years. Data about the market for mediation services and for mediation providers suggests that supply exceeds demand. More mediators want to enter the market than there are mediation jobs. This section presents data on the two different markets and on the different types of job opportunities for mediators.

   1. Mediation Services

      There is not one single market for mediation services in the United States. Markets differ jurisdictionally--i.e., markets in states where courts can and frequently order the parties to mediate and those states where courts do not have that authority differ markedly--and based on type of mediation--i.e., community mediation, which evolved outside the courts, and private mediation, including domestic, small claims, and commercial mediation, which is often either court-mandated or conducted in the shadow of litigation. (14)

      Mediation is a common form of resolving disputes in many communities. Tribal communities have been using mediation for centuries, (15) and in China, the People's Mediation Committees resolve over seven million disputes annually. (16) In communities where mediation is commonly used to settle disputes, senior or influential members of the community act as intermediaries. (17) Mediation is only one of their functions and they could by no means be called professional mediators.

      The United States, on the other hand, has relied on an adversarial system of judicial dispute resolution, where each side presents its case and a jury decides the winner. As the number of court filings increased in the 1950s through the 1970s, federal and state courts began developing programs parallel to the court system, called dispute resolution programs, to deal with the flood of cases. (18) Frank Sander proposed the concept of the multi-door courthouse, where an aggrieved party could go to court and an attendant at the door would direct her to one of the many doors, each providing a different alternative for resolving her problem. (19) In the states that embraced the multi-door courthouse concept and granted judges authority to order parties to mediate (or made pre-litigation mediation mandatory), mediation has grown tremendously, including domestic mediation, small claims mediation, and high-end commercial mediation. (20) "Mediation generally has not developed as quickly or as pervasively in the other states." (21)

      Mediation remains a choice that is more often than not the result of a judicial or legislative mandate than of party choice. According to a survey by the American Arbitration Association, 63% of respondents (i.e., companies) and 73% percent of Fortune companies attributed their use of mediation to court-mandated mediation programs. (22) There are important differences between the states with court-mandated mediation and those without, such as in the number of mediators in private practice (many more in mandatory jurisdictions), in the types of cases they mediate (less variety in non-mandatory jurisdictions), and in who the mediators are, but there are also important similarities that justify analyzing the market for private mediators as a single one. Making a living as a mediator in private practice is difficult in both types of jurisdictions, and the income distribution of mediators in private practice as well as the reasons for the steep income distributions are similar.

      In addition, and detached from the legal system, mediation was a part of the community empowerment movement in the late 1960s and 1970s. (23) Community justice centers were established to resolve neighborhood disputes. (24) These centers grew from the need to escape the institutionalization of justice and to "get away from lawyers, judges, courthouses and ... a justice system" that has become too burdensome and costly for the average citizen. (25) The goal of community mediation centers was to train volunteers to mediate, not to pay them. (26) As a result, volunteer mediation markets and volunteer mediators are not the subject matter of this analysis.

      Furthermore, as the private mediation market matures, mediators are increasingly specializing. Although general practitioners still exist, many mediators today specialize in divorce, public policy disputes (e.g., environmental) or commercial mediation. These markets are distinct and successful mediators in one market find it increasingly difficult to branch out into another market, regardless of their skills and reputation in their primary market. (27)

      Although the market for mediation services has grown, it is still relatively small compared to litigation. (28) The usual explanation is a lack of knowledge (on the part of the public) regarding mediation. (29) Other explanations include the principal-agent problem of lawyers as gatekeepers to mediation, who avoid mediation because they want to maintain control over the dispute and because they have a financial interest in channeling and prolonging it. (30) Finally, it has been suggested that the mediation market remains small because using mediation, unless court-mandated, requires consent of both parties. Without consent, the default option, litigation, will be used. (31)

   2. Mediation Providers

      Like there is no single market in mediation services, there is also not a single market for mediation providers. The mediation profession, as it has evolved in the United States, ranges from mediators who volunteer in community mediation centers and take on a couple neighborhood disputes each year, to mediators in private practice who mediate complex business cases full-time and can gross over $1 million per year. (32)

      The profession is unstructured and large because there are "few formal barriers to entry," (33) because it is perceived as very emotionally rewarding, (34) and because of entrant over-optimism that mediation is a viable career option. Unlike law, psychology, architecture, medicine, or social work, "mediators in private practice are not licensed or regulated by states." (35) Most mediators are required or choose to complete only a thirty-to-forty-hour training course. (36) Mediation is also seen "as 'fun,' as opposed to the drudgery of much of law practice." (37) As a result, there are a lot more mediators than there are mediation jobs. (38) One mediator observed that as the mediation business doubles, the number of people wanting to be mediators quadruples. (39)

      Mediators hail from a variety of backgrounds: social work, human resources, psychology, labor relations, business, accounting, and religion. (40) Mental health practitioners commonly serve as mediators in family disputes, human resources specialists commonly serve as in-house mediators for employment disputes, and diplomats commonly serve as mediators in international disputes. (41) But, lawyers dominate the mediation market, in particular for cases that are litigated or about to be litigated, including domestic and...