Mesothelioma Claims - Asbestos Liabilities
PROF. ROTHSTEIN: I take it that underlying all of this, you might get a grip on the cost to the economy of compensating these claimants. And I guess in doing that, you would also have to add to your very excellent list the cost in products and services, that aren't put out there because of the hesitancy of companies. But I think there is also something else left out when you are trying to tote up the cost in benefits. And by the way, I take it your assumption is the courts, and I agree with this, are not capable and not supposed to balance costs and benefits to society and that speaks toward having a global settlement from Congress.
But there is, I think, a benefit to society from compensating the claimants. I think it maybe doesn't compensate for all this, but there is a benefit that you have not counted, and that is, yes, jobs are lost on one side of the equation, but the claimants are getting money and they are spending it and three is a multiplier effect on the economy. I don't think that is a compensating effect, but it is an effect that should be measured and I wonder if you had looked at that.
DR. ORSZAG: We definitely thought about it and we had words to that effect in our paper. But it is also important to emphasize there, and it is a chart that Deborah showed about the transaction costs associated with those payments, which economists would call an economic loss. That a transfer from the company to the worker does not cause a real loss in economic output, because, you know, a company if it spent dollar and say paid a worker, that worker would go out and pay the dollar and buy clothes and food, etc. If it then pays it to a mesothelioma claimant, that mesothelioma claimant or their families would spend that money.
What happens in the asbestos liabilities though is that there are significant transaction costs. Remember, the plaintiffs are ultimately getting only roughly 40, 50% of the money and so that is a pure economic loss right there and that's important to emphasize in the context of these costs.
But your more general point, that there are other costs and other benefits, that is absolutely true. We focus narrowly on the cost to workers and, you know, I will continue to emphasize this is solely on the cost to workers, there are benefits to claimants and there are costs that go far beyond this. And I believe the next presentation will get into the cost to communities and the costs in terms of health care, etc. and that's important as well.
MS. PENDELL: One more question.
MR. BRICKMAN: Lester Brickman, Cardozo Law School. You indicated that you measured job losses up to the point of bankruptcy filing. My anecdotal experience is that job losses continue to occur after filing. Did you make any attempt to estimate job losses post filing?
DR. ORSZAG: The answer is, yes, we did. And I have some of that data which I can share with you, not right now, but I can ultimately share with you. But the key thing is that, remember, a lot of the big firms when bankrupt in the past few years and so much of the data that we had as only through the year 2000, so any - say half our firms, 60% of firms that went bankrupt in the last couple of years, we wouldn't have data post bankruptcy for those firms. But if you look at the experience of the firms that went bankrupt in the late 1970's and 1980's and early 1990's, they continue to experience a downward trend in employment relative to their industry control group in the years after bankruptcy.
MS. PENDELL: Thank you, John. Our next speaker is Dr. Jesse David, he is a senior consultant at National Economic Research Associates. He has developed economic impact and cost benefit studies of proposed legislation for government agencies including DOT, OSHA, EPA and the Consumer Product Safety Commission. He provided research for a number of projects associated with public utilities in areas including strategies in a restructured market, a metered services market and electricity pricing for forecasting.
He has extensive modeling experience, which he has applied to issues such as electricity market restructuring, rate design for publicly provided services and market definition for industries such as municipal waste disposal, pipelines and water distribution.
He has a Bachelor's from Brandise and a PhD in economics from Stanford. Dr. David.
DR. DAVID: Thank you, Judy. I would like to thank the Chamber and the Manhattan Institute for inviting us here. We were asked to put on our thinking caps with regard to the information developed by Rand and Sebago and try to broaden the estimate of the impacts and the costs faced by the economy as a result of asbestos liabilities, in particular to address perhaps some of the questions that Prof. Rothstein just raised.
And the way I like to look at it is, in terms of primary effects, which we have just discussed, the obvious effects of asbestos liabilities on the shareholders of the firms and the workers of the firms who perhaps were laid off as a result of those liabilities, but then to look and to sort of the ripple effect throughout the economy, what we are calling secondary effects.
In particular, we are also going to identify some additional costs faced by the workers by firms that face asbestos liabilities and then we are going to look broader into the communities in which those facilities are located into the businesses that provide services to those companies, to business that provide services to the workers and to the local budgets of the state and local governments that may also be affected.
In particular I think it is important to recognize that in addition, as professor Rothstein was mentioning, in addition to the transfer of money between the shareholders or the firms, and the plaintiffs in these cases, there are net losses in economic output as a result of these lawsuits. And this is not just the transaction costs associated with hiring lawyer. Of course as much as we all enjoy being here today, this probably is a cost to the economy because we could be doing something else more productive perhaps, if asbestos lawsuits weren't so prevalent.
So, it is those other types of costs that we are going to consider that really are a net loss to the economy, that have absolutely nothing to do with compensating the plaintiffs, whether they deserve it or not, that is just not an issue that we are addressing.
So, the starting point of our analysis is the same 50 to 60,000 workers roughly that have been estimated to have been displaced by asbestos related lawsuits, as Jonathan was describing. We wanted to put a face on these workers, try to understand a little bit more about their situation and the situation of the communities in which they were employed.
Largely these firms are in what we are calling non durables manufacturers. The firms that actually went bankrupt or have gone bankrupt to date largely, of course, asbestos manufacturers, insulation manufacturers, plastic manufacturers, but also there have been a number of firms that have been named significant defendants in durables related sectors such as steel mills and shipyards. So there is a pretty broad sector of the economy that has been affected, but really it has been focused, of course, on asbestos, mineral wool and insulation companies.
In fact, many, we went in and actually looked at the facilities that had been affected by the 60 or so bankruptcies, we identified roughly 100 facilities that had experienced mass layoffs for complete shutdown and identified the communities in which those facilities were located. The average population of the community was just over 100,000 people, but, in fact, there were a few in rather large locations. And, in fact, for the most part, these facilities were located in very small communities, under 25,000 people for the median facility.
So, we are talking about small communities where the effect of a large mass layoff could have rather larger effects than one might expect across the economy as a whole or in large cities.
Next we took a look at the workers in the manufacturing industries and in the durable manufacturing industries in particular and tried to identify what the typical worker was who had been displaced. Generally speaking, we are talking about blue collar trades, relatively low skilled workers with perhaps less than the average prospect for reemployment. The average salary of these workers was under $30,000 a year in those particular industries, roughly over the last ten years.
So, we are talking, like I say, about workers who may have more difficulty than average within the economy of finding further employment, both because of where they are located, perhaps isolated from other large employment opportunities and also because of a low level of training and education.
So then we used some data from the Bureau of Labor Statistics, the Displaced Worker Survey, to try to identify what the actual reemployment prospects were for these workers. We found that after two to three years, roughly a quarter of them had not found employment. We are talking about 10% and we are still searching after two to three years and another fourteen, roughly 14% that actually stopped searching and officially according to the BLS dropped out of the labor force entirely.
So the facts that these layoffs occurred, didn't just necessarily cause temporary unemployment for a few weeks for everybody, there were some people who were facing significant long term unemployment.
Among the group that was reemployed after two to three years, the 75% or so, the average unemployment period was actually about 10 weeks. And, in fact, a large chunk of those workers were unemployed for longer than six months and when they weren't reemployed, as Jonathan mentioned, they tend to earn less at their new jobs, at least for several years. These numbers are actually slightly different than those reported by Sebago because of our particular focus on a couple of industries. In fact, it appears that the workers in those industries are probably, like I said, less likely to be reemployed and when they do get reemployed, it will be at a lower rate than perhaps the typical adjustment that a typical worker in the economy is going to face.
So, this is a group of workers that we are talking about. Let's now try to think of some additional costs that they are going to face, in addition to the loss in wages that Sebago reported and some of the other obvious costs that perhaps we could identify.
First off, because these are workers that are typically low skilled with relatively little training and a few years on the job, in many cases they are going to need retraining in order to find that employment. Roughly half, 42% of manufacturing workers who are displaced from their job, do participate in training programs, we found there have been a couple of recent studies published on this and the typical program costs roughly $2,000 to $3,000. So, we are talking about a net cost right there of about another $50 million to date based on the number of lost jobs in the 50 to 60,0000 range, as mentioned by Jonathan earlier.
Now, who is bearing these costs? These are probably going to be shared across the economy, the workers themselves in some cases pay for training, the companies sometimes offer training programs for reemployment and, of course, the taxpayer ends up picking up a large chunk of it.
Another impact that we examined was related to the effect on health care provision for workers who lose their jobs at these types of companies. We identified the cost of health care for a typical family served by their employer at about $160 a month. Once you move to an individual plan, if that's what you are forced to take up after being unemployed, we are looking at an increase of over $300 a month in health costs. Now this, for example, would apply to anybody who was not able to obtain a COBRA plan after being unemployed. And, in fact, we found, I believe, only about 20% of displaced workers do participate in COBRA. And I would say also, a note, that this is compared to perhaps unemployment benefits, this is a large chunk of money, actually about over 50% of unemployment benefits could be spent on a health care plan if the family chose to participate in an individual plan.
In terms of the actual monetary cost to date for those 50 to 60,000 workers, we are not talking about necessarily a huge amount, given the participation rates in these health cares, maybe another $30 million on top of costs that we have already discussed. And, of course, now this is an actual net additional cost to the economy. But, perhaps, more importantly, we are talking about a lot of families, perhaps as many as 50% that don't take health care at all during their period of unemployment and we want to consider what the impact that might have on the economy, including increased reliance on emergency care, increased incidence of illness due to lack of preventative care and, of course, any costs that they do incur typically will, again, tend to be passed on to taxpayers around the country. So, that's something to consider.
Obviously a mitigating factor here is unemployment insurance, which we would be remiss if we didn't discuss the average unemployment benefits, roughly about $200 a week for the workers that we are talking about here. As I mentioned, that's, in itself, really only about twice what the cost of an individual health care plan is, so we are talking only very partial compensation, also only about half the offset of the lost earnings. So, clearly these workers are not made whole by unemployment insurance.
The net transfer from taxpayers for workers to date, we are looking at about $80 million and, of course, that's all picked up by taxpayers again.
So, these were a couple of the types of costs and by no means, of course, is this list exhaustive, that may be faced by the workers themselves. But then we wanted to broaden the circle and examine how the sort of ripple effect moves through the economy.
And, in fact, three are certain types of models that economists have developed to identify the regional impacts of layoffs and losses of income. These types of impacts we generally group into two categories. We've got indirect impacts which are going to be the losses in income for businesses that supply the facilities in question, you know, construction trades, administration services, other types of supply and also a second type of effect called an induced effect or a multiplier effect which is as the income, as wages and income are lost to the workers, they are spending in the local economy decreases and that has a ripple effects throughout businesses within the region.
Three are a number of models that have been developed to identify these types of costs and impacts. We used two of them. We first used a model that I won't really discuss much here to get a sampling of the 100 or so facilities that have been affected and attempt to identify sort of what an average affect was.
We then picked a location, which I will discuss in a moment as a typical location that was affected and applied a model known as REM, Regional Economic Model, which is a state of the art model that estimates these downstream impact from lost income and lost jobs.
Of course, the magnitude of that effect is really going to be very dependent on the community that is examined. Typically, smaller communities in some ways can be affected to a great extent because three may be some local services that are more dependent on the facility in question. In other cases, depending on the pattern of commuting and migration of the workers, they may be affected to lesser extent if most money is spent outside of that community, so it really is a idiosyncratic type of effect. But overall we found that for every ten jobs lost to the local economy due to a layoff, an asbestos related layoff, an additional eight local jobs were also lost in other types of services that provided support both for the facility in question and for those workers.
The filing of asbestos claims or mesothelioma claims should be done with the assistance of an asbestos law firm or mesothelioma law firm (dependent on your asbestos-related disease).