Asbestos Layoffs - Asbestos Product Liability
We then, as I mentioned, picked, and a particular example may hit home, I saw a couple of people here from Owens and from Corning, in 2000 Owens Corning laid off 275 workers in a plant in Ohio. We took Lincoln County Ohio and we found that that was fairly typical of the size and urbanization of the communities affected by asbestos layoffs and we used the REM model to understand what the overall effect was to Lincoln County.
Overall, as a result of these 275 layoffs, the REM model predicted an additional number of layoffs in lost jobs in other services. 77 lost jobs in local services, we are talking about medical services, financial services, local banks, local dentists, that sort of thing. Another sixty lost jobs in retail trade, we are talking about food and beverage establishments, local drug stores, that sort of thing and 48 jobs lost in local construction, electrical and carpentry trades that supply the facility and other types of services like that. Overall about 500 lost jobs in Lincoln County as a result of these layoffs. So, we are seeing this ripple effect. 275 workers at the firm in question, but they are not just the ones that are paying the price here. We've got another roughly eight jobs for every ten lost at the Owens Corning facility.
The REM model predicted that total output within the county would be reduced by approximately $60 million annually, and as a consequence of the reduction in total output and the reduction in jobs, in fact, about one out of every two workers is going to move out of the county, one of every two of the displaced workers would move out of the county. The net effect in terms of local income, a reduction of about $15 to $20 million for this county.
Now, we are talking about a county of, you know, 150,000 or so people, not a large community. This could be a significant effect.
So, in summary, to try to understand these questions, any reduction in local employment and income is going to be magnified by this multiplier effect. Trades and services that initially you think would have nothing to do with asbestos related liabilities will also suffer locally. In fact, if you take the roughly $1 to $2 billion reduction in income, due to just the temporary unemployment costs and the reductions in future earnings, we are talking about an additional half a billion to roughly two billion in costs due to the multiplier effect. So, essentially, you can take any loss and multiply it roughly by two, to understand what the total effect on the economy is going to be. That's what these models are telling us.
However, I should point out that this $1 or $2 billion are the net costs due to this lost, temporary loss in employment. In fact, for the particular communities in question, they may be impacted much more severely while, of course, the economy as a whole, there may be an adjustment mechanism where jobs are generated somewhere else. So, it is important to identify the impact that you are trying to analyze or you are looking at the impact of a specific group of people or are you looking on the impact on the economy as a whole. It is really two very different questions.
Another effect on local economies will also be felt through real estate values. There has been a fair bit of economics research on the impact of population -
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- and income changes on local real estate. And, in fact, what the effect that mass layoffs might have on those owners of local real estate. Basically to summarize that type of literature, the average income effect, as we call it here, is roughly about .2, which basically means each dollar in local income lost in a small community, I guess you could say, I think most of the research is done on the MSA level, each loss in one dollar of local income will - excuse me, 1% reduction in local income will result in roughly a 2/10ths of a percent reduction in local real estate values. We are talking everybody, all residential and commercial real estate in the region.
The population effect is actually much stronger. For each reduction of say ten workers in an area that move out because of a mass layoff, you are going to get an effect that is about 10% greater than that or 1.1 times that effect on local real estate values. So, a 1% reduction in local population would lead to a 1.1% reduction in local real estate values, other things being held equal.
Just to go back to our example of Lincoln County, we took a look at what real estate values were there. Per capita income effect and population effect and how those would affect the real estate values. In this particular case the 500 lost jobs and the roughly 250 people leaving the area result in per capita income and population declines of roughly 1/10 of 1%. It may not sound like a big number but when you apply that to the value, now this is just residential real estate in this case, we are looking about a $5 to $10 million reduction in local real estate value. And, in fact, you are going to find that for smaller communities the effect would be even larger on a percentage basis.
In fact, that is a pretty good size reduction. We are talking about an additional $20 to $40,000 reduction in local real estate value for each worker laid off at that facility.
Intuitively, one might think the next cost that you might want to look at is how are these types of impacts going to affect local budgeting, state budgeting and even federal taxpayer issues. Now, we didn't attempt to quantify these because there is so much disparity between the types of local tax structures. But it is clear that falling property values are going to affect local tax collections. On the other hand, there may be some offsets due to the reduced local population expenditures may fall clearly sales tax collections in those localities as well as the states as a whole will be reduced.
And I would point out that actually the bankruptcies themselves can actually impact the payment of taxes from the effected firms, usually temporarily, of course, but there can be some significant local budgetary impacts.
And, of course, obviously, the rest of us end up paying for a lot of these types of expenses, such as unemployment insurance, training and those sorts of things.
So, to conclude quickly here, it is important to recognize that asbestos liabilities impose costs, not just on the intuitively obvious shareholders and even the workers at the firm who perhaps one might say that they are the ones who ought to bear these costs, there are additional costs that generally don't get considered, such as training and health care costs that might occur during the transition.
Local communities can also be hit very hard, depending on the size and makeup of the structure of industry within those communities. As local businesses are hurt, as people are moving out of town, and as jobs are lost and as local income is reduced, local property values are going to fall, and, of course, local governments may face declines in revenues and their ability to produce the services that they are here for.
And then, of course, as I mentioned, a big chunk of these costs are passed on in forms of, in the form of higher payroll and income taxes to the rest of us.
I would say, the numbers that we are talking about here, of course, are just the costs to date. It is estimated that we may have only seen roughly a quarter to a third or even less of the total cost as these law suits continue to escalate, so in any kind of economic analysis it is important to think about not just the workers and shareholders are going to be affected, but the communities and other businesses that are also going to be affected downstream of those affects.
MS. PENDELL: Thank you, very much. Questions?
PROF. ROTHSTEIN: To some extent (unintelligible) because (unintelligible), the cost of the asbestos compensation system is a tremendous cost to the economy. It is ruining the industrial base, especially it is hurting future claimants who might really be sick and that these costs far outweigh the benefits, especially today where we are compensating people who aren't really sick. But I am interested in getting all the costs and benefits out on the table. And Deborah, Jonathan and Jesse have done a very good job of this. But I think a couple of things still have been overlooked.
Jonathan said to me that we have to count the transaction costs as a net minus, but somebody is getting that money, the lawyers primarily and they are spending it, buying Mercedes and things. So, I think that has to be counted. I don't think it is going to make a huge difference, but I think it has to be counted.
And then, also, you have to count as a benefit of the compensation system the injured people, if there are still injured people in the system. Injured people are, by getting an award returned to working and being productive members of society and earning wages which they are then spending and buying things and buying real estate and paying taxes. They are spending their award which may be a windfall that they got in the big asbestos lottery, but they are spending that and stoking the fires of business that way, buying real estate and paying taxes.
So, I think to get the complete picture down, we have to count these. I have the feeling that still the costs are hugely disparate and outweigh any benefits. But I wonder if you have done any studies on that.
DR. DAVID: To address the issue of the transaction costs, I think, as you point out rightly, the money isn't completely flushed down the toilet. But as an economist, I would say that those are still net losses to the economy because any lawyer that is doing asbestos litigation he could have been doing something else. Well, we won't pass a judgment on how valuable that would have been. But I would have to assume that he would be providing some other service to the economy in the absence of -
PROF. ROTHSTEIN: (unintelligible)
DR. DAVID: Okay, perhaps that lawyer could have also been teaching in the law school instead of pursuing this type of thing, that's right, so I would say those definitely are still losses.
MS. PENDELL: Thank you, very much. The information you just heard from Jesse, by the way, is being released for the first time today. And both his slides and the slides of both other speakers, in case you haven't already discovered that, are available outside.
I am going to ask our two commentators to join us up here on the dais now. And while I introduce them. Prof. Paul Rothstein, who you have heard from twice today, teaches at Georgetown Law School. He is well known for his work in evidence on criminal lawsuits and the judicial process from the Supreme Court down. He is well known for his - he is author of Evidence, Cases, Materials and Problems, Evidence in a Nutshell, State & Federal Rules, Federal Rules of Evidence and several other books and over 100 articles.
He has engaged in numerous professional activities, including chair of the ABA Rules of Evidence & Criminal Procedure, board member and education chairman of the FBA and chair of the AALF Evidence Section of the ABA. He is a consultant to the National Conference of Commissioners of Uniform State Laws, the U.S. Congress and the National Academy of Sciences. He is contributing editor to Legal Times, New York Law Journal. And he is perhaps familiar to many of you as a frequent consultant and guest on the major TV networks.
He has a BS and JD from Northwestern and was a Fulbright Scholar at Oxford.
Our other commenter, Judge Dean Trafelet from 1984 to 1988 was a trial judge in the Circuit Court of Cook County Illinois from which he is retired. There he was on special assignment as he presided over a special calendar of numerous complex toxic product liability and environmental insurance coverage matters.
He presided of Inre Asbestos product liability litigation where for over fourteen years he disposed of in excess of 35,000 asbestos lawsuits. He is the court appointed legal representative for all future asbestos personal injury claimants and the Armstrong World Industries, USD Corp. and Flipa Company reorganizations. He is a trustee of the $5 billion American Home Products Phen Phen Trust and of the Amatex Asbestos Product Liability Settlement Trust.
He is the originator of the Asbestos Plural Registry, which has become a model for state and federal courts. He has served as a special federal mediator to the U.S. Bankruptcy Courts in the disposition of thousands of asbestos related claims by seamen. He is an active lecturer and he has taught at Northwestern Law.
With that I will ask Judge Trafelet and Prof. Rothstein to join us and provide us with comments. Paul, would you like to begin?
PROF. ROTHSTEIN: Well, you have heard from me a couple of times already. Should we let the judge start, because you are sick from hearing from me .
JUDGE TRAFELET: I don't know about that. You may have me stirring the pot a little bit. I have a sense that obviously there is no ready solution and I think that the problems that have been created, there may be some guilt on industry and the solution to work ourselves out of that. I think there are some that are, in fact, in the making.
I think the most important thing is the lessons that we may learn from the asbestos litigation. I think that is particularly the most important. That filters al the way down to the judiciary, which I think there is a lot of fault.
One of the questions that I always like to ask in these symposiums and these discussions, is that, is there an axiom fault in the industry, the asbestos industry and those in manufactured products containing asbestos in toughening it out a little bit too long in taking that stance? Had they made decisions, management decisions earlier, rather than to fight to the bitter end, to realize the scope of the problem? To keep in mind what their corporate strategies would be or corporate strategies were and to fulfill those strategies to not only to the equity of the company but to the employees of that company, might not they have been better off?
I think the more recent bankruptcy, from what I have been able to discern from discussions and my experience currently, getting more involved, is that management has recognized these problems and has made very, very quick changes.
Another segment is the insurance industry and I ask the question to all of us here is, rather than toughening it out, did they not go into just absolute denial and did that obviously, that approach combine with toughening it out? These are questions that exacerbate the entire problem.
The court systems, I think, are somewhat to blame. I can speak firsthand on that. I think there is a great deal of inexperience on the bench. I think that the independence of the bench is not what it should be and, therefore, it becomes very provincial in those areas that we have seen and continue to see around the country, which are hotspots for plaintiffs to file their suits, are a result of that. And, again, there is, I think, a lack of training combined with the experience of those that are on the bench to deal with cases of this nature.
That, in a nutshell, are some of my observations.