Document GzDpZxDLrZ6DprXzZN7KnjK07

STUDY OF ECONOMIC LOSS RE: LAWRENCE A. COLBY Submitted to Levinson, Axelrod, Wheaton & Gray2el Attorneys at Law Prepared by M. Marcus, Ph.D. 2350 South Avenue Westfield, New Jersey 07090 December, 1992 UCC 075851 Summary of Piudings The economic loss due to the death of Mr. Lawrence Colby totals $743,739. It includes $332,335 in wage loss and $411,404 for loss of household services. (All figures are in present value.) The analysis, assumptions, and calculations underlying my conclusion are found in subsequent sections of this report. The components of the loss are: Earnings Loss To assumed date of trial 5/5/1989 - 3/31/1993 Future (Discounted) 4/1/1993 - 10/21/1998 Unemployment Allowance Fringe Benefits Work-Related Expenses Personal Maintenance Income Tax Liability Net Loss Household Services To assumed date of trial 5/5/1989 - 3/31/1993 Future (Discounted) 4/1/1993 - 10/7/2011 Total Pecuniary Loss $212,659 310,873 (58,112) 186,168 (54,920) (178,949) (85,384) $332,335 $ 16,186 395,218 $743,739 UCC 075852 Lawrence Colby Page 2 Personal Status Lawrence Colby died on May 5, 1989. He is survived by his wife Phyllis and three grown children, Lawrence, Michael and Monica. Life expectancies at. the tine of death were: Lawrence Colby Phyllis Colby D.O.B. 10/21/33 7/24/32 Age on 5/5/89 55.5 56.8 Life Expectancy Years To Aoe 23.5 79.0 22.4 79.2 The life expectancy figures are based on U.S. Life Tables incorporated in Rules Governing the Courts of the State of New Jersey. 1993.. I have been advised that Mr. Colby had intended to work to age 65. This is consistent with the worklife for men of Mr. Colby's cohort (U.S. Department of Labor, Bureau of Labor Statistics, Bulletin 2254). My calculations assume retirement at this age. UCC 075853 Lawrence Colby Page 3 Employment and Earnings Mr. Colby had worked as an operating engineer. He was a member of Local 825, international Union of Operating Engineers. In 1988, the last full year of work prior to his death, Mr. Colby earned $46,373 (W-2). This pay is assumed to increase consistent with contractual wage increases obtained by Local 825. Accordingly, the wage loss to the assumed trial date is: 1989 $ 39,460 ($48,506-$9,046) 1990 50,737 1991 1992 53,071 55,513 1/1 - 3/31/1993 13,878 Past Loss: $212,659 The future loss is projected from a current estimated pay of $55,513, derived above. The wage loss is reduced to reflect unemployment in construction and disability contingencies. The data underlying this adjustment are contained in government publications (U.S. Department of Labor, Employment and Earnings. 1992; U.S. Department of Labor, Monthly Labor Review, January, 1992). Reduced earnings attributable to periods of unemployment will, however, be partially mitigated by State unemployment compensation plans. Incorporating the effect of this program, the net reduction for unemployment which needs to be made is 11.1 percent. UCC 075854 Lawrence Colby Page 4 The earnings loss projected for Mr. Colby would be subject to income tax at the Federal and State level. A deduction for this liability need therefore be made. Based on applicable tax schedules, I have calculated this reduction to be 20.8 percent. An additional allowance of 11.8 percent was made for employment-related expenses, claimed by Mr. Colby. As a member of the International Union of Operating Engineers, Mr. Colby received various employer-paid benefits. These benefits included medical coverage and annuity and savings plans. I value the loss of these benefits at forty percent of earnings, based on the cost to the employer. In order to estimate the loss suffered by Mr. Colby's dependents, the projected income needs to be reduced by the decedent's personal maintenance expenditures. This calculation requires that the portion of income used for family housing and utilities be excluded, since they would not be affected by the death. These expenditures are consistently estimated at about thirty percent of family income (See for example, U.S. Department of Labor, Bureau of Labor Statistics, April 14, 1988). The remaining seventy percent of the decedent's income is assumed to be distributed equally. Making these calculations for each year over the loss period the personal maintenance expense is estimated to be thirty- five percent of after-tax earnings. The earnings loss calculated in this study is reduced by this percentage. UCC 075855 Lawrence Colby Page 5 Service Loss Mr. and Mrs. Colby have lived in their own single family home. I have been advised that Mr. Colby handled all home maintenance and repairs/ auto maintenance/ and managed the family finances. Mr, and Mrs. Colby's son, Lawrence, is disabled with agoraphobia. He depends on his parents to take him to appointments and shopping. Most significantly, he is unable to work steadily, and he has been supported by his parents, who also have been paying his medical bills and cost of medications. Mrs. Colby told me that since her husband's death she has nobody to share her concerns about Lawrence's future and she has been deprived of her husband's assistance and guidance in dealing with Lawrence. My calculations assume that while Mr. Colby would continue to be employed, the aforementioned services would average seven hours a week. This is consistent with the average reported in family surveys (Time Use: A Measure of Household Production of Family Goods and Services, by Kathryn E. Walker and Margaret E. Woods). Beyond age 65, namely, after Mr. Colby retires, it is assumed that the aforementioned services, along with companionship, care and guidance, would average four to eight hours a day. Using the mid-point of the range, or an average of six hours a day, this assumption translates to forty-two hours a week. UCC 075856 Lawrence Colby Page 6 One guide for valuing the household services are wage rates in maintenance occupations. These wage rates, based on the earnings of full-time employees, are $11.25 to $15.26 an hour (Exhibit 4). Another guide relevant to this valuation are fees charged by homemakers. These individuals are hired to assist with household chores and family care, and their fees are mostly $14.25 an hour. My conclusion is that the services in question have a current value of $14.25 an hour, or $5,187 a year (7 hrs. X $14.25/hr. X 52 weeks). The post-retirement services have a value of $31,122 a year (42 hours X $14.25/hr. X 52 weeks). If a different service assumption is developed at the time of trial, the valuation will change in the same proportion. I'd note that the value of guidance and advice which Mr. Colby has also provided his wife and son, based on rates charged by professional counselors, is $30-$50 an hour. The aforementioned yearly values do not reflect this higher value of advice and guidance because at present I have no reliable estimate of the proportion of time expended on these, more specialized, activities. The service loss is projected to continue over Mr. Colby's remaining life expectancy, but is reduced for contingencies of disability which might have precluded him from providing the services continuously in the future. Based on Mr. Colby's age, this reduction is 8.2 percent (U.S. Department of Commerce, Bureau of the Census, Household UCC 075857 Lawrence Colby Page 7 Economic Studies, 1986). This reduction incorporates, in effect, inability to offer any assistance approximately four weeks a year. UCC 075858 Lawrence Colby Page 8 Wage Increase Trends The replacement value of services examined in this study can be expected to rise over time along with the general increase in wages. General wage increase trends in New Jersey for past periods are shown in Exhibit 1, based on data reported by the New Jersey Department of Labor. Wages in the total private economy have risen an average of 5.6 percent annually over the last twenty years (U.S. Department of Labor, Employment and Earnings, April, 1992). Personal income increases in New Jersey are shown in Exhibit 2. Consumer price increases over the last fifteen, ten, and five years are shown in Exhibit 3. Considering the aforementioned and likely future inflation and .productivity trends, my study projects a five to six percent overall wage increase. UCC 075859 Lawrence Colby Page 9 Present Value Calculation To obtain the present-day value of the projected future loss it is necessary to discount all future amounts by the interest which can be earned from the date of trial until the loss would actually occur. The discounted value of all future amounts is termed the present value of the loss. Interest rates which can be earned on various investments will vary greatly, due to differences in risk and liquidity. My calculations assume that the award will be invested in U.S. Treasury securities to ensure the lowest degree of risk and provide adequate liquidity. However, interest income on U.S. Treasury securities is subject to Federal Income Tax. The net, after-tax, interest rate applicable here is at present within the same range as the projected wage increase. As a result under current economic conditions discounting to present value will be offset by the likely wage increase. Future interest rates may, of course, change. However, a future rise in interest rates will most probably be associated with rising inflationary expectations and rising wages. Therefore, the impact of a higher interest rate on investment income, will be diminished, partially or totally, by the likely accompanying increase in wages. Respectfully subm: UCC 075860 Exhibit 1 WAGE INCREASE TRENDS New Jersey Total Economy Manufacturing Construction Services Government 1981-91 6.1% 6.3 5.5 6.8 N.A. 1986-91 6.1% 6.2 5.6 7.1 6.6 Source: New Jersey Department of Labor. UCC 075861 Exhibit 2 PERSONAL INCOME PER CAPITA 1971 1972. 1973 1974 1975 1976 1977 1978 1979 1980 1981 1962 1983 1984 1985 1986 1987 1988 1989 1990 1991 New Jersey 5,103 5,492 6,000 6,531 6,991 7,653 8,348 9,250 10,277 11,579 12,853 13,823 15,065 16,442 17,622 18,773 20,300 22,200 23,628 24,881 25,372 Annual Increase: 1971 91 1981 - 91 1986 - 91 8.3% 7.0 6.2 Source: U.S. Department of Commerce, Survey of Current Business. UCC 075862 Exhibit 3 AVERAGE ANNUAL PRICE INCREASES All Items 1986-1991 4.44% 1981-1991 4.13% 1976-1991 5.99% Food 4.57 3.83 5.44 Shelter 4.79 4.92 7.21 Transportation 3.89 2.88 5.55 Medical Care 7.73 7.88 8.51 Source: Economic Report of the President. 1992 UCC 075863 Exhibit 4 MAINTENANCE OCCUPATIONS WAGE RATES (New Jersey) Hourly Earnings Maintenance Carpenters $15.26 Maintenance Painters 14.47 Homemakers/Horae Health Aides 14.25 General Maintenance Workers 11.25 Source: Average for various areas based on Compendium of New Jersey Wage Surveys. October, 1991, and surveys. UCC 075864 MATITYAHU MARCUS, Ph. Economist 2350 South Avenue Westfield/ New Jersey 07090 (908) 654-4555 Position Professor of Economics, Rutgers University, New Brunswick, NJ (Formerly Department Chairman and Director of Graduate Studies in Economics) Academic Education B.A. Brooklyn College, 1959 (Phi Beta Kappa, Magna Cum Laude) Ph.D., Brown University, 1963 (Economics) Publications in Economics and Finance The Review of Economics and Statistics The Journal of the American Institute of Planners Land Economics The Journal of Industrial Economics The Canadian Journal of Economics The Southern Economic Journal The Antitrust Bulletin Bulletin of the-Oxford University Institute Public Utilities Fortnightly Journal of Behavioral Economics Financial Review Journal of Retailing Journal of Finance Research in Finance The International Journal of Finance Professional Affiliations American Economic Association American Association of University Professors Consulting Experience Prepared reports dealing with the appraisal of economic loss for both plaintiffs and defendants and have testified in court on such matters. Conducted cost of capital studies involving electric, telephone, gas, and water utilities. Consultant for various public and private organizations including U.S. Department of Agriculture? Office of Telecommunications Policy? Western Electric and the Council on Library Resources. UCC 075865