CJAC: Civil Justice Association of California

Oct 31, 2011

Study: Legal Reform in California Could Create Hundreds of Thousands of Jobs

SACRAMENTO - Californians could save $5.2 billion in tort costs and the state could create between 115,000 and 320,000 jobs by improving its legal environment, according to a new report released by NERA Economic Consulting.

The study relies on a new econometric model that looks at each of the 50 states’ economic and legal environment data - such as number of tort claims filed, frequency of large awards, and the concentration of lawyers practicing - and creates a Legal Environment Benchmark that all states can be compared to. To estimate how businesses would respond to lower tort costs, or “tort tax” relief, the study looks at businesses’ previous responses to tax reductions to determine the resulting impact on employment. The authors find that improving a state’s legal environment is a viable option for stimulating economic activity that does not reduce tax receipts or increase government spending.

“The research continues to show that California’s legal environment is holding our economy back,” CJAC President Kim Stone said. “This is further evidence of why we have to make changes that get businesses to believe that it makes sense for them to be in our state and to hire more Californians. The empirical research tells us there is a problem. The surveys of business leaders tell us there is a problem. It is pretty clear that legal reform is part of the solution.”

California’s total tort costs amount to $32 billion, far higher than any other state, according to the study. California’s legal environment increases tort costs by 16.4% when compared to the Legal Environment Benchmark, which translates to $5.2 billion in higher costs.

The study finds that the increases in employment that could result from reducing these costs range from 0.65% to 1.76% in California, which currently would mean between 115,000 and 320,000 jobs.

The full study, which was conducted on behalf of the Institute for Legal Reform, can be found here.

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