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Calculating Loss of Earning Capacity

Published September 2, 2022

Loss of earning capacity is a common damage included in a personal injury claim involving severe injury. If an injury affects the claimant’s future career advancement, they may seek loss of earning capacity damages. Due to the speculative nature of a lost earning capacity claim, the plaintiff must prove the value of the damages with reasonable certainty in litigation. This burden of proof makes the services of economic experts absolutely vital. The Knowles Group works with attorneys and litigation firms nationwide to provide calculations and expert witness testimony for damages such as loss of earning capacity.

What is Loss of Earning Capacity?

Lost earning capacity considers what a plaintiff could have earned had their injury never occurred. A severe injury can drastically impact a claimant’s lifetime earning potential. Severe injuries can alter a career, lessen the worker’s hours to part-time, or cause lost opportunities for pay raises, promotions, and new job offers. Lost earning capacity is a general damage category that serves to compensate for these losses.

Formula for Calculating Loss of Earning Capacity

The speculative nature of lost earning capacity damages means they are not measurable in exact dollar figures. The court requires a plaintiff to provide evidence proving the reasonable value of their lost earning capacity.

An economic expert calculates this reasonable value using the claimant’s work-life expectancy, projected earnings, cost of living, and other data.  A vocational expert can then support these assumptions. They will offer professional opinions about the person’s ability to continue their career and other work they may or may not be able to perform.

A Hypothetical Example

A champion U.S. amateur boxer sustained career-ending injuries after a serious car accident. Before the accident, the claimant intended to pursue a professional boxing career. The claimant is now pursuing loss of earning capacity damages for their ruined career in litigation. To do so, the plaintiff must prove they had a reasonable chance at a successful professional boxing career before the accident.

Factors Involved in Calculating Earning Capacity

An economic expert must consider several influencing factors that affect earning capacity. These considerations include factors such as:

  • Profession & career
  • Current wages
  • Market value
  • Historical career performance
  • Skills, Talents, & Abilities
  • Education, Licenses, certifications
  • Work history
  • Location

Profession & Career

Understanding the claimant’s profession and career is essential for lost earning capacity calculations. Each profession has a unique growth curve with specific compensation levels. Additionally, the forensic must consider the projected industry performance over the claimant’s work-life.

Example:

The forensic must gather data for both the professional boxing and construction industry. The two industries have very different compensation levels and performance expectations. First, the forensic will create a model of the claimant’s potential boxing career based on the earnings trajectory. Then they will create a model of the potential construction career based on a work-life expectancy and average earnings for that industry.

Current Wages

Current wages include any actual earnings the claimant was receiving before the accident. These are the same figures used to calculate lost wages including the plaintiff’s salary and benefits.

Example:

Amateur boxers are not allowed to earn money for amateur level competitions per rules 309.2 and 309.5 of the USA Boxing Rulebook.

However, the claimant was working full-time for the construction company when they were injured. Therefore, the current wages received at this job are lost earnings that can be used in lost earning capacity calculations.

Market Value

Forensics must also consider the market value of the profession when calculating lost earning capacity. This includes future income and benefits throughout the plaintiff’s work-life.

Example:

Once again, the forensic must consider two different scenarios. The first is the market value of the plaintiff’s boxing career. To support these calculations the forensic compares the claimant’s pre-injury performance to the performance of comparable professionals. A boxing expert can support their findings with testimony on the claimant’s potential as a professional boxer.

The forensic will determine the market value of the claimant’s construction career using The Department of Labor’s Bureau of Labor Statistics. Then a vocational expert can testify to these assumptions.

Historic Career Performance

Evaluating historic career performance is crucial in determining future earnings potential. The forensic can use data such as past raises, bonuses, and promotions to produce an accurate trajectory of future lost earnings.

Example:

As an amateur boxer, the claimant has a recorded win-loss record that allows them to advance through different boxing leagues. A host of other performance statistics are also recorded and available for use. The forensic can compare this data to professional boxers with similar amateur stats.

As a construction worker, the plaintiff’s historic career performance includes pay raises, bonuses, and promotions. The forensic can use this data to determine an accurate trajectory of future earnings based on the expectancy of the claimant’s work-life.

Skills, Talents, Abilities

The claimant’s skills, talents, and abilities plays a significant role in their future earning capacity. The more skills, talent, and abilities a claimant has, the more likely they are to have a successful career. That success correlates to a higher potential future earning capacity.

Example:

Boxing and physical labor share transferable physical skills, talents, and abilities. Additionally, each career path requires unique skills, talents, and abilities. An economic expert would work with experts in each industry to evaluate the claimants skills, talents, and abilities. This information will help the court to understand how far they might have gone in each career path.

Education, Licenses, Certifications

A claimant’s education and professional qualifications also plays an essential role. Education, professional training, and opportunities for career growth all share a strong correlation. Therefore, the forensic must consider these when calculating lost earning capacity damages.

Example:

A champion amateur boxer receives their education through coaching. An economic expert can evaluate the claimant’s coaches and their results with other amateur boxers aspiring to turn pro. Additionally, championship belts and other awards, such as The Golden Gloves, display a level of education and aptitude. The forensic can also use these awards in loss of earning potential calculations.

In construction, there is a variety of education, licenses, and certifications available to advance career performance. The forensic can consider any the claimant already holds and any that would have become available through career advancement.

Work History

The consistency of the claimant’s work history is vital for understanding their future earning potential.  Higher levels of consistency correlate to higher earning potential. The number of past jobs, the time gaps between those jobs, and the amount of time in their current position are critical indicators of consistency.

Example:

Our example claimant has been boxing since they were a young teenager, and they have demonstrated dedication and consistency for nearly a decade as a boxer.

Likewise, they began their construction job upon graduating from high school and have consistently worked for the same company since.

Location

The claimant geographical location also plays a significant role in the calculations. If the claimant lives in an urban location with a booming economy, they have a high opportunity cost. Conversely, if they live in a rural or dying area, their exposure to opportunities is much lower. On top of that, certain industries perform better in one location compared to another.

Example:

As an amateur boxer looking to become a professional, few countries present more opportunities than the United States. Therefore, the claimant is missing out on considerable opportunities due to their injury.

Conversely, the claimant doesn’t live in an area with substantial growth potential. This means construction opportunities are not guaranteed to continue growing unless the population begins to grow.

Loss of Earning Capacity for a Self-Employed Person

Proving lost earning capacity for a self-employed claimant can be difficult depending on the circumstances. The primary determining factor is the age and earnings of the claimant’s business. Suppose they provide financial records to prove a history of steady revenues. In that case, a vocational expert can evaluate the claimant’s reduced earning capacity after the injury. With that information, the forensic can calculate lost earning capacity. If the company is new or revenues are inconsistent, proving lost income and loss of earning capacity becomes more complex. However, that does not mean lost earning capacity cannot be proven.

Loss of Earning Capacity for a Person with No Work History

The fact that a plaintiff has no work history doesn’t stop them from claiming lost earning capacity damages.  In fact, this scenario is common in children and people under the age of 20. Working with a vocational expert, economic experts can survey the labor market to determine the employment opportunities available to the injured claimant. They can compare this data to the claimant’s pre-injury education and career aspirations. This allows them to determine a reasonable figure for loss of earning capacity damages.

Hire a Forensic Economist to Calculate Loss of Earnings Capacity

When it comes to determining a reasonable value for loss of earning capacity damages, the services provided by forensic economists and vocational experts are vital. The Knowles Group has been providing professional economic services on behalf of thousands of attorneys since 1979. We’ve provided expert witness testimony for personal injury cases in multiple state and federal courtrooms across North America for plaintiffs and defendants alike. In addition, we have access to a vast network of professional experts required to determine economic damages, such as reasonable lost earning capacity figures. Contact us today to discuss your case and schedule a free consultation.

Eric Knowles, MBA

The Knowles Group has been providing professional economic services to the legal community since 1979. The firm has worked on behalf of thousands of attorneys in a dozen states and Canada. Testimony has been provided in both federal and state venues.