In Personal Injury Litigation – the Difference Between Future Earnings and Future Earning Capacity, economic damages expert witness Ronald T. Luke, JD, PhD and Mary L. Hoane, CPA/CFF, MBA write:
This paper discusses one of many issues that can arise in calculating economic damages in personal injury litigation. The issue is the important distinction between projecting a person’s future earnings and a person’s future earning capacity. Earnings are defined as remuneration of a worker for services performed during a specific period of time. When projecting future earnings the economist is projecting the amount the person would have earned but for an injury. When projecting future earning capacity the economist is projecting the amount the person could have earned if he had chosen to maximize his earnings.
In litigation where the injured party remains alive and able to receive a damages award, the correct measure of damages is loss of future earning capacity; the amount the injured party could have earned had the injury not occurred less the amount he could earn given the physical or mental limitations resulting from the injury. When the injured party is deceased, the measure of damages in a wrongful death case is the amount of support the survivors would have received from the injured party. The starting point in calculating the amount of support is the projected earnings of the deceased: the amount the deceased would have earned and from which support could have been paid to the survivors.
Whether the difference between projected earnings and projected earning capacity is large or small depends on the demographic characteristics of the individual (e.g., age, gender, education, race/ethnicity, aptitudes, interests, physical limitations) and their individual life choices (e.g., child care, retirement plans, choice of occupation). When the injury is to a young person who has not established a career and perhaps has not completed his formal education, the economist must rely more heavily on statistics for the average person with the demographic characteristics of the injured party. When the injury is to an older person who has a lengthy work history and who has expressed his retirement plans, the economist can base his projections more on the specific characteristics of the injured party and rely less on statistical averages.
Dr. Luke and his colleagues have been accepted as expert witnesses in state and federal courts and before administrative agencies in more than 25 states.