By Mark C. Musa, Forensic Economist, Managing Director
Forensic economists and accountants are regularly engaged to calculate and determine the pecuniary value of economic damages after a personal injury or wrongful death. The present value loss of earnings capacity and the loss of employer sponsored fringe benefits are often a key component of a personal injury or wrongful death claim. Determining the worklife (often referred to as the damage period) of an injured party is a critical component of calculating damages. However, certain expected worklife estimates can appear reasonable on the surface but are actually improper, and when relied upon, will often result in an incorrect damage amount.
Worklife estimates based on the following criteria, are not grounded in science and will often result in incorrect damage conclusions, if relied on:
- Social security retirement age
- A retirement age anticipated by the party bringing suit
- A retirement age assumed by the economic consultant
Each of these criteria appear simple and can potentially be well-articulated by an economist. However, each of these methods for estimating worklife improperly assumes that the injured party would have been immune from disruptions in people’s worklife, such as disability, voluntary separations from the workforce and mortality. While retiring at the social security retirement age seems like a reasonable assumption, an economist must factor into a damages calculation the reality that statistically, not everyone will work until full retirement age due to life’s many unexpected and unforeseeable events.
Utilizing a retirement age assumed by the injured party or consultant is fraught with the same fallacies. Measuring the loss of earnings capacity based on an assumed retirement age suggests that the claimant possesses a crystal ball and is able to predict, often decades into the future, when they will actually retire. These conclusions often incorrectly estimate the likely number of years the claimant would have worked, and correspondingly, lead to inaccurate opinions of the present value amount of damages pursued.
Alternatively, worklife expectancy tables provide a statistical, unbiased means of measuring the remaining years in the workforce. Worklife statistics, historically published by the Department of Labor and more recently updated and made available in various economic journals, are based on demographics that include age, gender, and the highest level of educational attainment.
Worklife expectancy statistics can reasonably be applied to the injured party without introducing biases into the damage assessment. Worklife expectancy statistics consider both involuntary and voluntary separations from the workforce, which often are not foreseen. For example, a portion of the population are subject to becoming disabled prior to attaining a hoped-for retirement age, while others in the population at large become deceased prior to reaching an anticipated retirement age.
Attorneys should be aware that the data, assumptions and methodology utilized by their economist often have a profound impact on the damage conclusions, and correspondingly, the economic damages sought in tort actions. The most appropriate measure of the remaining years in the workforce is worklife expectancy statistics, which by their very nature factor into the analysis real world risks that should be taken into consideration when calculating lost earnings capacity.