Human Capital

Human Capital

Written by : Mike Swift

An individual’s lifetime earning capacity is his or her power to work and earn money in the competitive labor market. The two components of lifetime earning capacity are how much an individual earns annually and how long an individual is employed (worklife expectancy). Following a permanent injury, an individual with a disability may suffer either a diminution or total destruction of lifetime earning capacity. This article focuses on the former. It demonstrates how use of expert analysis and testimony can most reasonably represent the individual’s future post-injury earning capacity and worklife expectancy with and without disability.

Earning capacity is synonymous to what economists term human capital. Capital is anything that produces wealth. It can be $10,000 invested in a certificate of deposit earning interest or a landscaping business investing in four lawnmowers. Human capital is an individual’s stock of knowledge, skill, and understanding that results from education, training, and experience. This knowledge, skill, and understanding functions as capital since it allows an individual to sell his or her services in the labor market in exchange for compensation which, in turn, builds wealth.

Intelligence and physical ability are the most fundamental precursors to the development and efficient utilization of human capital. Every occupation requires some degree of both intelligence and physical ability. If an individual suffers an injury that reduces his or her cognitive or physical ability, it may be harder for that individual to acquire additional human capital or to efficiently utilize his or her pre-injury stock of human capital. As a result, individuals with a disability often experience a double whammy: both reduced earnings and reduced employment rates. Many government surveys emanating from the U.S. Department of Labor and Bureau of the Census support this double whammy effect for individuals with disabilities.