Measuring Lost Earning Capacity from Disability: The Double Whammy

Lost Earning Capacity from Disability

Measuring Lost Earning Capacity from Disability: The Double Whammy

May 1 2018

Mike Swift

Lost Earnings Capacity

Earnings and employment data emanating from U.S. government surveys provide valuable information about the experiences of persons with disabilities in the labor market. Two main facts pertaining to workers with disabilities who work year-round full-time are supported by every survey that has attempted to study their employment outcomes: they experience (i) lower earnings and (ii) lower levels of labor force participation and employment compared to their counterparts without disabilities. The “double whammy” of reduced earnings and reduced worklife expectancy must always be considered in a proper analysis of loss of future earning capacity for a person with permanent limitations from an injury.

Before any analysis of lost earnings is conducted, permanency of impairment must be established by a medical professional. Most importantly, that impairment must translate into some limitation associated with performing work. The analysis proceeds in a five-step process to assess the lifetime loss of future earning capacity if the requirements are met:

  1.  Determination of pre-injury annual earning capacity
  2. Determination of pre-injury worklife expectancy
  3. Determination of post-injury annual earning capacity
  4. Determination of post-injury worklife expectancy
  5. Present value calculation of the loss

Consider a 35 year-old male, William, with a high school diploma that functioned as a pipefitter for the previous 10 years with the same company. He sustained injuries to his hip, leg, and knee as a result of a motor vehicle collision occurring at the beginning of 2013. As a result, he has broad limitations and has changed occupations. He has worked as a bus driver for the last two years.

Prior to the injury, he earned $48,000 in 2010, $50,000 in 2011, and $53,000 in 2012 as shown in his social security earnings statement. After averaging and adjusting these figures to 2015 dollars, his pre-injury earning capacity can be reasonably represented by $54,178. In the last two years William has earned $38,000 and $39,000 at his new job. His post-injury earning capacity is reasonably represented by $39,495 (again, restated to 2015 dollars).

Next, his worklife expectancy is calculated as 25.0 years pre-injury and 11.6 years post-injury according to the American Community Survey. William’s fringe benefit rate was

30.4% as a pipefitter and 25.9% as a bus driver.

His loss of lifetime expected earnings is calculated by finding the difference between multiplying his pre-injury earning capacity (after accounting for fringe benefits) by his pre-injury worklife expectancy and multiplying his post-injury earning capacity (after accounting for fringe benefits) by his post-injury worklife expectancy. This is completed as follows: Loss = ($70,648 X 25.0 years) – ($49,724 X 11.6 years) = $1,189,402.

Table 1 succinctly presents the steps involved in the calculation of the loss of future earning capacity.

Calculation of The Loss of Future Earning Capacity

Pre-Injury

Post-Injury

Average Earnings

$54,178 + 30.4%

$39,495 + 25.9%

Worklife Expectancy

25.0

11.6

Lifetime Earnings

$1,766,203

$576,801

Lifetime Loss

$1,189,402

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