Permanent disabilities often reduce or eliminate the ability to earn income, creating one of the largest damage categories in serious injury cases. Lost earning capacity represents the difference between what injured individuals would have earned over their working lives without disability and what they can now earn. Calculating this loss requires analysis of pre-injury earning potential, post-disability work capacity, and economic factors affecting lifetime earnings.
Understanding Earning Capacity
Earning capacity differs from actual lost wages. Lost wages compensate for specific income missed during recovery. Earning capacity addresses permanent reduction in ability to earn, regardless of whether the person was working at the time of injury. A student with no work history still has earning capacity that disability can destroy.
Pre-injury earning capacity considers education, skills, experience, and career trajectory. What would the person likely have earned over their working life absent the injury? Young professionals on upward career paths may have substantial earning capacity even if current earnings were modest.
Post-disability earning capacity reflects what work, if any, remains available despite limitations. Some disabled individuals can work with accommodations; others cannot work at all. The gap between pre- and post-disability capacity represents the loss.
Vocational Expert Analysis
Vocational experts evaluate how disabilities affect employment capacity. They assess the individual's vocational profile including education, training, experience, and transferable skills. They analyze functional limitations to determine what jobs the person can and cannot perform.
Labor market analysis identifies jobs available within the person's functional capacity and geographic area. Experts research wage rates for accessible positions to estimate post-disability earning potential. This analysis must be realistic about actual job availability and competition.
Vocational experts consider factors beyond physical capacity. Cognitive limitations, need for rest breaks, medication side effects, and unpredictable symptoms all affect employability. A person who can theoretically perform certain work may be practically unemployable due to real-world limitations.
Economic Expert Calculations
Economists project lifetime earnings without disability using wage data, historical growth rates, and standard assumptions about career progression. They may rely on the individual's actual earning history or statistical data for workers with similar education and demographics.
Future earnings are projected through working life expectancy—typically to age 65-67, though this varies by occupation and individual factors. Economists account for expected wage growth, benefits, and periods of unemployment that would occur regardless of disability.
Post-disability earnings, if any, are projected using vocational expert opinions about available work and wages. The difference between without-disability and with-disability projections, over the remaining working life, represents lost earning capacity.
Present Value Reduction
Future lost earnings must be reduced to present value—what sum today would produce the lost earnings over time through investment. Economists apply discount rates reflecting safe investment returns to calculate present value. Lower discount rates produce higher present values.
Courts and commentators debate appropriate discount rates. Some use market rates; others use net discount methods accounting for wage growth. The choice significantly affects total damages. Economists must justify their methodology against challenges.
Special Considerations
Young victims face the largest lost earning capacity claims because they have the most working years ahead. A 20-year-old disabled before starting their career may have lost 45 years of earnings. Children have earning capacity claims based on statistical expectations for their demographics.
High earners have larger losses from the same disability percentage. A surgeon who can no longer operate loses more earning capacity than someone in minimum wage work. Pre-injury occupation and earnings significantly affect damage calculations.
Career advancement interrupted by disability increases losses. Professionals who would have achieved partner status, management positions, or other advancement lose not just current earnings but the higher earnings advancement would have provided.
Defense Challenges
Defendants challenge both pre-injury potential and post-disability capacity. They may argue that victims would not have achieved projected success or that they can earn more post-disability than plaintiffs claim. Rebutting these challenges requires solid evidence supporting projections.
Failure to mitigate damages may reduce recovery. Disabled individuals have obligations to pursue available work, though what is reasonable depends on specific circumstances. Defendants cannot require victims to accept work that is unrealistic or would worsen their conditions.
Conclusion
Lost earning capacity represents a substantial damage category in permanent disability cases. Calculating these losses requires vocational assessment of how disability affects employability and economic analysis of lifetime earnings impact. Working with qualified experts ensures that lost earning capacity claims capture the full vocational impact of permanent disabilities.