Expected Earnings or Earnings Capacity

The foundation for an appropriate measure of damages begins with defining and measuring base earnings, the earnings at the time of an event which interrupted the earnings stream and gave rise to a complaint. When calculating lost earnings, which earnings standard should you use, expected earnings or earnings capacity.  Earnings capacity, sometimes called potential earnings is what the individual had the potential to have earned, whereas the expected earnings are what the individual would have earned.  Unless state laws stipulate use of earnings capacity, most forensic accountants and economists use expected earnings. The exceptions are for situations in which there is no recent actual work history such as a young person who is still a student, a homemaker, or person who has retired from the work force. For all individuals, the expert should verify past work history to determine gaps in work experience or labor force attachment and modify potential earnings accordingly.