Projecting Future Earnings and Earnings Growth Rates

In  future years, earnings are forecast by the expert. This sets up several choices. Does the expert rely on past actual earnings of the individual and make a forecast or does the expert instead rely on published statistics that show earnings average by occupation, industry, full-time/year round employment, education, gender, race, and other wage-impacting factors that are likely to affect the earnings capacity of the injured person. If past actual earnings history is not available, as in the case of a child, a student, or intermittent worker, then an earnings capacity approach might be preferred.

Care should be exercised regardless of which approach is used. For example, if the person had worked in an industry with extreme volatility, it would be questionable to merely extrapolate past earnings into the future given the unpredictability in that particular industry. Instead, an expected earnings approach would be more reasonable in which the factors listed above were considered in addition to life cycle, productivity, and business cycle effects.

The expert needs to support the average rate of future annual earnings growth.   If the expert cannot provide this evidence in a convincing manner, then his/her credibility is seriously undermined. The expert may claim that past actual earnings growth or future contracts made the projected rates reasonable.  However, an opposing attorney might point out that the US Labor Department, Bureau of Labor Statistics, publishes rates of compensation growth by occupation, industry, and location in its Employment Cost Index (ECI), and that those rates are more realistic.

Choosing a higher (or lower) rate of earnings growth will clearly raise (or lower) the computation of economic damages. Growth rates may be fixed or variable. What is frequently assumed by testifying damages experts, however, is a fixed rate of future earnings growth for each time period in the overall loss duration. In a personal injury or death case, this may or may not be appropriate depending on when in a person’s earnings history the earnings become stagnant.