Lost Income vs. Lost Earning Capacity

February 18, 2016

Claims involving personal injury will usually include claims for lost income and lost (diminished) earning capacity. Lost income is commonly defined as income lost from the date of the event continuing through the date that the evaluation is done or, in some jurisdictions, the date of Trial. Lost (diminished) earning capacity considers these economic losses going forward to the end of ones work life expectancy.

Are lost wages the same as lost (diminished) earning capacity?

No! Lost earnings (income) and earning capacity are not the same. Lost (diminished) earnings (also referred to as lost income) are typically individual-specific and consider a job at which a plaintiff was employed at the time of the event in question. An example might be a truck driver working for “XYZ Trucking Company” where the truck driver was making $30,000 per year. If the Plaintiff was off work due to his injuries for three months, lost earning (income) might appear to be easily calculated.

His lost earning capacity, however, might be a different story. The only expert qualified to determine whether a plaintiff has sustained a loss in earning capacity is a vocational (rehabilitation) expert.

All people who work in the competitive labor market require skills in order to perform the essential functions of jobs for which they are qualified. The vocational (rehabilitation) expert is the only one who can determine if ones skill set allows them to transfer to another job that might pay comparable wages. If not, the individual might then have a loss of earning capacity. Whether or not this loss might continue over ones work life expectancy is an individual-specific determination that only a vocational (rehabilitation) expert can make. In short, the vocational (rehabilitation) expert is the only one qualified to determine what other jobs someone might be able to perform considering the medical evidence and what these jobs pay.

Lost (diminished) earning capacity may be mitigated through occupational retraining where one can acquire additional skills to be used in a return to work. In many cases, with a short term investment in training that might take someone out of the work force for a defined period of time, the additional (new) skills acquired could result in new opportunities and higher earning power.

The vocational (rehabilitation) experts at VDI can evaluate these issues.

A forensic economist, as valuable as they are to a case with their number crunching ability, cannot determine whether someone has had a loss of earning capacity. VDI’s vocational (rehabilitation) experts interface with forensic economists in almost every case in which we are retained. Each expert brings to the table their specific expertise in evaluating damages in this critical area.