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In matters of wrongful employment termination and employment discrimination lawsuits, economic losses are generally determined as lost back pay and lost front pay, inclusive of the value of relevant employee benefits. However, it is possible that the employee’s earning capacity may have been harmed as a result of the alleged illegal action by the employer. As a consequence, the plaintiff’s losses could include lost earning capacity in addition to lost back and front pay.
The discount rate used to compute the present value of lost earnings in a personal injury, wrongful death, or wrongful employment termination lawsuit is a critical factor that can significantly impact the “bottom line” value presented to a jury as an award value. A recent journal article examines that impact using several different discount rates and investment rates of return, evaluating the risk and reward of each scenario, including analysis of the chance of the investment portfolio "failing" to provide the replacement stream of monies.
I recently estimated the lost earning capacity of a surgeon by using Monte Carlo sensitivity analysis to satisfy the criterion of “within a reasonable degree of economic probability.” This method was necessary because the surgeon’s earnings were based on numerous factors, all of which were variable, that is, predictable only within a range of possible values. However, the variable factors were capable of being defined by a probability distribution.
In calculating economic losses that occur after some date, for instance, lost wages after the date of trial, it is necessary to compute the present value of all such future values. In some courts, a below-market interest rate is used to compute said present values. A below-market discount rate is generally derived as the nominal interest yield on an investment instrument adjusted for anticipated inflation. (A nominal interest rate refers to the rate of interest prior to taking inflation into account. A real interest rate refers to the rate of interest after removing the effects of inflation.)
On more than one occasion I have been asked to explain the concept of remaining work-life expectancy to an attorney during a deposition. It is clear from their questions that the concept is often mistakenly believed to represent a projection to the date the worker will retire from the work force. This is not the case.
The most recent update of work-life expectancy tables was published in the August 2011 volume of the Journal of Legal Economics. The current tables include information concerning “extended probability calculations and statistical measures” of time in the labor force.
A recent article in the Journal of Legal Economics summarizes the many studies that have been done over the years which address the issue of how to measure the duration and magnitude of earnings lost when a worker loses his/her job.
The Patient Protection and Affordable Care Act of 2010 (more commonly known as ObamaCare) requires employers to report the aggregate cost of their employer-sponsored group health plan coverage on their employees’ W-2 form. The purpose of adding this information is to educate consumers of healthcare on the value of medical benefits provided by employers, and forensic economists are taking note of this new, possible source of what is sometimes hard-to-get information on such employee (fringe) benefits
An attorney recently brought to my attention an article in The New York Times that discussed a concept known as the value of a statistical life (“VSL”). The article cited sources placing this value in the range of $5 to $9 million. The attorney was interested in knowing whether the notion of VSL could be used in wrongful death lawsuits as an element of compensation to the survivors of the decedent. Given that courts must make dollar decisions on various components of compensation in death cases, it is reasonable to wonder whether VSL affords a more “scientific” basis for such assessments. I wrote a mini-white paper explaining VSL, the various methods by which it has been computed, and opining on the appropriateness of introducing VSL into the courtroom. You can read that white paper here.
An article published in the Journal of Forensic Economics describes the basic law and practice of determining economic damages in courts in the State of Texas. Although the article was written primarily for forensic economists it can serve as a good primer to attorneys or anyone seeking a foundational understanding of the Texas Rules of Evidence, relevant case law concerning scientific and technical evidence, as well as common practices applied by economists in computation of economic damages in personal injury and wrongful death cases.