Factoring In Plaintiff’s Age And Occupation To The Earnings Curve
By Rehana Moosa
Published in the September 8, 2017 edition of The Lawyer’s Daily (co-author)
Jane is a 59-year-old real estate lawyer who was injured in a car accident. She will be unable to continue working. Jane is claiming she has suffered a loss of income due to her injuries, and she has estimated her losses based on her earnings immediately before the accident, projected out until her planned retirement age of 67.
Is this the correct approach?
As Muhammad Ali said, “Age is whatever you think it is. You are as old as you think you are.” Although there is some truth to this statement, in calculating income losses, age often does matter.
In personal injury cases, income projections are often based on a) statistical averages, b) the plaintiff’s historical earnings, or some combination or hybrid thereof. However, in some instances, these figures may need to be adjusted to consider normal patterns of changes in income level as an individual ages; these patterns are commonly referred to as “age earnings curves”. This article discusses how the age earnings curve can be applied to personal injury cases.
An example of an age earnings curve is shown in the graph below:
The graph shows that earnings increase rapidly in the early years of a person’s career and peak during middle age before levelling off. After a certain point (typically when a person reaches their mid- to late 50s), income levels begin to decline until retirement.
The decrease in income can be the result of many factors, such as:
- The reduction in working hours as the individual winds down and transitions into retirement.
- The accessibility of pension benefits (either public or private), which allows an employee to either reduce their hours or move to a lower-paying position.
- The reduction in working hours for health or medical reasons.
Although these income trends can be seen in many occupations, they can be most pronounced – and most significant – among professionals such as lawyers, physicians, university professors and accountants. Individuals in these professions tend to earn high annual levels of annual income, and the nature of their occupations lends itself to working later in life. There is also a pronounced tendency for the income in these professions to decline as people enter their 60s, and that is why the age earnings curve is important.
Returning to our example of Jane, the average income for lawyers in Ontario is shown in the table below, based on data from the 2011 National Household Survey (published by Statistics Canada):
If Jane’s income is projected based on the average earnings for lawyers of all ages (which is approximately $162,000) up to retirement, the calculated income losses will likely be overstated. This is because earnings for lawyers normally peak between the ages of 55 and 59, and decline thereafter. Therefore, the overall average income for all ages does not accurately reflect the level of income that Jane would likely have earned in the latter years of her career.
For a similar reason, because earnings for lawyers are highest between ages 55 and 59, projecting Jane’s income using her historical earnings at age 59 would also likely be inappropriate. Her income immediately prior to the accident likely represents her maximum level of earnings, based on the normal age earnings curve for her profession.
According to the graph above, Jane’s income from ages 60 to 64 would likely be approximately eight per cent lower than the income she earned immediately before her injury. Her income would subsequently decline by an additional 28 per cent (ages 65 to 69) and 45 per cent (age 70 onwards).
This is not to say that the age earnings curve of each and every individual will follow the same trajectory, and there may be compelling reasons to assume that Jane would have continued to earn at a high level into her late 60s. But these individual reasons should be considered within the appropriate overall statistical context.
As individuals continue working to a later age, and past the traditional retirement age of 65, the relationship between a plaintiff’s age and occupation, and their earnings should be factored into income loss calculations in personal injury cases.
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Communications are intended for informational purposes only and do not constitute legal advice or an opinion on any issue. For permission to republish this content, please contact Rehana Moosa Forensic Accounting Professional Corporation.
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