Common Mistakes in Assessment of Economic Damages
The economist’s main task in relation to personal injury, medical malpractice, wrongful death, wrongful dismissal and sexual harassment cases is to put a dollar value on the plaintiff’s earnings losses, loss of benefits, loss of retirement pension and/or loss of home maintenance production. Almost every case involves the use of labour market indicators, often referred to as labour market contingencies, such as the local or regional unemployment and participation rates as well as local earnings by age, occupation or industry. Here are some of the common errors that occur in the evaluation process:
I: Use of aggregate provincial or national data
One of the most important and prevalent shortcomings of almost all reports is their use of provincial or national data in order to assess potential earnings losses in local labour markets such as in northern Ontario communities. Detailed data obtained from Statistics Canada shows that a provincial labour market which is dominated by southern Ontario businesses is very different from labour markets in northern Ontario communities. Thus, it is incorrect to use national or provincial earnings estimates as well as labour market contingencies to infer earnings potential in northern communities. There are occupations for which earnings in northern communities are significantly higher than those in southern Ontario. This often arises due to the lack of a qualified work force in specific occupations in northern communities. Similarly, the unemployment rate can be lower for certain occupations for a variety of reasons. In short:
- Labour market indicators such as the unemployment rates and participation rates that are used in calculating potential future earnings capacity are very different in northern labour markets, i.e., communities in Northwestern and Northeastern Ontario, compared to the provincial averages. In general, use of provincial or national labour market contingencies would result in erroneous calculations.
- Labour market performance indicators and contingencies for Aboriginal peoples in Northern Ontario are very different from those applied to non-Aboriginal individuals. Aboriginal earnings potentials can be higher or lower than the regional levels depending on their level of educational attainment as well as the industry they are working in.
- Use of aggregate data combined with unsupported assumptions often result in estimates that are counter to the notion that the objective of the compensation is to restore the plaintiff to the same economic condition that she or he would have experienced absent the incident? This simple notion is often violated due to the so-called expert’s use of aggregate data along with wrong assumptions.
II: Effect of disability on earnings are often miscalculated
- It is often straightforward to estimate a plaintiff’s earnings losses if he or she has a work history. In that case, earnings losses equal the difference between his or her earnings before and after the accident. Things become complicated if the plaintiff does not have a work history. For example, if the injury resulting in disability is inflicted upon a child.
- Statistics Canada surveys of Canadians with disability provides some general information regarding the percentage loss of earnings of individuals with various degrees of disability. Statistics Canada also provides some evidence of labour market contingencies for individuals with different degrees of activity limitation. However, use of Statistics Canada data often requires subjective judgments regarding the degree of activity limitation which results in inaccuracy.
- The Workplace Safety and Insurance Board has guidelines that allow us to identify the percentage of permanent impairment caused by various injuries. Their assessments that are based on the American Medical Association guidelines provide the best source of detailed information regarding the impact of disability on earnings.