Household production and age

Once criticism that economists typically encounter when calculating the loss of household services is that it is unrealistic to use the average number of hours spent on household services because the number of hours that a person will spend performing household services will decrease as the person ages.

Data on the how people allocated their time within a given day (time use surveys) suggest that this criticism is unfounded. For instance, according to time use data from the U.S. BLS the opposite is true. That is the amount of time spent performing household services such as housework, food cooking, outdoor chores, home maintenance, and time spent obtaining goods and services actually increases as a person ages. For example, a male who is between 25 and 34 will spend 11.7 hours performing household services; where as a male between the ages of 65 and 74 will spend 21.3 hours performing household services.

Spinal Cord Injury and Economic Damages

Each year about 11,000 people in the United States suffer severe but non-fatal injuries to their spinal cords that leave them with some degree of paralysis or loss of motor function. There are now about a quarter of a million people in this country living with spinal cord injuries. Many of these injured parties bring lawsuits alleging negligence or malfeasance and seeking compensation for lost earning capacity and medical costs.

Below is information that should be useful to attorneys trying such cases.

Degrees of spinal cord injury. The location and extent of the injury to the spine determine the degree of loss of body function and have a great impact on the ultimate economic damages for your client. About 53 percent of permanent spinal cord injuries (excluding the small percentage of those who recover) result in paraplegia, or the loss of feeling and movement in the lower parts of the body.

If your client has this type of injury, a vocational rehabilitation expert is likely to find that your client has significant residual earning capacity, perhaps with retraining. The remaining 47 percent suffer from quadriplegia or tetraplegia. Injuries to the top of the spine, vertabra C-1 to C-4, are classified as high tetraplegia and result in paralysis from the neck down while those occurring in vertebra C-5 to C-8 are termed low tetraplegia and result in paralysis from the shoulders down.

Within these categories, paralysis can be complete or incomplete. The most severe non-fatal spinal cord injuries leave a person dependent upon a ventilator while the least severe, resulting in “incomplete motor function,” are evidenced by involuntary movements such as spasms, twitching, and shaking.

Reduced earning capacity. Estimates of how much a spinal cord injury has reduced the capacity of your client to earn income must consider not only pre-injury earning histories but also prospects for post-injury employment. The severity of the injury will obviously determine the feasibility of reemployment and a vocational rehabilitation expert will be needed to evaluate employability in each particular case. The National Spinal Cord Injury Association reports that eight years after their injuries 34 percent of paraplegics and 24 percent of quadriplegics (or tetraplegics) are employed. Many of those who are working have part-time positions and are likely to miss work periodically due to complications from their conditions. Calculations of future earning capacity for your client should be reduced to account for these involuntary breaks in employment and the strong liklihood of a reduced number of remaining years in the workforce.

Medical and living costs. If your client has an extemely severe type of injury, damages for medical care and living costs will probably outweigh damages for lost income. The Spinal Cord Injury Information Network provides “average yearly health care and living expenses that are directly attributable to [spinal cord injuries].” These annual costs, which are highest in the first year after the accident, range from $15,000 to over $700,000, depending upon the severity of the injury. (SCIIN's 2000 dollar values have been inflated to their 2004 dollar equivalents.)

S.A.T. scores matter

Economic damage calculations involving minors are tough. One of the major debates concerning calculating losses for minors involves the S.A.T. Simply put some economic experts think the S.A.T. is a strong predictor of future earnings. For examples, some studies, such as http://nces.ed.gov/pubs2000/2000043.pdf, suggest that better performance on the S.A.T. suggest higher earnings in the future.

Some studies have suggested that a 100 point increase in S.A.T. is correlated with a 6 to 10% increase in post-college wages. Other studies, such as the study performed by Daniel Hammermesh et al. in 2002 (They examined the post graduation wages of economics majors) showed either a weakly positive or a statistical unimportant relationship between S.A.T. score and post-graduation earnings. In practical terms, this suggest that the attorney should if the data is available collect information on the S.A.T scores of an injured or deceased minor.

How long do people work?

The heart of analyzing lost earnings and wages is estimating by how much injury or death decreased a person’s lifetime earning capacity.

This requires estimating how many years the injured or deceased party have otherwise continued working. In many cases, the economist will have to choose some assumption for remaining work life. The simplest assumption is that retirement would come at the age of eligibility for full Social Security benefits. An alternative is to use government data on the median number of years to retirement for workers at any given age and assume that the person would have continued employment for that length of time.

These types of assumptions can be problematic in some settings because they ignore the reality that many people do not conform to these retirement patterns. These analyses ignore the fact that workers at any age have some statistical probability of not being able to continue earning income due to death, physical incapacity, or unemployment. To overcome these difficulties, economists most often use published data that allows them to calculate the average number of remaining years of employment people have at any age.

The Plaintiff Worked for themselves...

Calculating the earnings capacity of individuals who are self employed is involved but very do-able.

The research question in injury and death cases involving the self employed is the same with wage earners: 'How much damage, if any, has been done to the plaintiff's ability to earn a living?'

The biggest difference for the self employed is that there are a number of different ways a self employed person will report the earnings. For instance, some self employed individuals will receive income as an independent contractors while others will receive payments thru a closely held corporation. Other self employed people are sole proprietors; estimating the earnings capacity is different for each of these worker types.

The key piece of information that is used in these analyses is the personal income tax return, usually a form 1040, AND all the supporting schedules. The supporting schedules are used by the analyst to look closer at the plaintiffs' earned wages, business expenses, and to separate accounting adjustments and expenses (such as real estate depreciation) from real business expenses. Attorneys trying to calculate damages in these types of cases should make sure to obtain the supporting tax form schedule for every item on the main 1040 personal tax form . In general, the most accurate estimate of the plaintiffs earnings capacity involves adding reported wages, business income and accounting depreciation.

The Economic Cost of a Life Care Plans

Calculating the economic cost of a life care plan typically involves two steps by economists. First, after figuring out (from the life care plan) what products and services have been prescribed for the injured person, the economist will project the future cost of providing those goods and services at the perscribed times.

For example, what will Prozac cost in 2014? Making this calculation usually means projecting future medical cost using historical medical inflation cost indexes for the services and products in the injured person's life care plan. Second, in some instances the life care plan may call for the economist to make seperate cost projections on the cost of individual items. For instance, there may a service that is not neccessarily medical that the life care planner may ask the economist to value.