The Importance of Wage Growth Assumptions in Calculating Economic Damages
This study examines the importance of incorporating age-earnings profiles into the estimation of future earnings. Using data from the 2000 Census of the Population and the 2001-2015 American Community Surveys, we estimate age-earnings profiles for seven different education groups after controlling for period and cohort effects. We compare estimates of the loss in future earnings using the age-earnings profiles versus two popular alternatives: assuming a constant rate of earnings growth across the life-cycle or using cross-sectional data for age groups to estimate wage growth for various age ranges. Our results imply that a failure to incorporate the age-earnings profile into estimates of earnings losses can lead to significant over- or under-statement of losses depending on the age at which the damages begin and the educational attainment of the injured party.
Document Object Identifier (DOI)
National Association of Forensic Economics
Even, W. E., & MacPherson, D. A. (2018). The importance of wage growth assumptions in calculating economic damages. Journal of Forensic Economics, 27(2), 127-144. doi: 10.5085/JFE-446
Journal of Forensic Economics