Lost earnings are the difference between two projected streams: the earnings and benefits a person would have received but for the event, and the earnings and benefits the person can now expect. Each stream starts from documented records, grows at a stated rate over a published worklife horizon, includes fringe benefits, and the future difference is reduced to present value. This guide walks through the calculation input by input.
A lost earnings analysis is a comparison. The but-for stream is what the person would have earned, year by year, had the event not occurred. The post-event stream is what the person has earned since and can expect to earn going forward. The loss in any year is the difference, and the total loss is the sum of those differences, with the portion after trial discounted to present value. Past loss, from the event to the trial date, is stated in the dollars of the years it occurred. Future loss, after the trial date, is projected and discounted.
The but-for stream starts from the earnings base: the person's actual compensation before the event, drawn from tax returns, W-2 and 1099 forms, pay stubs, and employer records over several years. The economist separates base wages from overtime, bonuses, and commissions, decides which components the record supports carrying forward, and addresses any unusual year. A self-employed person's returns mix labor income with the return on the business, and the economist separates the two before projecting. Where the history is short or the career had not started, the base is built from occupational earnings data for the work the person was trained for, as the lost earnings versus earning capacity comparison explains.
The base is carried forward with a growth rate. General wage growth from published series is the usual choice; an age-earnings profile applies where the person was early in a career and would have seen earnings rise with experience; an occupation-specific path applies where the record documents it. The wage growth method page describes the choice.
The stream runs over a worklife expectancy drawn from published tables for the person's age, sex, education, and labor force status. Worklife is not a retirement age; it is an expected number of years of labor force activity that already reflects the probability of time out of the labor force. The report names the table and the edition, and explains any departure the record supports.
Compensation is more than wages. Employer contributions to health insurance and retirement plans, legally required payroll contributions, and paid leave are valued from the person's own plan documents or, where those are unavailable, from published employer cost data by industry and occupation, and added to both streams. The fringe benefits method page explains the valuation and the double-counting errors to avoid.
The post-event stream is built on the same basis. Where the person has returned to work, pay records fix the figure and the same growth rate carries it forward. Where the person has not, the report uses the earnings the medical and vocational evidence supports, and where that is contested, presents the loss under more than one scenario with the basis for each stated. Collateral payments such as disability benefits are shown separately so counsel can apply the venue's rule, and where the venue requires after-tax figures the report shows them. The mitigation and offsets page describes each deduction.
The future differences are discounted to the trial date at a rate tied to yields on low-risk instruments whose maturities match the horizon, with the growth and discount assumptions drawn on a consistent basis. The present value method page explains the mechanics and the present value guide explains the concepts. The report shows the undiscounted total, the present value, and a sensitivity table for the contested inputs.
A well-organized report presents the calculation as a set of schedules: the earnings history and base; the but-for projection by year with growth applied; the fringe benefit schedule; the post-event projection by year; the year-by-year difference, split between past and future; the present value of the future difference; and the sensitivity analysis. Each schedule cites its inputs and each input cites its source, so that another economist could reproduce the result from the same records. Reproducibility is the measure of a sound calculation, and it is what allows the analysis to be examined on the merits rather than excluded as speculation.
Usually three to five years before the event, and further where earnings were irregular or a career change is at issue. The report explains which years were used and why any year was excluded or adjusted.
The projection reflects a change the record documents, such as a promotion already offered, a degree in progress, or a licensing exam passed, and shows the result with and without it where the evidence is contested. An undocumented expectation is not carried forward.
It depends on the venue. Some frameworks require after-tax figures, some prohibit tax evidence, and some leave it to the court. The report presents the figures the governing framework requires and, where that is unsettled, both.
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