What economic damages consist of, how lost earnings, wrongful death losses, household services, future care costs, and commercial losses are measured, and how to read a damages report critically.
Economic damages are the financial losses that can be measured in dollars from records and data: the earnings a person did not receive and will not receive, the benefits that came with those earnings, the value of work at home that the person can no longer do, the support a decedent would have provided to a family, the cost of future care, and the profits or value a business lost. They are distinguished from non-economic damages, such as pain and loss of enjoyment of life, which a jury values without an economic calculation. A forensic economist addresses the economic side only.
The work begins with the records. Tax returns, W-2 and 1099 forms, pay stubs, benefit statements, and employer records establish what the person earned and received. Medical and vocational evidence bears on what the person can do now. For a business, financial statements, tax returns, general ledgers, and contracts establish what the company earned and what it lost. Published government data supply what the records cannot: wage growth, labor force participation, the hours people spend on household work, the share of income households spend on each member, and the yields at which an award can be invested.
Every damages calculation has the same structure. The economist projects what would have happened but for the event, projects what will happen given the event, takes the difference year by year, and reduces the future portion to present value. What changes from case to case is which streams are in the comparison and what evidence supports each input. The services pages describe each type of engagement; this guide explains the calculation that runs through all of them.
The earnings claim compares two streams: the earnings and benefits the person would have received over a working life but for the injury, and the earnings and benefits the person can now expect. The but-for stream starts from the documented earnings base, usually several years of tax returns and pay records, and carries it forward with a wage growth rate over a worklife expectancy drawn from published tables for the person's age, sex, education, and labor force status. Fringe benefits are added from the person's own plan documents or, where those are unavailable, from published employer cost data.
The post-event stream depends on the medical and vocational evidence. Where the person has returned to work, pay records fix the figure. Where the person has not, the report uses the earnings the record supports, and where capacity is contested it may present the loss under more than one scenario. The difference between the two streams, year by year, is the loss, and the future portion is discounted.
Lost earnings and lost earning capacity are related but distinct measures. Lost earnings project the person's own history; lost earning capacity measures the reduction in the ability to earn, which matters when the history understates the capacity, as for a student, a parent who had left the labor force, or a worker between jobs. The comparison page explains when each applies, and the lost earnings guide walks through the calculation input by input.
In a wrongful death matter the economic loss belongs to the survivors, and the question is what the decedent would have contributed to the household over the rest of an expected life. The analysis projects the decedent's earnings and benefits over a worklife expectancy, as in an injury case, then subtracts the share of income the decedent would have spent on personal needs. This personal consumption deduction is derived from published household expenditure data adjusted to the household's size and income, and it is the single assumption most likely to be contested because it scales the whole earnings figure.
To the net earnings the economist adds the replacement value of the household services the decedent performed, measured from the household's own account and time-use data and valued at local replacement wage rates, and where the governing framework allows, the value of other forms of support such as guidance and care to minor children. Each survivor's loss is measured over that survivor's period of dependency, which for a spouse may run through the decedent's expected life and for a child through majority or the completion of education.
States differ on which components are recoverable, by whom, and whether the claim belongs to the estate, the survivors, or both. The report presents each component separately so that counsel can include or exclude it as the governing framework requires. The wrongful death damages guide describes the components in more detail.
Unpaid work at home has economic value because replacing it costs money. When an injury reduces a person's capacity to cook, clean, maintain the home and yard, manage the household, drive, or care for children or other family members, the loss is measured as the hours no longer performed multiplied by the cost of hiring the work out in the local market. The household services method page explains how hours are established from the household's account and time-use survey data, how post-event capacity is determined task by task from the functional evidence, and how replacement wage rates are drawn from occupational wage data for the area.
Household services are often the largest component for a person who was not working for pay, and they are rarely zero for a person who was. The projection reflects the household's composition and how it changes over time, and it runs over life expectancy rather than worklife because household work does not end at retirement. The household services guide describes the records that support each input.
Where the injury requires future care, the economist values the cost stream set out in a life care plan prepared by a qualified clinician: each item's frequency, duration, and unit cost is carried forward with a growth rate appropriate to its category and discounted to present value over the applicable life expectancy. The life care plan cost projection service describes that hand-off; the economist values the plan and does not author it.
An award is paid once, in present dollars, while the losses it replaces would have occurred over many years. Present value is the step that makes the two comparable: it asks what sum, invested today at a stated rate, would fund the projected future losses as they come due. The discount rate is tied to yields on low-risk instruments whose maturities match the horizon, because the award is meant to be invested safely rather than speculatively, and the growth rate applied to each loss stream is drawn from a published series appropriate to that stream.
The relationship between the growth and discount rates matters more than either rate alone. Some reports present the two as a single net rate applied to a constant-dollar stream; others show growth and discounting as separate steps. The two presentations are equivalent when the assumptions are consistent, and the net versus gross discount rate comparison explains the choice. Some jurisdictions fix the approach by case law, and the report follows the venue's rule.
The horizon is the other driver. Earnings run over worklife expectancy; household services and care costs run over life expectancy; support to a child runs over the child's dependency. A report states each horizon, its source, and its effect, and shows the sensitivity of the total to the most consequential assumptions. The present value guide covers these concepts in plain terms.
When the injured party is a business, the loss is measured in profits or in value. Lost profits compare the profits the business would have earned but for the wrongful act with the profits it actually earned, over a loss period that ends when the business recovered or would have recovered. The but-for revenue is established from the company's own history, from a comparison with similar businesses or markets unaffected by the act, or from the projections the parties relied on before the dispute; the costs avoided by not earning that revenue are deducted; mitigation is netted; and causation is tested against the other events of the period.
Where the business was destroyed or the owner's interest was taken, the measure shifts to business value: what the interest was worth on a valuation date under the standard of value the governing framework requires, developed through the income, market, and asset approaches and reconciled into a conclusion. The two measures rest on the same cash flows, so claiming both for the same period counts the loss twice; the lost profits versus lost business value guide works through the boundary.
Business questions also arise inside personal claims. A self-employed claimant's tax returns mix labor income with the return on the business, and the economist separates the two before projecting earnings. In a divorce, a business interest is valued for division and the owner's true income is determined for support, as the income determination guide explains.
A damages report can be read in an hour if the reader knows where to look. Start with the schedules rather than the narrative: the earnings base and its source, the growth rate and its series, the worklife and life expectancy and their tables, the post-event earnings and what supports them, the fringe benefit rate and whether it came from plan documents or a published average, the consumption percentage in a death claim, the household hours and wage rates, and the discount rate with its instruments and period. Each input should have a stated source, and each source should be one the other side can check.
Then look for consistency. Growth and discount rates should come from the same basis and period. The horizon used for earnings should match the worklife table, and the horizon used for household services should match the life table. Post-event earnings should be projected with the same growth assumptions as but-for earnings. A life care plan valuation should reconcile item by item to the plan and use the plan's life expectancy. Most disagreements between opposing economists come down to a handful of inputs, and a report that makes every input visible narrows the dispute to those.
Finally, look for what is missing. Undocumented promotions, benefits added on top of wages that already included them, a consumption deduction omitted from a death claim, mitigation ignored, or a discount rate chosen from an unrepresentative window are the usual gaps. The rebuttal guide sets out the review in order, and the rebuttal service applies it to an opposing report.
Economic damages are financial losses that can be measured in dollars from records and data: earnings, benefits, household services, support to survivors, care costs, profits, and business value. Non-economic damages, such as pain and loss of enjoyment of life, are valued by the trier of fact without an economic calculation, and the economist does not address them.
Several years of tax returns, W-2 and 1099 forms, pay stubs, and employer benefit statements establish the earnings base; the medical and vocational evidence bears on what the person can earn now. For a business, financial statements, general ledgers, and contracts establish what the company earned and what it lost.
By tracing each input to its source. The earnings base should match the returns, the growth and discount rates should come from the same basis and period, each horizon should match a published table, and the post-event assumptions should rest on the medical and vocational record. A sensitivity table then shows how much of the total each contested input explains.
The economist values the cost stream a qualified clinician sets out in the plan, carrying each item forward with a growth rate appropriate to its category and discounting over the applicable life expectancy. The economist does not author the plan and does not add or remove care items.
Request a consultation on Guide to Economic Damages or call (201) 343-0700. Plaintiff and defense counsel.