Wage Growth and Earnings Projection

By Christopher Skerritt, M.Ed., MBA, Chief of Economic Services · Published

An earnings projection starts from a documented earnings base and carries it forward over the worklife horizon with a growth rate that reflects general wage inflation, the person's stage of career, and any documented promotions or credentials. The projection is stated year by year so the growth assumption can be seen and tested rather than buried in a single multiplier.

When it is used

The projection is the core of every lost earnings analysis and of the earnings component in wrongful death and employment matters. It is built twice: once for the earnings the person would have received but for the event, and once for the earnings the person can now expect, with the difference forming the loss.

Step-by-step

  1. Establish the earnings base from tax returns, W-2 and 1099 forms, pay records, and employer statements, typically over several years to smooth unusual periods
  2. Separate base wages from overtime, bonuses, commissions, and self-employment income, and decide which components the record supports carrying forward
  3. Select a growth rate: general wage growth from published series, an age-earnings profile where the person was early in a career, or an occupation-specific path where the record documents it
  4. Project the but-for earnings year by year over the worklife horizon, then project post-event earnings on the same basis using the vocational and medical evidence in the record
  5. Add fringe benefits to both streams, subtract post-event earnings from but-for earnings, and carry the resulting annual loss into the present value calculation

Data sources

Limitations

The projection is only as good as the base. A single high or low year, an undocumented promise of promotion, or self-employment income that mixes the owner's labor with a return on capital can distort the result, and each should be addressed in the report. Growth rates drawn from a short historical window can embed unusual inflation. The longer the horizon, the more the choice of growth rate matters, so the report should show the sensitivity.

Admissibility

Earnings projections grounded in the person's own records and published wage series are routinely admitted. Exclusions tend to follow projections that assume a career path the record does not support, that apply a growth rate inconsistent with the discount rate, or that ignore documented post-event earnings. The lost earnings versus lost earning capacity comparison explains when the projection measures a capacity rather than an actual earnings history.

Frequently Asked Questions

How many years of earnings history does the economist need?

Usually three to five years of tax returns and pay records, and more where earnings were irregular. A short history is supplemented with occupational wage data for the work the person was doing or was trained to do.

Are bonuses and overtime included?

They are included where the record shows they were a regular part of compensation rather than a one-time event. The report states which components were carried forward and at what level.

How is a young person with no earnings history projected?

From the educational path the record supports and published earnings by education and age, which describe how earnings typically rise over a career. The report identifies the assumptions about education and occupation and shows the result under alternatives where the record leaves the path open.

Services that use this method

References

Request a consultation on Wage Growth and Earnings Projection or call (201) 343-0700. Plaintiff and defense counsel.