Posted on July 19th, 2018 by Brent M. Pyper in Accident Benefit Calculations, Economic Loss Quantification

Measuring Disability When Still Working

person in wheelchair

When a person has been injured in an accident, they can often recover damages from the person responsible for causing their injuries. One head of damages to be considered is the past and future loss of employment income that the person has suffered, or will suffer due to their injuries.

We generally try to approach these calculations by determining what the person’s income would have been, if not for their injuries, and compare that to what their income will now be (if any), given their injuries. However, the extent of the person’s injuries, and how it will affect their future earning potential, is not always known. Examples could include:

  • A student who has not yet begun to work, but is expected to enter the workforce, but with some limitations.
  • A person who will be unable to return to their previous employment, but will be able to retrain and work in some other occupation, to some degree.
  • A person who will be able to continue to work in their previous employment, but to a lesser degree than they could before the accident.

In such situations, it is often assumed that the person will suffer an ongoing future loss of competitive advantage, or loss of earning capacity, over the remainder of their working life, on the basis that, due to their injuries, they:

  1. Are now less marketable or attractive to potential employers;
  2. Have lost the ability to take advantage of all job opportunities that might otherwise have been open to them had they not been injured; and
  3. May experience periods of absence from the workforce that they would otherwise not have experienced, were it not for their injuries.

Based on Statistics Canada data, a partially disabled worker is generally:

  • More likely to be unemployed at any point in time;
  • Less likely to participate in the work force;
  • Likely to earn less than people without disabilities who have similar qualifications;
  • More likely to work on a part time basis, due to their disability;
  • Likely to face an increased risk of being forced to leave the workforce early.

To estimate the effect of a partial disability on a person’s future employment income, we often calculate the loss based on a percentage of full-time employment. For example, if it is assumed that the person will now be able to work only 15 to 20 hours per week, we may calculate the person’s future loss to be the appropriate percentage of the anticipated earnings for comparable full-time employment.

However, many times, such a specific estimate of lost hours, is not yet known. The person expects to be able to work full-time, but as noted above, they have lost opportunities to pursue certain work, or they may be out of the workforce from time to time. In such situations, we often refer to statistical data regarding the ‘wage gap’ between people with disability and those without.

Over the years, Statistics Canada has conducted various surveys on disability and activity limitations, the most recent two being the 2006 Participation and Activity Limitation Survey (PALS), and the 2012 Canadian Survey on Disability (CSD).

According to studies done using this data, the wage deficit for a person with a mild disability is about 10% to 16% of the earnings of a person without a disability. That is, on average, over the working life of the individual, a person with a mild disability will earn about 84% to 90% of a person without a disability, in a comparable position.

Therefore, to estimate a person’s loss of future employment income, we can apply these percentages against the average earnings for their anticipated occupation. For example, if a person without a disability would be expected to earn $50,000 per year in a specific occupation, the loss for a person with a mild disability working in that occupation could be estimated to be between $5,000 to $8,000 (10% to 16% of $50,000) per year.

Of course, each situation should be considered based on the specific background and circumstances in that case. Ultimately, calculating an economic loss is a complicated process with each case presenting its own set of unique issues. Our Financial Services Advisory Team (FSAT) has significant experience preparing these calculations. If you have any questions or require assistance with a calculation, please contact a member of our team.

About the Author

Brent M. PyperPartner | CPA, CA, CFF, CFP®

Brent works with both plaintiff and defence lawyers (as well as insurance companies) in the preparation of a variety of economic loss calculations and income replacement benefits (IRB) calculations.
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