Earning Capacity vs. Lost Earnings: What's the Difference?

Lost earnings are the wages a claimant did not receive because of injury, typically measured from pay stubs, W-2s, tax returns, and employer records. Calculation is largely arithmetic once the records are complete.

Earning capacity is the claimant's vocational ability to earn, based on education, training, skills, and the labor market (U.S. Bureau of Labor Statistics, n.d.; National Center for O*NET Development, n.d.), applied to both pre- and post-injury profiles. Lost earning capacity is the reduction in that ability, regardless of whether the claimant was fully utilizing it before injury.

Lost earnings are typically the baseline damages category in any lost-wage case. Lost earning capacity is added when the claimant's pre-injury employment was episodic, when they were underemployed, when future career growth was interrupted, or when catastrophic injury has reduced the range of occupations available.

A forensic economist typically computes lost earnings arithmetically. A vocational expert opines on earning capacity. In most contested cases both experts are retained so that the economist can apply the vocational expert's earning capacity opinion to the economic projection.

The two measures appear in different reports and are read differently. A lost earnings figure sits in the forensic economist's report as a schedule: the period of disability, the earnings the record shows for the comparable period before it (pay stubs, W-2s and tax returns, with fringe benefits added where the employer's records support them), any earnings actually received during the period, and the difference. Every line traces to a document, and the finder of fact can check the arithmetic. A lost earning capacity figure begins in the vocational expert's report as two ranges: what the person could earn before the injury, read from the earnings history and the occupations held, and what the occupations still open within the restrictions pay in the person's labor market, from published wage data (U.S. Bureau of Labor Statistics, n.d.). The economist's report then takes those ranges as inputs, projects the difference over the working life and reduces it to present value. Reading the economist's capacity figure without the vocational report behind it is reading a conclusion without its evidence. In a catastrophic case the two measures are combined and must not overlap: lost earnings carry the period from the injury to the valuation date, and the capacity loss carries the projection from the valuation date to the end of the working life, so the schedule and the projection meet at one date.

The question counsel puts to the experts decides which measure the case produces. Asked what the person did not earn, an economist answers with lost earnings and needs the payroll and tax records, the dates of disability and any return to work. Asked what the person can no longer earn, the case needs a vocational expert first, because the answer depends on the occupations the restrictions leave open, and the economist second, to project the difference. Plaintiff counsel frames the capacity question when the pre-injury earnings understate what the person was on course to earn; defense counsel frames it when the claimed loss assumes the person can do nothing at all. Both framings call for the same two reports. Timing follows the framing: the vocational evaluation is scoped first, the economic projection is scoped to start when the capacity opinion is served, and both are scheduled against the disclosure deadline. The earning capacity evaluation explainer describes the vocational evaluation itself, and the RAPEL guide shows how that opinion is organized.