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.