Forecasting the growth of earnings of the injured party through an anticipated retirement age is an important task for the forensic economist in medical malpractice and personal injury cases. The task of determining future expected earnings in these cases is made more difficult when the injured party is a younger person who has not established a record of earnings. Estimates of the expected growth of future earnings are related to forecasted changes in inflation rates and expected increases in productivity. The objective of this paper is to examine the link between the growth of earnings and the growth in output per hour, a commonly used measure of productivity, at different levels of educational attainment. In particular, this study assesses whether gains in output per hour have resulted in increases in earnings greater than the inflation rate for workers with average earnings at each level of educational attainment.
As expected, the results indicate that earnings growth is positively related to educational attainment. However, it is found that the mean growth of the Consumer price Index (CPI) is not significantly different from the mean growth in earnings for all levels of educational attainment. For most years, the growth of output per hour has been greater than the growth of earnings above the inflation rate. In fact, for some years, especially for individuals with lower levels of education, the growth in earnings did not even keep pace with the growth in the CPI. The results suggest that macroeconomic measures of productivity are not significant in explaining earnings growth at any level of education.
Given these findings, the authors explore alternative methods to determine future earnings. In particular, age-earnings profiles reflect the observation that average wage earners enter the labor market at a relatively low wage rate, progress rather rapidly over one’s younger years, level off during mid-life, and in some cases decline at the end of the earnings cycle. In general, the higher one’s level of educational attainment, the greater and more rapid are the wage increases in early work life and the later the leveling off occurs. This study examines the use of age-earnings profiles in predicting future earnings. The age-earnings factors are derived from the age-earnings profile data published by the Department of Commerce and contained in the Census Bureau publication in the P-60 series entitled Money Income in the United States and the P-20 series Educational Attainment in the United States for the sample period 1975-2007. .