Accounting for events in the back pay period

How do different economists handle life changes such as going back to school, etc. that occur in a plaintiff's life during the period covered by a back pay award? Say, for example, a person is wrongfully terminated from a job, tries hard but can not find another job. As a result the person decides to go back to graduate school. How would different economists account for the lost earnings during the back pay period?

Depending on the state and the likelihood of receiving front pay damages, the economis's decision could make a big impact on the economic damage estimate.

Option 1: Assume that the life change is the result of the wrongful termination and DO NOT add in any mitigating income earned during the transition period.

In this scenario, the economist is assuming that plaintiff was working at a job that he or she wanted to retain at the time of termination. In other words, he or she would have kept working in that job or for that company and would NOT have pursued other options (such as graduate school). If that is true, then the decision to pursue these other avenues (graduate school, retraining, adoption etc) was brought about BY the termination. As a result, economists that use this approach do not show mitigating income for the time the person has taken off to pursue these other avenues.

Option 2: Assume that the life change is the result of the wrongful termination and DO NOT add in any mitigating income earned during the transition period and SUBTRACT the out-of-pocket cost of training. In the education case, the economist would subtract the cost of items such as tuition, books, etc.

Option 3: Assume that the life change is not the result of the employment termination and simply add in any mitigating income that was earned during the time as normal.

PointofLaw.com Blog: Another State rejects Daubert

PointofLaw.com | PointOfLaw Forum: Another State rejects Daubert

According to a post on Point of Law, by David Berstein, the North Carolina Supreme Court rejected the federal Daubert standard in favor of the less mechanistic and rigorous state standard. The case did not involve economic testimony.





David Berstein Reports:

On Friday, the North Carolina Supreme Court rejected the federal Daubert standard for the admissibility of expert testimony. The court decided to retain North Carolina's unique admissibility standard. Like Daubert, this standard purports to require that expert testimony be reliable. However, lest they get confused, the court advised lower courts in North Carolina that "application of the North Carolina approach is decidedly less mechanistic and rigorous than the 'exacting standards of reliability' demanded by the federal approach. The court condemned Daubert's "gatekeeping" approach as putting "trial courts in the onerous and impractical position of passing judgment on the substantive merits of the scientific or technical theories undergirding an expert's opinion."

PeopleSoft | DOJ v. Oracle Antitrust Trial Is in Progress

PeopleSoft | DOJ v. Oracle Antitrust Trial Is in Progress

Interesting inside commentary from an ongoing trial, the first day atually opened up with economic testimony from Dean Campbell of UC -Berkely business school.

See Trial Day 11: June 22, 2004 post....

Dispatches from the court room

A good working relationship versus a bad working relationship:

[The following story was relayed by one of our National Compensation economists who had the opportunity to serve as an damages economic expert in two class action lawsuits]

Jan 04: Bad working relationship

I was asked to perform an economic damage calculation for a large class action employment lawsuit. My job, among other things, involved calculating the lost back pay and front pay for the class members. From day one, the acrimonious relationship between the two sides in the case took me back a step. In short both sides fought over every single part of the case from discovery to dates for depositions.

As somewhat expected, the opposing counsel in the case treated me as the expert witness with a lot of disdain at the deposition. At the class certification hearing the treatment was worse, they called me everything short of a liar. Actually, I think they actually inferred that I was in fact a liar!

Jun 04: Good working relationship

Again, I was asked to, among other things, serve as an economic damage expert in a class action employment lawsuit. The job again involved calculating front and back pay. In this case, the two sides worked very close with each other and really had very few conflicts, other than who was right or wrong in a legal sense of course.

Completely opposite of the Jan 04 experience, the opposing counsel in the case treated me as the expert witness with an incredible amount of respect and professionalism. At the class certification hearing the treatment was just as professional.

What have I learned:

The number one thing this suggest to me as an expert is to pick your clients wisely. Although, as a business person you want to work with as many people and attorneys that you can, it is usually better to limit your engagements to those who fit into your scheme and big picture of work and professionalism the best.

The Illinois Trial Practice Weblog: Who Should Read Depositions at Trial?

The Illinois Trial Practice Weblog: Who Should Read Depositions at Trial?

Can economist testimony be made more exciting by using actors? Maybe according to a recent National Law Journal Article and BLog post:

"Deposition testimony often comes into evidence at trial. If the deposition was videotaped, the deposition can be played for the jury on a monitor. Otherwise, the deposition must be read to the jury, line by line.

How to do it? I've seen lawyers stand in front of the jury and read the entire deposition themselves, saying "question" and "answer" as they drone through the transcript. It's no way to grab the jury's attention. Another method is to have someone else--another lawyer, a paralegal, etc.--sit in the witness box and play the part of the witness, transcript in hand. The lawyer reads the question; the "witness" reads the answers.

In today's National Law Journal, there's an article titled "Lights, Camera and . . . Time to Testify," by Leonard Post. It's a discussion of a third method for dealing with deposition testimony at trial--namely, hiring an actor to play the part of the witness. According to the article:


Professional actors don't just portray witnesses on TV -- they play them in real trials.
In an attempt to connect more effectively with juries, a number of attorneys are using professional actors to play people who were deposed, but who are out of subpoena range and who lawyers could not -- or preferred not to -- bring into court.

Juries like it because actors bring a piece of themselves to a role that used to be reserved for paralegals, secretaries or associates, many of whom nervously read in monotones, lawyers say. An actor can make a witness seem credible, confident and authoritative -- or not, as the role necessitates.


Good idea? It seems to me that having another lawyer from the office play the role of the witness usually does the trick, and is much cheaper besides. But never say never . . .

Analyzing the earnings capacity of the self employed

Calculating the earnings capacity of individuals who are self employed is involved but very do-able. The research question in injury and death cases involving the self employed is the same with wage earners:

'How much damage, if any, has been done to the plaintiff's ability to earn a living?'

The biggest difference for the self employed is that there are a number of different ways a self employed person will report the earnings. For instance, some self employed individuals will receive income as an independent contractors while others will receive payments thru a closely held corporation. Other self employed people are sole proprietors; estimating the earnings capacity is different for each of these worker types.

The key piece of information that is used in these analyses is the personal income tax return, usually a form 1040, AND all the supporting schedules. The supporting schedules are used by the analyst to look closer at the plaintiffs' earned wages, business expenses, and to separate accounting adjustments and expenses (such as real estate depreciation) from real business expenses. Attorneys trying to calculate damages in these types of cases should make sure to obtain the supporting tax form schedule for every item on the main 1040 personal tax form .

In general, the most accurate estimate of the plaintiffs earnings capacity involves adding reported wages, business income and accounting depreciation.

Correctly using assumptions in economic damage analyses

In almost every economic damage calculation assignment, the attorney managing the case, like it or not, will have to provide a number of assumptions to the economist who is evaluating the plaintiff's economic loss. These assumptions may be as simple as :'assume that the injured person would have retired at age 57' or 'assume that the person can now only work a half time schedule'.

Because the attorney will know the case better than anyone, these assumptions can actually improve the quality of the economic damage analysis in the case. However, if the attorney provides assumptions that are not grounded in facts or that conflict with generally accepted practices, the reliability of the economic damage research could be significantly damaged.

This post looks at some of the types of assumptions that should and should not be made in economic damage cases.

Attorney provided assumptions that are usually ok:

*Retirement age can be ok if there is a strong rationale
('assume that she would have worked until her pension kicked in')
*Reduced post-injury work ability
('assume that the plaintiff can now only work a half time schedule because of the injury)
*Promotion or terminations in an employment case
('assume that the plaintiff would have received a promotion')

Attorney provided assumptions that should be avoided

*unsubstantiated post-injury work ability
('assume that the plaintiff can only work a minimum wage job')
*Unsupported interest rates and discount factors
('assume that the plaintiff could have earned a higher interest rate')
*Using a methodology different from generally accepted in the area
('assume a 'zero discount factor')

At the end of the day, the best analysis are ones that are grounded in both the case facts and the science of forensic economics. Providing sound and realistic assumptions in injury and death cases helps achieve this goal.

Questions from attorneys on inflation and retirement economic damages

When calculating the value of a pension plan, do you add in additional inflation to what the pension will receive?

No. Inflation is usually explicitly included in the pension formula. For example, if the formula is based on the last four highest years, then the inflation will be included in the projected salary.

For example, we are assuming a 5.3 interest rate. For the pension plan, we don’t include inflation, because we know exactly how much he is going to receive, so there is no reason to grow the pension amount.



Is it appropriatee to use a lower interest rate to discount the pension annuities?

No the principles are the same as a lost wage analysis, you are simply trying to calculate the present value of the future pension annuity payments. In otherwords, you are trying to find the amount of money if paid today would replace the projected pension payments. The projected payment schedule should account for mortality so there is no need to use a higher discount factor.

Bad post-injury assumptions in a personal injury case

In personal injury cases, it is frequently very difficult for the economist to determine how much of a loss in earnings capacity the injured person has suffered. For instance, a severely injured back would effect a construction worker a lot differently than a adminstrative assistant.

In a lot of situations, the economist will rely in part on the assessment of the vocational expert to help determine how much earnings capacity the individual has lost. In part is the key phrase. However, as Elcock v. Kmart Corp below points out, it is still crucial that the economist use sound judgement in determining the post-injury earnings capacity of the injured person. In this case, the economist simply assumed that the person would be 100% disabled even though at the time the economist performed the economic analysis, the injured person was still earning money from the labor market.

The case:

In Elcock v. Kmart Corp., 233 F.3d 734 (3d Cir. 2000).
the court found:

In sum, we believe that [the plaintiffs' experts] economic damages
model relied on several empirical assumptions that were
not supported by the record. Although [the plaintiffs' expert's] suggested
to the jury that it might discount the 100 percent disability
figure that he plugged into his economic model, this
suggestion is not sufficient to change the result.

In the absence of clearer instructions or emphasis by the witness
or the court, a jury is likely to adopt the gross figure
advanced by a witness who has been presented as an
expert. Accordingly, the District Court abused its discretion
in admitting [the plaintiffs' expert's] model as evidence. Cf. Benjamin,
820 F.2d at 643; Gumbs, 718 F.2d at 98. 13

_________________________________________________________________

More proof that size DOES matter...taller workers earn more money...

The authors of a new study called The Effect of Adolescent Experience on Labor Market Outcomes: The Case of Height", found that taller workers make more money. They said:

"Taller workers receive a wage premium....Net of differences in family background, the disparity is similar in magnitude to the race and gender gaps...Controlling for teen height essentially eliminates the effect of adult height on wages for white males. The teen height premium is not explained by differences in resources or endowments. The teen height premium is partly mediated through participation in high school sports and clubs. "


Paper available from the SSRN Electronic Paper Collection:
> http://papers.ssrn.com/paper.taf?abstract_id=552885
The authors:

NICOLA G. PERSICO
University of Pennsylvania
Department of Economics
ANDREW POSTLEWAITE
University of Pennsylvania
Department of Economics
DAN SILVERMAN
University of Michigan at Ann Arbor - Economics
Department
National Bureau of Economic Research (NBER)

Excess Baggage in the Court Room

What do attorneys ask economists bring to the court room when they testify? In an informal survey, revealed that 3 out of 6 economist bring the entire case file, most bring at least the report and a clean C.V.

Some of the comments from the survey were:

I like to just take the absolute necessary to the witness stand and leave my briefcase with file in the first row of the gallery. Any exhibits will be handed to you. Spreadsheets are either blown up or on ppt. Everything else is committed to memory.

I have found that because New York state court rules do not require submission of expert reports, NY trials often involve the adversary attorney asking to examine the expert's file, sometimes taking a recess to do so, prior to any cross-examination. This is forced upon attorneys since depositions are all but non-existent in NY. case

The whole d*mned file. There's nothing in there that can 'hurt' me. It's often the case that there's some obscure note that can help a lot.


For trial, I bring absolutely nothing to the stand, and am not allowed to bring anything for that matter. Any exhibits for my testimony are required to be submitted beforehand. In my briefcase I usually bring some notes and outlines to rehearse while waiting around, but that doesn't go up to the stand.

What is a person's life worth?: A Three Act Play

Act One: The realization of the problem
Everyone realizes that a person's life is worth more than what they could have earned in the labor market over their working life. A typical person does a lot more than work. For example, the average person spends over 15 hours a week on household production related activities such as maintaining the lawn and chores. People spend over 40 hours a week on leisure activities such as going to movies and socializing with friends.

(See expecantacy data website for Time Value of Day publication)

The question posed in legal cases where there is a death or significant injury is how do you put a price tag on the value of the non-labor market time? One approach is simply to let the courts decide. That is let the jury place a value on the lost of non-labor market life. Others think that the court system would be better served by providing some guidance to courts and juries on this issue.

Act Two: The solution?
Enter the economists. Starting in about the 1980's economists, who since the begining of modern economics period have been researching and studying human behavior thru utlity models, began formulating specific models to attempt to address this types of issues in court cases. Generally speaking the models and concepts offered by modern economists fall into two catagories.

One class of models attempts to value a person life by looking at how much people would pay not to have their life taken away from them. These types of models involve measuring how much people are willing to pay to reduce the probablity of death. Market measures of people's actions can be seen thru the insurance people buy and implictly thru the things that they buy. For example, how much more would you pay for an automobile that would increase your chance of survival by 25%? How about 75%?

The second class of models attempts to value a person's life by looking at what it would cost a person to replace or purchase all the things, out side of the labor market that the person does. For example how much would it cost you to hire a person to take care of your lawn? How about to watch over your kids at night? The replacement value of these activities is determined by estimating the number of hours spent by the applicable hourly wage.

See: Economic/Hedonic Damages, by Michael Brookshire and Stan Smith (1993) for an excellent overview of the approach.

Act Three:The re-realization of the problem
Economist Exits, Stage Left Daubert and related cases,has significantly effected how these actual issues are handled in the courts. In short, while most economist realize the power and the value of these types of economic models when applied to large groups of individuals, the same economist recognize the substantial problems when trying to apply these models to individuals. Thomas Ireland, et al, in a 1997 aritcle in said it best:

"The impact of the Daubert decision is clear. In every reported case in which Daubert, the Federal Rules of Evidence or their state statute derivatives, or even Frye, have been mentioned as a basis for the admissibility of scientific evidence, “hedonic damage” testimony has been disallowed. Furthermore, in every case in which the scientific accuracy of “ hedonic damage” testimony was considered as a basis for the evidentiary decision, this testimony has failed the various tests of scientific accuracy posed by the courts.” (p. 155)"

FindLaw Legal News - Court: Retiree Pension Benefits Can't Be Cut

FindLaw Legal News - Court: Retiree Pension Benefits Can't Be Cut

WASHINGTON (Reuters) - The U.S. Supreme Court ruled on Monday that pension plans under federal law cannot change their rules to reduce or eliminate benefits to workers who retire early and then go back to work at other jobs.

Proving up damages--An Expert Dream (nightmare?) team

In injury and employment cases where there are allegations of economic losses, the attorney is typically tasked with trying to select and manage a number of different experts. The team can typically consist of the following experts.

Accountant: Used to document actual losses, usually out of pocket losses or past damages. Some accountants, especially those with MBA's maybe used to project future damges

Economist: Used to calculate the economic value of past and future losses. Can also calculate the value of household services, retirement and employee stock options. Also performs studies of attempts at damage mitigation and future labor market employability. Used in cases with life plans to determine future health care cost.

Labor Economist: Can do the same as an economist. May also be used on the liability side of a employment discrimination case to determine if there is statistical evidence of racial discrimination.

Life Care Planner: Used to determine the cost of future medical needs. Works in conjunction with economist to determine future value of medical costs.

Industrial/organizational psychologist: Used employment discrimination cases to evaluate pay,promotion and termination policies.

Statistician: Calculates failure rates in product liability cases. Also used on the liability side of a employment discrimination case to determine if there is statistical evidence of racial discrimination.

Vocational Rehabilatation: Helps determine what jobs the injured plaintiff can perform following an ijury. Performs studies of attempts at damage mitigation and future labor market employability in employment cases.

Pilots, vertigo and economic damages

Situation:
A 50 year old commercial airline pilot, as a result of an biking accident, develops a severe case of vertigo that prevents him from flying an airplane again. What economic loss, if any, has the pilot suffered as a result of the accident?

A: The pilot has most likely suffered an economic loss. However, there are several things that need to be considered in this analysis to determine with any certainty what those losses are.

1. Pre-accident airline pilot earnings capacity. The first thing that must be considered is how much the pilot would have earned in at the airline over their remaining worklife. Commercial airline pilots are (usually, almost always) forced to retire at around 60 years of age. So to figure the pilot's lost earnings only promotions and wage increases that occurred over the next 10 or so years should be considered.

2. Post-accident airline pilot earnings capacity. This is the trickiest part of the analysis. An airline pilot is a profession with a relatively non-transferable skill set. For example, a injured surgeon who can no longer operate could conceivable operate a non-surgery practice focusing in the principally the same specialty as before the injury. The skill set for pilots however only directly transfer to a number of non-flying professions.

If the pilot is able to secure alternative employment in a directly related non-flying profession, it is likely that the wages in the job would be somewhat lower but fairly comparable (with 25% or so). The wages in the alternative job in this scenario will be comparable because the labor market will tend to value jobs with similar skill, knowledge and ability requirements the same or close to the same.
The time the time that it takes to acquire the new position however will most likely be longer for older, more experienced pilots. U.S. Bureau of Labor statistics can be used to estimate the time this will take for any given demographic group.

If the pilot is not able to obtain a related position, the alternative wages will be much lower. If this is the case that the pilot ends up facing, it is reasonable to assume that the pilot will experience similar to other college graduates with little or no job related experience.

Lost Compensation: An attorney's economic resource

Lost Compensation: An attorney's economic resource

Q:Why provide a lower cost economic damge alternative for attorneys?

A: We believe all attorneys, and the people that they represent, should have access to the best litigation support services available.

Our cost effective service allows attorneys, even those representing budget-minded and financially strapped plaintiffs, the ability to employ high quality economic damage research in all their cases.

Our experience in providing litigation support services, has shown us that in cases where an economic loss has occurred, quality economic damage research is essential. Good economic damage research can greatly improve the settlement value of a case.

Workplace Harassment Is Not Just About Sex Anymore

Workplace Harassment Is Not Just About Sex Anymore

SUNRISE, Fla., June 3 /PRNewswire/ -- Last year the U.S. Equal Employment
Opportunity Commission (EEOC) resolved 87,755 charges of employment
discrimination for $236 million in monetary and other benefits. Sexual
harassment and gender-related claims made up only 30 percent of the cases. So
what are employers doing wrong now?
The largest number of EEOC complaints (35.1 percent) came from allegations
of race discrimination. This was followed by claims of retaliation for filing
a charge or cooperating with an investigation (27.9 percent), age
discrimination (23.5 percent), and discrimination based upon an employee's or
applicant's disability (18.9 percent). The figures add up to more than 100
percent because numerous complaints alleged more than one kind of
discrimination.
"Employers paid out $236 million last year and $257 million the year
before. These figures tell me that managers in a lot of companies aren't
doing their homework," says Ashley Kaplan, employment law attorney for
Sunrise, Fla.-based G.Neil Corp. "As a result, they also are putting
themselves and their organizations at financial risk."

By The Numbers

By The Numbers:

Plaintiff's:

...won 55% of civil trials in county courts in the U.S.

...won out of every 5 abestos cases filed in state court

...were award punitive damages in less than 1 out of 10 cases filed in state court

....the average jury award fell over 50% over the last decade

Source:Bureau of Justice Statistics; Civil Justice Survey of State Courts, 2001