Work-life and life expectancies are frequently used in damage computations. Work-life expectancies are used in lost earnings calculations and life expectancies are often used in lost domestic service calculations or in calculating the present value of a life care plan. Understanding how these expectancies work can help you determine if a damage claim is overstated or understated because of incorrect work-life or life expectancies.
An individual’s work-life expectancy is a statistical measure of the length of time an individual is expected to participate in the workforce. Whether or not an individual is initially active in the workforce is a factor that influences an individual’s work-life expectancy. Age, educational attainment, and gender are also influencing factors. Most studies on work-life expectancy account for these factors. Higher educated workers have statistically longer work-life expectancies compared to less-educated workers. Initially, active workers have statistically longer work-life expectancies compared to workers that enter the workforce later in life.
Since workers may exit and reenter the workforce during their career, the end of an individual’s work-life expectancy is different from an individual’s retirement date. For example, an initially active 50-year-old male with a high school diploma has a work-life expectancy of 13.06 more years. At the end of 13.06 years, he will be 63.06 years old. This does not mean he is going to retire at age 63.06; instead, it means that he is likely to have 13.06 full years left participating in the workforce after age 50. His retirement age may be greater than 63.06 if he leaves and returns to the workforce before he retires. If a damage computation assumes a relatively young worker with a low level of educational attainment will work until 67, the retirement age for full benefits from Social Security, the damage computation may be overstating damages because it is not properly accounting for the worker leaving or returning to the workforce during their career.
A common and generally accepted study on work-life expectancy is The Markov Model of Labor Force Activity 2012-2017: Expended Tables of Central Tendency, Shape, Percentile Points and Bootstrap Standard Errors by Skoog, Ciecka, and Krueger. This study was last updated in 2019 and is published in the Journal of Forensic Economics 28(1-2), 2019, pp. 15-108.
Life expectancy is a statistical measure of the time an individual is expected to live based on age, gender, and race. The most common resource for life expectancy tables is the National Vital Statistical Reports, United States Life Tables published by the U.S. Department of Health and Human Services. This resource is updated annually by the Center for Disease Control and Prevention.
Life expectancy tables are reasonable sources to determine the end of someone’s life when specific information is not available. In some cases, a medical professional will opine on a person’s life expectancy. In these instances, the medical opinion should be considered in determining someone’s life expectancy.
Worklife and life expectancies are statistical measures commonly used in damage computations. In disputes, these statistical measures should be applied as of the date an alleged wrongful act occurred. In personal injury cases, this is usually the date someone was injured. These measures generally should not be applied to a valuation date for present value computations. Applying work-life and life expectancies to a valuation date could result in overstated damages.
In summary, not understanding work-life and life expectancies could result in misuse and inaccurate results. If you have questions, our Valuation and Litigation Team is pleased to be a resource to you.
This article was written by Steven Johnson, Shareholder, CPA, and Valuation and Litigation Specialty Team Member in our Helena, Montana office.