The short answer
Economic damages are the money an injury costs the injured person: income they lose and expenses they pay or incur because of it. They are separate from noneconomic damages, like pain and mental anguish, and from punitive damages.
Economic, noneconomic and punitive damages
Damages in a personal injury case generally fall into three groups.
The line matters in practice. Economic losses can usually be measured from records and data, which is where an economist’s analysis comes in. Noneconomic damages are left to the jury’s judgment.
Common economic damages
Which categories apply depends on the injury and the evidence. Common ones include:
- Lost earnings and earning capacity, both the pay already missed and the reduced ability to earn in the future.
- Medical expenses, past and future. Future care is often set out in a life care plan and then valued by an economist.
- Other financial losses, such as lost fringe benefits or the cost of replacing household work, where the facts support them.
How economic damages are calculated
Methods vary with the case, but a typical analysis of future losses follows four steps.
- Set the baseline. What the person could have earned, or what care they would not have needed, without the injury. This usually starts with tax returns, employment records and the medical or vocational opinions in the case.
- Measure the loss. The difference between the baseline and the person’s situation after the injury, year by year.
- Project it forward. Over a period tied to work life or life expectancy, with stated assumptions about wage growth or medical cost growth.
- Reduce it to present value. Convert the future stream into a single amount today, using a stated discount rate.
Small changes to the assumptions in steps 3 and 4 can move the total a lot over a long period. That is why opposing economists in the same case can reach very different figures, and why stating each assumption clearly matters.
When an economist can help
Not every case needs one. Past losses that are already documented in bills and pay records can often be presented without an expert. An economist’s analysis tends to matter more when:
- Future lost earning capacity or future medical care is a large part of the claim
- The earnings history is uneven, such as self-employment, a career change or a young plaintiff with little work history
- A life care plan needs to be costed and reduced to present value
- The other side has an economist whose figures need to be reviewed
Not sure whether your case needs an economist? Send a short note and we’ll talk it through.
Discuss a caseCommon questions
Is pain and suffering part of an economic damages analysis?
No. Pain, mental anguish and similar losses are noneconomic damages. They are for the jury to decide, and an economist does not put a value on them.
Are lost wages and loss of earning capacity the same thing?
Not quite. Lost wages are the pay a person actually missed. Loss of earning capacity is the reduced ability to earn, which can apply even when the person was not working at the time of the injury.
Why reduce future losses to present value?
An award is paid today for losses that may stretch decades into the future. Present value converts those future amounts into what they are worth now.
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Discuss a caseThis guide is general information, not legal advice.