The Effect of Incarceration on Future Earnings

In this article, Dr. Bruce and Mr. Aldridge find that the literature regarding the effect of a criminal record on income suggests incarceration has a relatively small effect on lifetime earnings. Those who have been incarcerated tend to have lower levels of income than those without a criminal record, not because incarceration has changed their vocational/economic outcomes, but because they are drawn from a group with relatively low income to begin with. Further, the length of a person’s incarceration (holding the severity of the crime constant) appeared to have little impact on earnings, except in the case of “white collar” crime such as fraud or embezzlement. The literature suggests that individuals with supportive family ties, such as those living with their spouses and children, were the most successful at transitioning back into the workforce. In addition, the likelihood of recidivism decreased as an individual aged (i.e., those 30 and 40 year olds who were incarcerated in their early 20s are not likely to become repeat offenders).

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Implied Rates of Return on Structured Settlements

In this article, Derek Aldridge and Christopher Bruce contrast our recommended discount rates with those used by one important set of sophisticated investors, the insurance companies who write structured settlements. They find that our recommended rates are greater than those being offered by these companies, suggesting that our rates may be too high.

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The Discount Rate Simplified

In this article, which was written collaboratively by Christopher Bruce, Laura Weir, Kelly Rathje, and Derek Aldridge, we begin by setting out a number of criteria that we believe should be met when selecting the discount rate. We ultimately conclude that a portfolio of Government of Canada bonds of varying maturity dates meets our criteria. We then argue that forecasts of Government of Canada bond rates that are based on historical statistics are unreliable for many reasons. Finally, we argue that the rates of return that are currently available on government bonds represent reliable predictions of future rates. Short-term interest rates can perform this role because they represent rates that are actually available currently; and long-term rates reflect the forecasts that have been made by sophisticated financial institutions that have substantial investments in the market.

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Factors that Influence Retirement

In this article, Derek Aldridge summarises recent research from Statistics Canada concerning factors that influence retirement. He finds support for an assumption that is often made in expert reports: that a plaintiff with substantial residual deficits will likely retire earlier than he or she would have in the absence of the accident.

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The Discount Rate Revisited (Spring 2008)

This article reports on our latest survey of discount rates. We conclude that no changes to our existing discount rate assumptions are warranted, though a reduction in our long-term rate may be necessary in the future if the observed long-term rates remain significantly lower than our assumed rate.

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Using the HALS/PALS data sets to estimate a loss of income

In the article Derek Aldridge discusses the potential usefulness of Statistics Canada’s HALS/PALS disability statistics when attempting to estimate a person’s loss of income. His opinion is that while one can use these data sets to predict a loss of income, in most cases these predictions are not helpful for our purposes.

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The Discount Rate Revisited (Summer 2006)

In this article Derek Aldridge reports on our latest survey of discount rates, and outlines the revisions we have made to our standard assumptions. We conclude that some small changes to our short-term discount rate assumption are warranted, though we have not changed our assumptions concerning long-term rates. The overall impact on our calculations will be negligible in most cases.

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Estimating the Impact of Mid-Career Retraining

In this article we investigate an issue we have not seen raised anywhere else in the literature on personal injury damages: When an individual is injured in their 30s or early 40s, and has to retrain for a new career, will that individual begin in that career at a salary equivalent to those of individuals with the same age as the plaintiff? Or will the plaintiff’s starting salary be more similar to those of younger individuals in the new career – perhaps 25-29 year-olds? The authors present information from a recent study that investigated this question; and comment on the use of this study for personal injury cases.

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The Discount Rate Revisited

In this article we review the recent evidence – both statistical and theoretical – concerning the discount rate (or real rate of interest). We review a number of different interest rates for each quarter since 1995 and find that every series has trended downward virtually continuously over the entire period. We then review the theoretical arguments that have been put forward to explain why this trend has been observed; and ask whether it is better to base a forecast of future rates of interest on the rates that are currently being observed or on averages of historical rates. We conclude that it would be inappropriate to rely on historical figures and instead we recommend use of multiple rates, based on the rates currently available for a variety of short- and long-term government bonds.

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Selecting the Discount Rate – An Update

This article extends the work done by us in issues 5(3) and 6(4) of The Expert Witness, we conclude that it would be appropriate to revise our existing 2½ and 3½ percent two-part forecast of real interest rates. We propose to use a rate of 2¼ percent for the first five years of all calculations. For all subsequent years we propose to use a rate of 3¼ percent.

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Millott (Estate) v. Reinhard – Reconciling “dependency” claims under FAA with “estate claims” under SAA

In this article Derek Aldridge considers one of the most interesting findings from a recent court decision. The issue concerned how to reconcile “dependency” claims under the Fatal Accidents Act with “estate claims” made under the Survival of Actions Act. In the Millott decision, it appears that if a dependant/heir’s share of the estate’s loss of income claim (under SAA) is greater than his loss of dependency on the deceased’s income (under FAA), then he is awarded the SAA amount, but he can also receive any claim for loss of services under FAA.

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The awarding of costs and payment of legal fees in a case brought before the Court: is there a potential injustice?

This article shows that there may be a potential injustice due to the tax treatment of an employee-plaintiff versus a corporate-defendant. We show that the costs imposed on a losing employee-plaintiff impose a greater burden than the same level of costs imposed on a losing corporate defendant. This is because the employee-plaintiff must such pay costs with after-tax dollars, but the corporate defendant can use before-tax dollars.

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The Deduction for “Expenses Related to Earning Income” in Rewcastle

In this article Christopher Bruce and Derek Aldridge discuss the court’s decision in the recent case of Rewcastle v. Sieben. The case concerned an estate claim brought under the Survival of Actions Act. In his decision, Justice Hutchinson introduced a new method for calculating the deduction for “expenses directly related to earning income.” In their article Dr. Bruce and Mr. Aldridge summarise Justice Hutchinson’s method and comment on its broader applicability.

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Estate Claims Following the Appeal Court Decisions in Duncan and Brooks

In this article Derek Aldridge, investigates a number of issues concerning the valuation of estate claims under the Survival of Actions Act. These issues arise from two recent decisions of the Court of Appeal, in Duncan v. Baddeley and Brooks v. Stefura.

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Selecting the Discount Rate

In this article we begin by providing clear definitions of a number of fundamental concepts. These include: real interest rate; nominal interest rate; discount rate; real return bonds; and core rate of inflation. We then summarise the recent statistical data for various measures of inflation and interest rates in Canada. Finally, we use those data to calculate the “real interest” rate and to forecast a long-run discount rate. We conclude from this analysis that that rate appears to be 4.0 percent. However, as there has been some recent volatility in interest rates, we propose to revisit our forecast a year from now.

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The Impact of Disability on Earnings: Results of the Health and Activity Limitation Survey

This article presents some information from Statistics Canada’s Health and Activity Limitation Survey (HALS). Although HALS was one of the most comprehensive surveys ever conducted on the effects of disability, Statistics Canada has chosen to publish results from that survey in a form that is not of great value to litigators. Accordingly, HALS has become one of those sources that is referred to far more often than it is employed.

Economica has obtained access to Statistics Canada’s electronic records of over 100,000 individual questionnaires from HALS. This has allowed us to estimate income and education levels for each of four levels of disability, for both males and females, cross-categorised by four levels of education and four age groups. In their article, Christopher Bruce, Derek Aldridge, and Kris Aksomitis report the statistics derived from this process. Although the statistics reported there are too aggregated to allow practitioners to estimate damages in specific cases, they can act as a check to see whether the damages calculated in any particular case are “reasonable.”

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Fatal Accident Dependency Calculations

In this article Derek Aldridge examines the difference between using the sole- and cross-dependency approaches when estimating the loss of income dependency following a fatal accident. Chris Bruce wrote about this issue three years ago in the Expert Witness (Volume 1, Number 4). Derek’s article emphasises the specific differences between the calculations in the two different approaches.

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The MacCabe Judgment: Allowing the Use of Earnings Statistics for Males When Estimating the Future Income of a Female

In this article, Derek Aldridge explains how the MacCabe judgment is important from the economist’s view. What does the judgment imply about future cases involving injured or deceased females? There are many questions unanswered.

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Unresolved Issues in the Valuation of Estate Claims Under Survival of Actions

In this article Derek Aldridge expands upon previous articles in our newsletter which have arisen from the Duncan v. Baddeley court of appeal decision. He raises several questions concerning the calculation of losses in light of this decision, and suggests that it may not be possible to resolve these issues until it is determined whether the Court’s goal is one of compensation or deterrence.

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Using Male Earnings Data to Forecast the Future Income of Females

In this article Derek Aldridge deals with the subject of the “wage gap” between men and women. He discusses the rationale used to explain this difference in earnings and why it might be inaccurate to base a prediction of the future earnings of young women on women’s historical earnings. He suggests that there is considerable support for the use of male earnings data which have been adjusted to reflect the extent to which a female’s career path may differ from that of the average male.

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The Income Tax Gross-Up on a Cost of Care Award

In this article Derek Aldridge and John Tobin discuss the various factors that affect the size of the tax gross-up on a cost of care award. Factors range from the plaintiff’s taxable income (including investment income from the award), to the proportion of the tax-creditable expenses, to the time path of the consumption of his/her cost of care award. Depending on these various factors, it is clear that the gross-up may be significant, thus making this calculation very worthwhile.

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