This article first appeared in the spring 1996 issue of the Expert Witness.
The forecasting of lost earning capacity becomes particularly difficult when it is a child who has been injured. In the absence of clear evidence to the contrary, the courts will generally assume that the child would have followed a course similar to that of his or her parents. A recent study provides evidence concerning the validity of this assumption.
Corak and Heisz (in Canadian Business Economics, Fall 1995) showed that the incomes of fathers were only weakly correlated with the incomes of their sons. For example, males whose fathers’ incomes were in the middle third of the income distribution were only slightly more likely to be in the middle third themselves than they were to be in the top or bottom third.
Nevertheless, having a father in the top 20 percent of the income distribution did impart an appreciable advantage. Thirty percent of the sons whose fathers were in that portion of the income distribution rose to that level themselves; whereas only 12 percent of the sons whose fathers were in the bottom 20 percent of the distribution rose to the top 20 percent.
On average, having a father in the top 20 percent of the income distribution increased a son’s income by 15 percent compared to sons whose fathers were in the middle of the distribution; and having a father in the middle 20 percent of the income distribution increased a son’s income by 15 percent compared to sons whose fathers were in the bottom 20 percent of the distribution.
In short, his father’s income appeared to have a significant influence on a boy’s income only if the father was either rich or poor. This finding is consistent with the observation from other Statistics Canada studies that there is a strong correlation between the educational levels of children and of their parents. The reason for this is that incomes do not vary strongly among educational levels except at high and low educational levels. For the majority of individuals, education has only a weak effect on income. It is only when education falls into the lowest levels that income drops significantly; and it is only when education rises to the university level that income rises significantly.