Month: March 1997

Predicting the Adult Earning Capacity of Minors

Posted on By economica

by Faizal Sharma

This article was originally published in the spring 1997 issue of the Expert Witness.

One of the most difficult tasks facing personal injury litigators is predicting the income stream which a minor would have earned had he or she not been injured. This prediction is almost universally based on research by economists, psychologists, and sociologists concerning the impact which genetics and socio-economic factors, such as parental income and education, have on adult earnings.

The most reliable summary of information concerning this research has been found in Christopher Bruce’s Assessment of Personal Injury Damages (Butterworths: 1992). Recently, however, a number of studies have been published which use much more sophisticated statistical techniques than those reported in Bruce’s text. These articles both report a much stronger correlation between parents’ and children’s incomes than had been found in the past and investigate a much broader set of explanatory variables than had been considered previously. The purpose of this article is to summarise some of the most important findings of the recent research.

From the economist’s perspective, the family can be viewed as an economic unit in which the parents are responsible for generating and distributing economic resources. The amount of resources allocated to the children, as well as the nature and timing of their distribution, can affect the success attained in later life. Nevertheless, children are also affected by other parental choices such as the number of siblings in the family, the type of neighbourhood in which they grow up, the number of locational moves, and family structure changes. The impact of these choices are usually summarised in the academic literature in terms of either “intergenerational mobility” (the correlation between the incomes of parents and children),
“educational attainment” (the impact of parental variables on children’s educational success), or “determinants of adult incomes.” I will consider these three literatures separately.

Intergenerational Mobility

Many sociologists and economists have attempted to measure the correlation between the socio-economic status of fathers and sons. Two 1992 studies using highly sophisticated statistical techniques find strong evidence that in the United States, the father-son income correlation is about 0.4. This is twice as large as previously thought, and depicts a much less mobile society (i.e. one with fewer differences between fathers and sons) than earlier estimated.

For instance, a father-son income correlation of 0.2 implies that a son whose father’s status is in the bottom 5 percent of the income distribution has a 0.30 chance of remaining in the bottom 20 percent, a 0.37 chance of rising above the median, and a 0.12 chance of reaching the top 20 percent. However, a correlation of 0.4 suggests that the son in this situation has a 0.42 chance of remaining in the bottom 20 percent, a 0.24 chance of rising above the median, and a 0.05 chance of reaching the top 20 percent. These findings do not suggest that the sons of low-income fathers are condemned to live their father’s lives; but they do suggest that father’s income status can act as a significant predictor of son’s success.

Factors affecting educational attainment

In all the studies reviewed, the number of years of
schooling completed by the parents is the single most important factor influencing (i) the probability of the child’s completion of high school and (ii) the total number of years of schooling completed by the child. Interestingly, parental completion of either high school or one or two years of post secondary schooling have larger effects on children’s schooling than do years of parental education beyond that level.

Parental income also has been found to have a significant positive effect on children’s schooling achievements. This measure is usually used as a proxy for the economic resources available to the child while growing up. Some studies also indicate that the source of the income may be important to the children’s educational attainment. For instance, a number of studies have found that, everything else being equal, children whose parents received income from welfare have lower educational attainments than do those whose parents did not receive welfare.

Two recent studies have demonstrated that family structure
is extremely important to the educational success of children. They found that children from single parent families, step-parent families, and other non-traditional arrangements have a lower probability of completing high school and attaining further education than do children from traditional, two-parent families. Similarly, it has been estimated that a child who experiences two parental separations during the ages of 6 – 15 has a 5 percent lower probability of completing high school than a child from an intact family; and there is strong evidence that a child living in a single parent family during the ages of 14 – 17 has a 16 percent lower probability of graduating from high school than a child living in an intact family. (The effect of living in a single parent family will be discussed in greater detail in the next issue of The Expert Witness.) Further, parental separation during the child’s preschool years seems to have the greatest adverse effect on educational attainment later on.

The number of siblings in the family also affects the educational success of children – as the number of siblings increases the level of educational attainment declines.

The number of location moves and the availability of reading material in the home significantly affect the educational success of children. While an increase in geographical moves has a negative impact on children’s attainments, the availability of reading material such as newspapers and magazines has a positive impact on their success.

Background characteristics such as race and gender have not been found to be important in determining educational success. In addition, although the supportive characteristics of the neighbourhood have been found to be positively correlated with children’s educational achievements, they are not as significant in determining success as the factors considered above.

Factors affecting earnings

The studies considered indicate that the same factors affecting children’s educational success also affect their labour market performance. This is not surprising since higher education levels attract better jobs.

Parental income while children are growing up is the single most important factor influencing children’s income as young adults. Further, children brought up in families that received welfare have lower earnings than children who grew up in affluent families. Parental education level indirectly influences children’s earnings because parental choices affect children’s educational choices and, hence, earnings. Once again, a family structure which differs from the traditional family has a negative impact on earnings.

While these studies considered background factors such as neighbourhood, gender, race, and county unemployment rate when the children were growing up, these factors were not found to have significant, independent impacts on the children’s labour market performances as young adults. What these surprising results indicate is that, after differences in background and in educational and occupational choice were taken into account, the incomes of young males did not differ significantly from the incomes of young females. Similarly, no significant differences were found among the incomes of different racial groups.

Summary of the findings

  • Children who were brought up in low-income families tend to have a lower education as well as lower income during adulthood than do children from affluent families. Further, the source of parental income appears to affect children’s success. Children whose parents received welfare support are less likely to be successful than children whose parents did not receive such assistance.
  • Growing up in a single parent family, step-parent family, or family structure other than the traditional one appears to have a negative influence on educational achievement and labour market performance. In addition, stressful events such as changes in geographical location also have a negative impact on future success.
  • Although growing up in an affluent neighbourhood has a positive effect on a child’s success, this factor is only marginally significant compared to the others mentioned above.
  • Background characteristics such as race and gender do not have independent effects on future success.

Bibliography

Astone, Anne Marie and McLanahan, Sara. “Family Structure, Parental Practices and High School Completion.” American Sociological Review, June
1993, 309-320.

Behrman, Jere; Rosenzweig, Mark and Taubman, Paul.
“The Intergenerational Correlation Between Children’s Adult Earnings and Their Parents’
Income: Results From the Michigan Panel Study of Income Dynamics.” Review of Income and Wealth, June 1990,
115-127.

Datcher, Linda. “Effects of Community and Family Background on Achievements.” Review of Economics and Statistics, February 1992, 32-41.

Graham, John; Beller Andrea and Hernandez, Pedro. “The Effects of Child Support on Educational Attainment.”
Child Support and Child Well-Being. Eds.: Irwin Garfinkel, Sara McLanahan, and Phillip Robins. Washington DC: Urban Institute Press, 1994, 317-354.

Haveman, Robert and Wolfe, Barbara. “The Determinants of Children’s Attainments: A Review of Methods and Findings.” Journal of Economic Literature, December 1995, 1829-1878.

Haveman, Robert; Wolfe, Barbara and Spaulding, James.
“Childhood Events and Circumstances Influencing High School Completion.” Demography, February 1991,
133-157.

Hill, Martha and Duncan, Greg. “Parental Family Income and the Socioeconomic Attainment of Children.” Social Science Research, 1987, 39-73.

Ribar, David. “A Multinomial Logit Analysis of Teenage Fertility and High School Completion.” Economics of Education Review, June 1993, 153-164.

Sandefur, Gary; McLanahan, Sara and Wojtkiewicz, Roger.
“The Effects of Parental Marital Status during Adolescence on High School Graduation.” Social Forces, September 1992, 599-634.

Solon, Gary. “Intergenerational Income Mobility in the United States.” American Economic Review, June
1992, 393-408.

Zimmerman, David. “Regression Towards Mediocrity in Economic Stature.” American Economic Review, June
1992, 409-429.

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Mr. Sharma was a graduate student at the University of Calgary, where he completed an M.A. in Economics.

Spring 1997 issue of the Expert Witness newsletter (volume 2, issue 1)

Posted on By economica

Contents:

  • Predicting the Adult Earning Capacity of Minors
    • by Faizal Sharma
    • In this article Faizal Sharma sheds light upon the complex issue of predicting the potential income stream of a minor who has been injured. He explains that recent studies show a stronger correlation between parents’ income and that of their children than had previously been expected. The child’s level of education is positively correlated with the parent’s education and is negatively affected by being part of a non-traditional family.
  • BOOK REVIEW: John Barnes, Sports and the Law in Canada, 3rd Edition (Butterworths: Toronto) 1996
    • Reviewed by Christopher Bruce
    • In this article Cristropher Bruce reviews a book that examines the state of sports law in Canada.
  • Spousal Influence on the Decision to Retire
    • by Scott Beesley
    • In this article Scott Beesley notes that the respondents to surveys do not expect the influence of their spouse to be large in terms of choice of retirement age. He also reports that surveys of those who have yet to retire tend to suggest that this factor plays a much stronger role.
  • Lost Years Maybe, Lost Care – Never
    • by Heber G. Smith
    • In this article Heber Smith discusses the importance of providing adequate compensation for an injured plaintiff for whom a diminished life expectancy is projected. He reviews Revenue Canada changes, which have reduced the risk of the insurer, thus making them more willing to negotiate in these matters.
  • Determination of Contribution to Household Services
    • by Therese Brown
    • In this article, various complexities arising from the determination of the loss of household services in personal injury or fatal accident actions are explored by Therese Brown in the next article. While it is pointed out that information specific to the individual is preferable, average statistics are frequently relied on as well.
  • The “Lost Years” Deduction
    • by Christopher Bruce
    • In this article Christopher Bruce deals with the current issue of appropriate compensation for the “lost years” of a plaintiff with reduced life expectancy. One of the approaches discussed includes the view that the plaintiff should be compensated for the lost earnings which remain after the cost of necessities is deducted. Further clarification is required on this issue to establish an estimated cost for “necessities.”

The Role of the Occupational Therapist in Personal Injury Litigation – Part 1

Posted on By economica

by Lorian Kennedy

This article first appeared in the autumn 1997 issue of the Expert Witness.

For more than a decade occupational therapists have been establishing their role in the field of personal injury litigation. The steady growth of that role as their contributions gain recognition is discussed by Irene Harris et al. in their article, “The occupational therapist as an expert analyst on the cost of future health care in legal cases” (Canadian Journal of Occupational Therapy, 61(3), 1994, 136-148). In particular, changes in the law regarding compensation for loss of capacity to perform household services has led to increased demand for occupational therapists’ assessment skills to determine the impact of impairment on individuals’ abilities to perform unpaid labour such as housekeeping, child care or yard work and the cost of replacing this labour. Judges now require detailed information on functional abilities. Individuals such as entrepreneurs or farm wives, whose work is multi-dimensional, can benefit from the occupational therapist’s ability to analyze and describe their jobs and relate this to their past, present and potential function. It is a positive sign that occasionally both sides in a dispute will agree to share the cost of an occupational therapy assessment and analysis of costs of future care.

What is an occupational therapist?

Occupational therapists’ education includes knowledge of biological, behavioral, social and occupational sciences. This provides them with a unique perspective and set of skills that are particularly well suited to the questions to be answered in personal injury cases. The Canadian Association of Occupational Therapists notes in “Profile of occupational therapy practice in Canada” (Canadian Journal of Occupational Therapy, 63(2), 1996, 81) that “The impact of the disease process, physical and mental health as well as methods of adaptive functioning are underpinned by the acquisition and application of knowledge from such areas as occupational therapy theory and practice, anatomy, physiology, psychology, psychiatry, medical conditions, neuroanatomy, neuropsychology, human development, human occupation, pathology, sociology, economics, management, political science and ergonomics.” Alberta occupational therapists complete four years of university education, a minimum of 1,000 hours of supervised clinical training and a national certification examination before becoming eligible to enter basic practice. Occupational therapy is a regulated profession so practitioners must be registered with the provincial professional association. Considerable experience is usually advisable prior to practising in the area of personal injury litigation and some occupational therapists have postgraduate degrees with relevant specializations.

The “occupation” in occupational therapy refers to more than just paid employment. It encompasses everything that “occupies” a person’s time, in other words all the activities (including thinking) that are part of our engagement with living. Canadian occupational therapists use a model of practice that focuses on occupational performance. E. Townsend in Enabling occupation: An occupational therapy perspective (1994) refers to the ability “to choose, organize, and satisfactorily perform meaningful occupations that are culturally defined and age appropriate for looking after oneself, enjoying life, and contributing to the social and economic fabric of the community.” Physical and mental occupation is a fundamental human need and health depends on people having meaningful occupations. This perspective takes into account the dynamic relationship between persons, the social, cultural and physical environment and occupation. Also central to the practice of occupational therapy is the recognition that people are unique spiritual beings whose personal experience of meaning in everyday existence nurtures them through life events and choices.

The evaluation

At the time of referral the occupational therapist establishes the suitability of the referral with the referring lawyer. It is important to clarify what questions are to be answered. Both parties need to ensure that the evaluation process is mutually understood and that deadlines can be met. It must also be an appropriate time for evaluating the individual.

Once the referral is accepted the occupational therapist reviews relevant background material which usually includes the individual’s history, reports from physicians, psychologists, therapists, vocational evaluators, resumes, work history, school marks and portions of hospital records. In some cases the occupational therapist may request clearance from the individual’s physician before proceeding with physical components of the assessment. In cases where the individual has sustained severe or catastrophic impairments the physical component of assessment may be restricted to observing and evaluating the individual as they are cared for and interviewing the caregivers.

A detailed interview and completion of questionnaires provide information on medical, work, education, leisure and psychosocial aspects of the individual’s situation. The interview is usually conducted in the home. This helps to put the individual at ease and provides additional information on lifestyle, family and leisure interests, housekeeping roles, and cultural and social contexts. The individual’s perceptions of their abilities and information on their attempts to adapt to reduced function or to pain are an important part of the evaluation. This self-report provides a context for planning further evaluation. The occupational therapist looks for consistency and compatibility between the diagnosis, reported activities and performance during the next stage of the assessment.

Standardized testing and functional performance assessment (functional capacity evaluation) is usually performed in a clinical setting. Objective testing and skilled observation are used to measure factors such as work aptitudes, strength, flexibility, motor skills, perception, activity tolerance, ability to remember and follow directions, and work behaviors. Ability to stand, walk, sit, kneel, squat, reach, lift, and manual dexterity, or other factors specific to the individual situation are measured. In some cases the occupational therapist performs a work site job analysis or sets up simulated work. The occupational therapist may obtain consent to interview other family members, work associates, or teachers particularly in cases of brain injury where individuals may lack the ability to evaluate their own occupational performance.

There are numerous names for functional capacity evaluations and many variations on techniques. Some approaches use “high tech” equipment and computer generated reports. Despite manufacturer’s claims there is little evidence that these machines meet requirements for reliability and validity or that they are any better than simpler methods. Focusing too much on strictly physical components can blind the assessor to important psychosocial, environmental and other factors that are critical for the individual.

The report

The assessment results are summarized in a clear report which describes the individual’s functional abilities as they relate to self-care, leisure and productivity (including paid and unpaid work), nature of impairment and the impact on their capacity to carry out specific life tasks. The report also comments on the impacts on other family members. Where appropriate, the occupational therapist makes recommendations regarding training, treatment, modified or adapted work, ergonomic alterations, housing or care needs, assistive devices, equipment or techniques. The occupational therapist can also prepare a cost of future care report detailing the need for equipment, medical services, support services, adapted housing, transportation, clothing, education or other needs and their associated costs.

Next issue

In the next issue of The Expert Witness, Part II of this article will discuss the specific relevance of the occupational therapist’s expertise in a litigation setting and compare it to the role of other experts. A case study will provide an example.

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Lorian Kennedy has an M.Sc. degree from the University of Alberta, is a registered occupational therapist and the principal of Lorian Kennedy Consulting. She is an adjunct assistant professor in the Occupational Therapy Departments of the University of Alberta.

The “Lost Years” Deduction

Posted on By economica

by Christopher Bruce

This article first appeared in the spring 1997 issue of the Expert Witness.

In a series of recent cases, defendants have argued that if an injury has shortened the plaintiff’s expected work life, full compensation should not be paid for the earnings forgone during the “lost years.”

Resolution of this issue has forced a re-examination of the legal foundations of personal injury damage assessment. At one extreme, restitution has been invoked to support the position that the plaintiff should be compensated for the full value of the income which would have been earned. In Andrews v. Grand & Toy (1978), 83 D.L.R. 452, for example, Dickson J. ruled that compensation must be awarded for “… the loss of that capacity which existed before the accident.” (at 469) This also appears to be the ruling in most American jurisdictions.

At the other extreme, McLachlin J., in Toneguzzo-Norvell v. Burnaby Hospital (1994) 1 S.C.R. 114, expressed concern that the plaintiff’s estate not be unjustly enriched. Her position was that, as the plaintiff would be adequately cared for from other heads of damage (e.g. the cost of care award), any funds paid in compensation for lost earnings would simply benefit the plaintiff’s heirs. Such enrichment may be sufficiently contrary to public policy that it would override the principal of restitution and justify the denial of compensation for lost earnings.

Legal decisions can be found to support virtually every position on the spectrum between these two extremes. Only two that I have been able to identify adopt Madame Justice McLachlin’s reasoning. In both Granger v. Ottawa General Hospital (June 14, 1996, Doc. 18473/90, Ont. Gen., Div.) and Marchand v. The Public General Hospital, ([1993] O.J. No. 561 (Ont. Ct. – Gen. Div.)), the plaintiffs were awarded only that portion of their incomes which would have been devoted to savings – apparently on the view that it was only that portion which would be lost by the plaintiffs’ heirs. (In Granger, savings were held to amount to 30 percent of earnings, whereas in Marchand 15 percent was assumed.)

Nevertheless, most experts testifying in Canadian cases have relied on the principle which underlay Justice Dickson’s decision in Andrews – that the plaintiff is to be compensated for the pleasure which will be forgone during the lost years. In particular, at least since Semenoff v. Kochan, (1991), 59 B.C.L.R. (2d) 195 (B.C.C.A.), there appears to have been agreement that the plaintiff should be compensated for that portion of his/her income which remains after deduction of “personal living expenses” or “necessities.” In principle, the pleasure which consumption of this residual would have provided during the years which have been lost can be replaced by consumption during the plaintiff’s now-shortened lifetime.

Where the experts disagree is with respect to the measurement of “personal living expenses.” First, although most of the reported cases assume that all expenditures on food, shelter, clothing, transportation, and health care are “necessary,” two alternative views have been proposed concerning the size of the family on which to base the calculations.

In both Semenoff, and Sigouin v. Wong, (1991) 10 C.C.L.T. 236 (B.C.S.C.), it was assumed that the plaintiff would have married and, therefore, it was only that portion of family income which would have been spent on the plaintiff which should be deducted. On that basis, the plaintiff was awarded 67 percent of the income which would have been earned during the lost years.

In subsequent cases – including Toneguzzo (where Madame Justice McLachlin did not apply her own argument concerning unjust enrichment), Pittman v. Bain, (1994) 112 D.L.R. (4th) 482 (B.C.S.C.), and Webster v. Chapman [1996] M.J. No. 384 (Man. Q.B.) – the courts have based their awards on the percentage of personal income which would have been devoted to necessities. This has led to awards lying between 50 and 60 percent of the lost years income.

A second source of disagreement concerns whether income taxes should be included as personal expenses. In a number of recent cases, the defendants have argued that taxes should be considered in this way. Should the courts agree, awards would fall to approximately 25 percent of the lost years income.

Finally, it has been argued that it is inappropriate to assume that all expenditures on broad categories, such as food and shelter, are “necessary.” According to this view, for example, only a small fraction of the expenditures which individuals devote to transportation could be considered to be necessary. Whereas individuals with incomes of $50,000 commonly spend $8,000 to $10,000 per year on automobiles and travel, they could meet their “necessary” travel needs by spending $500 to $1,000 on public transit.

All expenditures above the latter minimum could be considered to have provided pleasure. Hence, on the doctrine of restitution, they should be recoverable. When this approach is applied, it is found that it is only 15 to 30 percent of income which is devoted to necessities, leaving the remaining 70 to 85 percent to be compensated in damages. (This issue is discussed in greater detail in an earlier “Lost Years” Deduction article)

It is not yet clear what the resolution of these issues will be. All that can be said with certainty is that they have not yet received a full airing in the courts. My expectation is that in cases in which the plaintiff is not severely brain damaged, between 25 and 50 percent will be deducted for necessities during the lost years. In cases of severe brain damage, in which the plaintiff may not be able to benefit from an award for the lost years income, it is possible that the courts will follow Granger and Marchand and award only 15 to 30 percent of that income.

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Note: This article has been reprinted with permission from The Lawyers Weekly (March 28, 1997).

Christopher Bruce is the President of Economica and a Professor of Economics at the University of Calgary. He is also the author of Assessment of Personal Injury Damages (Butterworths, 2004).

Determination of Contribution to Household Services

Posted on By economica

By Therese Brown

This article was originally published in the spring 1997 issue of the Expert Witness.

Quantification of an individual’s, or an estate’s, loss of household services in such a way as to return the plaintiff to their pre-injury status involves the estimation of hours contributed prior to the accident, currently, and in the future. Determination of this loss would appear to be a clearcut matter of identifying the individual’s contribution prior to the accident, and reducing this pre-accident contribution, in the case of an injured party, to the extent that s/he is still able to perform those duties. In reality, however, the process of estimating, after the fact, the extent to which an individual has contributed to the myriad duties required to keep a household functioning, from meal preparation to maintenance of the physical structure itself, is a matter that is neither straightforward nor obvious. Routes to procuring this type of information include undertaking individualised data collection, and accessing general statistical information. This article discusses various sources of information concerning household services including a review of the factors which influence household labour activities. In addition, pitfalls inherent in each method will be analysed and suggestions made as to the steps that may be taken to maximise the accuracy of the data.

Individualised Data Collection

When there is reliable information available detailing the extent of the individual’s past and current (in the case of an injured plaintiff) household labour contribution, the preferred source of data is that which is specific to the particular individual. Incorporation of factors unique to that individual should increase the accuracy of the quantification of the loss. With this method, the plaintiff, or family members of the deceased, are asked to provide a breakdown of the household activities which were undertaken prior to the accident, by completing a Household Services form. An injured plaintiff is also asked to detail the extent to which s/he is able to participate in household activities currently, as well as information about her/his contribution immediately after the accident and in the interim period if that information differs from that in the other two periods.

Family members or replacement help may assume some of the household responsibilities for which the injured person or deceased was previously responsible. A tally of the hours of household services performed in either case is not necessarily an accurate estimate of the number of hours requiring replacement. There is no assurance that replacement help, due to the expense of that service, or family members, due to lack of time, can assume all of the duties which the individual is now unable to complete. This type of information would, therefore, only be used to quantify the loss if other individual-specific information was unavailable.

There are potential hazards inherent in this type of information gathering One commonly noted quandary is the tendency to overestimate the individual’s contribution. It is important to recognise the difficulty of estimating the time devoted to the functioning of the household in a prior period It is useful to remember, as well, that an individual’s view of this type of contribution is based on their personal perspective, making this type of estimate very subjective in nature. Also, time may inadvertently be allocated more than once, as more than one household activity may be performed concurrently. For example, an individual may prepare a meal while attending to a child.

Various steps can be taken to ensure that the information elicited is as accurate as possible. First, to circumvent the possibility of double-counting, we advise the individual who is completing the form to list the activity that they consider to be their primary activity at that time, and to disregard any secondary activities which they may also be involved in. Also the respondent is asked to consider the hours devoted to household activities in the context of the entire day. It is readily apparent, should the total exceed 24 hours, that there is a need for adjustment. It may well be that the individual made a contribution which exceeds that of the average individual. If there are sound reasons for this assumption, however, the factors which create that unusual situation must be stated to support that claim. If, on the other hand, aspects unique to that individual do not justify an above-average claim an investigation of this anomaly is necessitated.

Data Analysis Based on National Statistics

Statistical averages detailing the number of hours contributed by adult Canadians to household services is available from surveys conducted by Statistics Canada on the time usage of Canadians. The most recent of these, the General Social Survey of 1992, relies on the diary approach to measure the use of time. The diary approach, which requires that survey participants complete a chronological log of their activities, is generally considered to be more accurate than the direct approach, which simply asks those surveyed to recount the amount of time which they spent at various activities over a particular reference period (Households’ Unpaid Work: Measurement and Valuation, Statistics Canada Publication 13-603E, No. 3, 22-23). Nearly 9,000 survey participants, who were required to be 15 years of age or older and living in private households, responded to the 1992 survey, which was conducted over a twelve month period on different days of the week, to ensure representative results. The unpaid work reported by those surveyed is classified into five broad areas. The first four: domestic work; help and care; management and shopping; and transportation and travel are said to comprise household work.

The breakdown provided by Statistics Canada on this survey information provides an analysis of household activities according to gender, labour force status, family and child status, and age (with those 15 years of age and older separated into five different age groups). We are, therefore, able to use average estimates across those individuals with characteristics most similar to those of the plaintiff or deceased over various stages of their life.

Factors Affecting the Amount of Unpaid Work

The principle determinants of an individual’s daily activities have been found to be their main activity (ie. full- or part-time employment, student, not employed), sex, marital status, the presence of children (the age of the youngest if there are children), and, for seniors, living arrangements. Factors such as labour force status and the presence of children influence the time spent on unpaid work, particularly for women (Households’ Unpaid Work: Measurement and Valuation, Statistics Canada Publication 13-603E, No. 3, 48). David Ciscel and David Sharp (Journal of Forensic Economics, 8(2), 1995, 120-21) also note the importance of residency and consumption status as factors that affect time use. They note that for some families home ownership may induce an increased commitment to household labour of 10 percent. The authors make an inference about a family’s consumption pattern by assuming that those families who eat together more than four days a week tend to substitute household production of domestic services for the purchase of those services in the market. Not surprisingly, those families who substitute household for market production devote more hours to household activities, especially in households where only the husband participates in the paid labour force. In families of that type, the number of hours which the wife commits to household work is almost double that of other families.

Remaining Problematic Issues

Another issue which may be problematic is the determination of the proportion of household activities that is compensable, in the instance of household activities which contribute to the functioning of the family home but may also be classified as a hobby for the individual. The example of an individual who has participated in gardening as part of her/his contribution to the household illustrates this well. It may be argued that a portion of the time spent on this activity constitutes a loss of enjoyment rather than a loss of household services, implying a non-pecuniary loss. Following through with this approach necessitates the determination of what portion of the loss of gardening ability can be claimed under the head of damages of the loss of household services.

A different approach is suggested by Janet Yale, in her article “The Valuation of Household Services in Wrongful Death Actions” (University of Toronto Law Journal, 1984, 296). She contends that the enjoyment derived by an individual as they execute a particular activity has no impact on the loss experienced by her/his family when s/he is no longer able to undertake that activity. This implies that the lack of fresh garden produce results in the same loss whether the individual considered gardening to be an onerous task or an enjoyable activity.

The potential for complexity becomes apparent if we extend this illustration of the avid gardener. It may be argued that the value of the fresh produce provided to the family is significantly less than the value of the time that the gardener invested in her/his production. This begs the question of whether compensation is required for the full extent of the time spent at this activity. While this may be an interesting point, in theory, it would be unusual for the estimated value of an individual’s time to vastly exceed the value of her/his production, thus, impacting the total claim. This situation would have to be dealt with, on a case by case basis, when it does arise. In this example, for instance, support for the claim which would include all hours spent gardening could be found by considering the value placed by that particular family on the loss of the individual’s ability to garden. This may be achieved by estimating the cost of buying produce that meets the standard of quality that the individual and their family had been accustomed to, for example pesticide-free, fresh produce which has not been damaged in transport. In the instance that support could not be found to support the claim, in an extreme case, then a downward adjustment of time spent on this activity may be warranted, referring to average statistical information.

When First-Best Is Not Possible

When quantifying the loss of household services, at Economica, we prefer, to the extent that such information is available, to rely on individual-specific information. Even when this information is available its usefulness may be limited to a certain period. We may, for instance, base our quantification of the plaintiff’s loss on the response to our Household Services form, as it applies to the current period. This information, however, may not be relevant for future periods. For instance, if the individual had young children at the time of the accident, the household labour required for that period would be greater than that required for subsequent periods but it would be almost impossible for the individual to project the exact magnitude of the difference. In that case, the percentage decrease which the average individual, with characteristics similar to the plaintiff, experiences when undergoing a similar change in family status would be applied to the base number of hours that the plaintiff currently spends on household services. This allows us to project future requirements based on information specific to that particular plaintiff.

Lifestyle changes aside, there are other instances when average statistics must be relied on to project the future requirement of a plaintiff. If for instance, it had been the plaintiff’s intention to change her/his employment status from full-time to part-time work their contribution to the household would have changed in a way that would be difficult to estimate. The percentage difference on the time spent on household activities by a full-time compared to a part-time employee could then by applied to the information specific to the plaintiff.

Conclusion

To summarise, the preferred method in estimating the extent of an individual’s contribution to household services is to rely on data that is specific to the plaintiff, or the deceased in the case of fatal accident actions. While there are potential weaknesses in this method, as previously discussed, steps can be taken to minimise the potential for inaccurate estimates. To this end, based on past experience and current research, we have revised our Household Services form to make it a more useful tool in eliciting pertinent information. There are instances when this information is unavailable, or when it will not be relevant at some future point, for example, due to lifestyle changes. In these cases, average statistics form the basis for quantification of the loss or adjustment of individual-specific information. In situations where average statistics must be used exclusively, we suggest that this generic information can be used as a reasonable substitute with confidence. This generic information should, however, be viewed primarily as a tool to support or adjust individual-specific data, which remains the data source of choice.

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From 1996 through February 1998, Therese Brown was a consultant at Economica.

Lost Years Maybe, Lost Care – Never

Posted on By economica

by Heber G. Smith

This article was originally published in the spring 1997 issue of the Expert Witness.

Whilst the debate over methodology of compensation for the “Lost Years” may rage on, there does exist a simple solution for providing care for a claimant whose injuries (or for that matter, other health ailments) may result in a diminution of life expectancy.

Compensation for the cost of future care of an individual whose life expectancy is demonstrably impaired, need obviously be less than that required for someone whose anticipation of a future lifetime is normal. But who is to say that he or she will live that long? What happens if he/she lives longer?

On the flip-side of the life insurance industry’s practice of “rating-up” or declining an unhealthy applicant for life insurance, some insurers have a practice of improving the income provided by a fixed premium for an annuity applicant deemed by the insurance underwriters to have little likelihood of living to a normal life expectancy. The results of this practice may reduce dramatically the cost of providing “guaranteed-for-life” future care. Cases involving severe injuries have lead some insurers to rate-up prospective measuring lives (the person on whose life the payments are determined) by as much as and in some cases more than 50 years. As one might imagine, the saving inherent in providing lifetime payments for a 65 year old claimant as opposed to a 15 year old can be consequential.

To further reduce the cost is the flexibility that Revenue Canada confers on the structured settlement annuity. Since the casualty insurer is the owner and beneficiary of the supportive annuity and since paragraph 1400(e) of the Income Tax Regulations governing reserving taxation of insurers permits the tax free ownership of the annuity, it is possible to purchase more than one annuity to support the periodic payment stream. This permits the structured settlement annuity broker to ferret the most favourable components of a required stream from a number of companies; i.e. select the most favourable interest rates from one or more companies and the most favourable (negative) life expectancy offering from another.

Revenue Canada now permits a new twist in it’s heretofore “irrevocable and non-commutable” requirements under IT-365R2. Upon the death of the claimant the cost of future care payments under a structured settlement need not vest indefeasibly in the claimant’s estate. Since the death of the claimant negates the need to provide for care, Revenue Canada now takes the position that the future guaranteed payments may revert to the defendant insurer and that the insurer may commute those payments. Comforted by the fact that it may recover a significant percentage of its cost of future care outlay, the insurer may be somewhat more favourably predisposed to negotiate other components of the action.

Very seldom do people die at the “right” time. The problem becomes magnified in respect to a personal injury action since the defendant may overcompensate a victim that dies too soon and a victim that lives too long may find him/herself without adequate resources to provide for care at an age when it may be most imperative to so. The annuity is truly a no-waste solution.

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Heber Smith is the principal of Smith Structured Settlements Inc. a structured settlement and annuity brokerage with offices in Calgary and Vancouver. He is also a partner in Structured Settlement Software, a firm that provides tax driven software to the American structured settlement industry.

Spousal Influence on the Decision to Retire

Posted on By economica

by Scott Beesley

This article was originally published in the spring 1997 issue of the Expert Witness.

The decision to retire is influenced by several factors including income level, the available pension, company policy, legislation, employment opportunities, the need to help care for family members, health and the status of the spouse. Some interesting Canadian survey data and analysis regarding this last factor can be found in a book entitled The Road to Retirement, by Grant Schellenberg for the Canadian Council on Social Development (1994). A detailed statistical treatment of the issue, using U.S. data, is provided in the working paper Retirement in a Family Context: A Structural Model for Husbands and Wives by Alan Gustman and Thomas Steinmeier (National Bureau of Economic Research: Working Paper #94-4). We provide here a brief summary of the results reported in these studies and their implications for the calculation of lost future income.

Schellenberg listed four particular items which together constituted the spouse’s influence in the decision to retire. They were: the timing of the spouse’s retirement; the spouse’s health; the spouse’s income; and finally, pressure from the spouse to retire. His survey noted, for each item, the percentage of retired men and women who said that issue had been important in their decision to retire. The most notable finding was that for all four items, men were far less influenced by their spouse’s situation than were women. Less than 5 percent of retired men, for example, said that the timing of their spouse’s retirement had influenced their own timing, yet 22 percent of retired women had considered their husband’s situation in making their choice. The three remaining spousal issues were important to about 10 percent of women and an even smaller 2 to 6 percent of men.

An interesting change appeared when the same questions were put to men and women who, unlike the group discussed above, had not yet retired. This sample put a much higher weight on spousal considerations than those who had already left the workforce. Forty-five percent of women said that they expected their spouse’s time of retirement to affect their own, up from 22 percent, while the number for men rose from approximately 3 to 14 percent. The fraction of wives listing their husband’s health and income as important determinants rose even more, to about 40 percent. Similarly, the number of men who listed spousal health rose from 6 to 22 percent, while spousal income was expected to be important by 12 percent, which, while still small, is a significant change from the minuscule 2 percent reported by the retired group. The data quoted clearly reflect, in our view, the much increased importance of women’s income in total family income. One implication is that studies of the factors which determine retirement age will probably underestimate spousal influence, to the extent they are based on older data.

The American study by Gustman and Steinmeier (G & S) was a sophisticated attempt to quantify the effect of one spouses’ retirement decision on the other. In a somewhat striking contradiction of the results given for Canada by Schellenberg, G & S state that “There is some suggestion in the data that the wife’s retirement decision is not strongly influenced by the husband’s, but the husband’s decision is more strongly influenced by the wife’s.” One possible explanation is familiar to those who analyse survey data: Individuals do not necessarily do as they say they will, or (in hindsight) they report reasons for decisions which do not accurately reflect the real choices they made. Hence, while men (in the Canadian survey) might report that their wife’s decision to retire was or will be an insignificant factor in their own decision, the U.S. data, based on actual behavior rather than survey responses, suggests they are influenced, to a statistically meaningful degree, by their wives’ situation. It is perhaps not surprising that men would prefer to say their decision was independent of their wives’ status, if the alternative is to grant that they did not want to be alone at home while their wives continued to work. The authors of the U.S. paper suggest explicitly that perhaps men are unwilling to face housework alone, and they estimate that the effect of “wife being retired” is that husbands then behave as if they were two years older, and are hence more likely to retire themselves. The average change in time of retirement is found in a simulation to be only five months, however.

Another finding of G & S was that when the retirement decisions of couples are treated as jointly determined, a moderate tendency to retire together (or closer than would otherwise be expected) is evident. The alternative to joint determination would be assuming each spouse takes the other’s retirement age as given when determining their own, but this tends to lead to an overestimation of spousal influence.

Finally, we note that, though the tendency to retire at times which are closer together than the couple’s age difference was statistically significant in G & S, this factor is still much less important than the major issues listed at the beginning of this article, such as current income, available pensions, company and government policy and so on. It is these issues which we have historically considered when setting the retirement age in our calculations of lost income. No change in methodology is warranted as yet, though the Canadian survey suggests that spousal influence is increasing and may have to be accounted for in some future cases. If further research suggests that the “spousal effect” is (or will be) likely to produce differences of over a year on average, we can justify changing our assumptions at times. For example, if there is a strong financial incentive for the woman to retire at 58, and her husband would then be 60, we might plausibly assume he would retire immediately, rather than waiting until age 62, if his own income vs. pension calculation was not very age dependent. While this change would be minor for a 30 year old plaintiff (or survivor, in a fatal accident case), it could be quite important for someone in their 50s.

Of course, it would also be interesting (to an economist, at least!) to see if the above-mentioned difference between the opinions expressed in survey responses and the behavior found in real data is resolved.

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Scott Beesley is a consultant with Economica and has a Master of Arts degree (in economics) from the University of British Columbia.

BOOK REVIEW: John Barnes, Sports and the Law in Canada, 3rd Edition (Butterworths: Toronto) 1996

Posted on By economica

Reviewed by Christopher Bruce

This article was originally published in the spring 1997 issue of the Expert Witness.

John Barnes, B.A., B.C.L. (Oxon.) barrister, is co-director of the Sports Law Project at the University of Western Ontario. He has drawn on 20 years of experience studying sports law on three continents to write an intensively-researched yet eminently readable account of the state of sports law in Canada.

The first nine chapters of the book deal primarily with issues of contract and labour law in major league sports. For the sports junkies among us, this makes fascinating bedtime reading. But it offers little to those whose primary vocational interest is personal injury litigation.

Where the book should justify its purchase price to civil litigators is in Chapter 10, “Sports Injuries: Criminal and Civil Liability.” The 50-page section on civil liability contains over 350 footnotes – many of which list numerous references to books, articles, and cases. Analyses are provided of: intentional torts; assumption of risk; liability of participants (player sues player and spectator sues player); liability of facility operators (occupier’s liability to both participants and spectators; and owner’s liability in negligence); liability of schools, coaches, officials, and parents; liability of such organisations as amateur associations and professional teams; and medical negligence.

In each case the coverage is thorough and informative. Particularly commendable, in my view, is the index which not only provides the usual headings, such as “contracts” and “negligence,” but also allows the reader to search by sport – golf, hockey, rugby, football, gymnastics, etc. – and by type of injury.

My only complaint is that there is no discussion of the issues involved in the calculation of damages in sporting cases. This is only a minor complaint because there is, in my experience, only a small number of situations in which sports injuries raise unique concerns. Nevertheless, some recognition of these situations would have been useful.

One such case occurs when the plaintiff is a minor who claims that the injury has prevented him/her from becoming a professional athlete. As those with only a passing interest in sports will know, it is rare for even the number one draft pick to have a successful career in the NHL. How then to deal with the sixteen year-old who is third in scoring on a low-ranked junior A or university hockey team? Or the twenty year-old who is ranked twentieth among NCAA golfers? This is an issue which the courts have not faced clearly.

This minor quibble aside, I recommend Barnes’ book highly to anyone who is called upon to litigate a sports-related personal injury action.

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Christopher Bruce is the President of Economica and a Professor of Economics at the University of Calgary. He is also the author of Assessment of Personal Injury Damages (Butterworths, 2004).