September 2018

Higher education can provide a host of benefits. In certain industries, opportunities for increased pay are directly tied to credentials. Many assume that such outcomes uniformly favor additional education from a financial perspective. In a typical lost earnings case, many might similarly expect that the more education the Plaintiff has or is expected to obtain, the more lost earnings Plaintiff will suffer (all other factors being equal). However the answer is not always clear cut. The ultimate financial impact of higher education to an individual will vary based on a number of factors.

The following table summarizes data published by the U.S. Bureau of Labor Statistics (“BLS”) which demonstrates that median annual earnings do increase with higher education levels.

 

Type of Entry-Level Education Median Annual Wage (2017)

Professional degree

$94,796

Doctoral degree

$90,636

Master’s degree

$72,852

Bachelor’s degree

$60,9962

Associate’s degree

$43,472

Some college, no degree

$40,248

High School diploma

$37,024

Less than high school diploma

$27,040

Note: BLS “median usual weekly earnings” multiplied by 52 weeks provides
median annual wage.

 

However, this pattern may not result in meaningful value of future earnings differences amongst different education levels when appropriately accounting for the following items:

1. Upfront investment cost of obtaining higher education

2. Opportunity cost of obtaining higher education – one forgoes the income he/she could have earned during the time obtaining higher education

3. Average expected worklife

4. A proper discount rate – future amounts are reduced to present value

The following provides a simplified example of how different education levels might impact a lost earnings calculation:

A college student is severely injured and rendered unable to work. There is evidence that she intended to pursue a Master’s degree after college. Plaintiff’s lawyers have asserted that she is entitled to significantly more lost earnings because “statistics show” that those with a Master’s degree earn more.

In evaluating Plaintiff’s claim, one must appropriately account for how the different costs and benefits track over Plaintiff’s expected worklife. A present value discount recognizes that a reasonable rate of return could be earned by investing the up-front monetary award over the damage period. The timing of individual components is important when applying the present value discount. For instance:

1. While Plaintiff is expected to earn more, the cost of her additional education must be offset. This additional investment occurs at the beginning of the endeavor, while the earnings benefit occurs subsequently. Accordingly, the present value impact of the education cost is proportionately higher.

2. During the time attending the Master’s program, Plaintiff would forgo the income she could have earned. Again, this occurs in the earliest periods, while the earnings benefit occurs subsequently. Accordingly, the present value impact of the foregone earnings is proportionately higher.

3. Plaintiff’s average expected worklife may change based on the different factors.

When applying (i) the annual median incomes for a Master’s and a Bachelor’s degree described above, (ii) an average annual cost of a Master’s program of $25,000 (incurred for two years), (iii) a median worklife expectancy at the time of obtaining the degrees, and (iv) a 5% net discount rate, a similar outcome occurs despite the educational differences:

The present value of future earnings from a Masters degree is similar to a Bachelors degree

In this example, any earnings boost from the additional education is largely consumed by the cost of the education and the timing of the earnings differentials between a Bachelor’s and a Master’s degree. When such appropriate statistics are ignored, there is risk of an impermissible windfall in a Plaintiff’s lost earnings claim.

Fulcrum Inquiry assists lawyers with economic damages associated with injury and employment matters, through both direct employment of experts and with our interactive settlement tool.