Earning Capacity: Highest and Best, or Something Else?

Landsea, William F. and Robert A. Male. 2010. “Earning Capacity: Highest and Best, or Something Else?”  The Earnings Analyst  11: 22-36.


A person’s earning capacity is an important element in choosing occupations, personal financial decision-making and lifestyle planning. Earning capacity is also an important issue in the litigation of economic damages. At a point in time, individuals may have the ability to succeed at a variety of occupations, each with a varying set of perceived effort and reward expectations. The highest and best use of a worker’s earning capacity can be defined as those legal and attainable occupations that maximize the worker’s economic rewards. Earning capacity can also be defined as the application (use) of the person’s mental and physical assets toward the acquisition of pecuniary and lifestyle rewards and goals. This definition requires consideration of the person’s perceptions of self and the world of work, as well as past, current, and future opportunity cost and utility choices. Thus the highest and best use of a worker’s earning capacity is found to have four elements that must be understood in order to reasonably determine that person’s earning capacity. Two sources are suggested for determination of highest and best use of earning capacity: fact (evidence) and opinion (research and evaluation analyses). Both are supported by economic theory.


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