TEA: Volume 3 (2000)

TEA.3.0 – 2000. The Earnings Analyst 3: 142pp.

TEA.3.1 – Estimating the Loss of Social Security Benefits.  James D. Rodgers.  One of the legally-mandated fringe benefits provided to virtually all U.S. workers is coverage under the Old Age, Survivors, Disability and Health Insurance (OASDHI) system, commonly known as “Social Security.” When a worker is wrongfully terminated, injured or killed, forensic economic experts often value the loss of these benefits using the employer’s share of the Federal Insurance Contribution Act (FICA) tax (currently 7.65%) levied on estimated lost earnings; or, excluding the 1.45% Medicare portion of this tax, at 6.2% of estimated lost earnings. Because the Social Security system is so complex, the simplicity of this “FICA tax method” of valuing lost Social Security benefits is very appealing. Unfortunately, this valuation method is unlikely to correctly measure losses vis-à-vis the Social Security system. Following a review of some of the related forensic literature, this author estimates the size of the measurement error arising from using the FICA tax method for death cases. The magnitude of the error is exposed by first describing how to estimate the true financial losses of Social Security retirement benefits that result from a loss of earnings, and then by showing that the FICA tax method gives an accurate estimate of these losses in only a minuscule portion of the situations where forensic economists are called upon to supply damage appraisals. Examples illustrating the quantitative size of the errors that result from using the FICA tax method are shown.

TEA.3.2 – Cost Levels and Trends: Using the ECI and ECEC.  Melville Z. Wolfson and Shael N. Wolfson.  In this paper the authors examine the Employer Cost Index (ECI) and the Employer Costs for Employer Compensation (ECEC) data for state and local government public sector employment. For the ECI, its purpose is to extend the analysis of cost trends to alternative indicators and to identify forecasting equations that help predict rates of change. The analysis examines the components of the ECEC and calculates rates of change for that series, as well. A case example compares the quantitative results that alternative methods produce.

TEA.3.3Should the Personal Consumption Deduction be Based on Family Income or the Decedent’s Own Income.  Thomas R. Ireland.  The decision in Howard v. Crystal Cruises Inc., 41 F.3d 527 (9th Cir. 1994) addressed a narrow issue in forensic economic analysis–whether the personal consumption deduction in a wrongful death action should be based on the income of the family of the decedent or be based on only the income of the decedent. This issue is narrow enough that it had been addressed in the literature of forensic economics only by Gilbert in 1991, Bruce in 1997 and in a series of three short papers by Ward, Trout and Ireland. Subsequently, Paul Taylor found specific discussion of that issue in the Howard case, which provides the central example for this paper. The second section of this paper discusses the Howard case itself. The third section discusses the existing literature on this subject, which consists of papers by Gilbert (1991), Bruce (1997) and the 1999 papers by Ward, Trout and Ireland. The fourth section discusses a set of further unresolved research questions posed by Howard for which family economics literature provides that at least partial answers. The fifth section provides a brief discussion of Overly v. Ingalls Shipbuilding, Inc., 74 Cal. App.4th 164 (1999), a California case that cites Howard.

TEA.3.4The Value of Active Leisure.  Allyn B. Needham and Shannon H. Shipp.    Economic men and women are supposed to seek to maximize their utility. But, not everyone maximizes utility in the same way. “There are those for whom income and wealth and their public manifestations or private contemplation are the ultimate goal and satisfaction; there are others for whom they are not” (Galbraith 1999, p. 28). One group finds fulfillment in making money and accumulating assets, while another may find it by providing household production and childcare for their family. Although they may not agree with each other’s choices, both sets of behavior may be termed rational. To put this in mathematical terms, many textbooks provide an indifference curve demonstrating the tradeoff between work (income) and leisure activity. Workers have two choices for maximizing utility, income or leisure. Income is obtained partly by working. Leisure involves all activity that is not market work. In this article the authors examine the explicit and implicit value of work and leisure, and the choices made to pursue either cases.

TEA.3.5Adjusting Work-Life Expectancy Calculations for Earning Capacity Appraisals in Extraordinary Circumstances.  George A. Barrett.    The estimation of pre-injury work-life expectancy is one of the most critical duties of the forensic economist. Due to the importance of accurately assessing work-life, numerous methodologies have been developed to calculate how long an individual would contribute to the working economy, had it not been for the injury. Despite the development of these new methodologies in establishing work-life expectancy, most models still do not permit the economist to utilize his or her judgement in applying scientific data to the facts of a particular case. This paper will describe why such judgement is not only appropriate but also necessary to accurately appraise pre-injury earning capacity.

TEA.3.6The Mexican-White Earnings Gap in the United States: Decomposing Human Capital Differences from Labor Market Discrimination.  David C. Toppino and Collin Wilkerson.    The use of National Longitudinal Study of Youth (NLSY) data in this analysis allows for the differentiation of Mexican from White workers and a focus on only those workers born in the United States. This feature significantly reduces contamination of results from the debilitating human capital effects due to a lack of English language proficiency, foreign education, and many other acculturation factors. Specifically, the massive increase in Hispanic immigration in recent years coupled with the low initial wages that migrants typically command in the open, competitive labor market reflect a deterioration in aggregate human capital. The analysis in this paper is limited to Mexican workers born in the United States and White workers. Mexicans constitute the largest group of Hispanics in the United States; yet they are the lowest paid ethnic group. The second section of this article describes the primary research studies comparing White to Mexican wages. The third section gives an overview of the NLSY data source and the independent variables selected. The fourth section describes the socioeconomic characteristics of both groups. The fifth section details the wage patterns for each comparison group and explores the factors that contribute to market wage differences across groups. The sixth section decomposes the ethnic wage gaps and examines the identified reasons for the wage gap for both Mexican male and female workers. The seventh section highlights some implications this study holds for applied forensic economists. And, the last section presents the summary and conclusion.

TEA.3.7 – Book Review: “Assessing Family Loss in Wrongful Death Litigation: The Special Roles of Lost Services and Personal Consumption” by Thomas R. Ireland and Thomas O. Depperschmidt (Lawyers & Judges Publishing Co., Inc., 1999)  G. Frank Lawlis.    Book Review

TEA.3.8Book Review: “Life and Worklife Expectancies” By Hugh Richards and Jon R. Abele (Lawyers & Judges Publishing Co., Inc., 1999).  Shannon H. Shipp.    Book Review

TEA.3.9 – Product Review: “Forensic Economics Calculators” (Lawyers & Judges Publishing Co., Inc.).  Thomas R. Ireland.    Product Review .