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Calculating compensation for loss of future earnings: estimating and using work life expectancy

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Where personal injury results in displacement and/or continuing disability (or death), damages include an element of compensation for loss of future earnings. This is calculated with reference to the loss of future expected time in gainful employment. We estimate employment risks in the form of reductions to work life expectancies for the UK workforce by using data from the Labour Force Survey with the purpose of improving the accuracy of the calculation of future lifetime earnings. Work life expectancies and reduction factors are modelled within the framework of a multiple-state Markov process, conditional on age, sex, starting employment state, educational attainment and disability.

Keywords: Disability-adjusted multipliers; Dynamic multiple-state Markov model; Ogden tables; Personal injury compensation; Work life expectancy (reduction factor)

Document Type: Research Article


Affiliations: 1: City University, London, UK 2: Cardiff Business School, UK

Publication date: 2008-10-01

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