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Earnings in the Lost Years

 

Impact of Disability on Earnings



Persons who suffer from ongoing and permanent residual disabilities may be limited in their scope of employment, i.e., the range of occupations they potentially could access may be reduced. Such a restriction often is cited as an example of increased occupational vulnerability, which may be one indicator of a loss of opportunity / loss of earning capacity. In such a situation, the person will have lost a set of fall-back options (sometimes referred to as “stopgap employment”) that otherwise might have been available if employment in the preferred occupation is lost. The results of work capacity evaluations and vocational assessments usually are helpful in determining if this type of loss has arisen.


Disabilities also may make an individual less attractive to the average employer than a comparable individual who is not impaired in any way. This type of labour market problem frequently is referred to under the category of loss of competitive advantage(s).


Some examples of the effects of disabilities on earning capacity


Research on the economic impacts of disabilities indicates clearly that increases in occupational vulnerability and/or losses of competitive advantages are associated with losses of employment incomes. Various Canadian studies (such as, for example, the report “Labelled Disabled and Wanting to Work” in the Royal Commission Report Equality in Employment - Research Studies, April 1985) have shown higher unemployment rates, lower participation rates, and lower earnings from employment among the disabled.


Based on our analysis of 1991 Census/1991HALS and 2001 Census data, we routinely provide statistical information in the following areas:



Impacts of Strength Limitations on Access to Employment


An overview of the numbers of jobs which may be closed to an individual as a result of strength limitations arising from an injury provides a general perspective which could assist the assessment of losses of capacity. The National Occupational Classification (“NOC”) system’s Career Handbook provides descriptions of the physical strength demands of jobs (as well as an array of other job characteristics). We have entered the strength characteristics in an occupational database that also includes Census information on full-time, full year employment by province and by sex. These occupational data then were sorted to aggregate them into four skill groups(1) with strength requirements that are described as heavy, medium, light, or limited.


Generally, we provide estimates of numbers of jobs accessible before and after imposing a strength limitation, by level of skill. In some cases, a vocational assessment may be available that details the type of work or specific jobs a person could have done but for the injuries, and the type of work or specific jobs that he or she can do given the injuries. In these cases, estimates of numbers employed and of average earnings in the “without injury” and “with injury” occupational arrays can be provided.


Impacts of Disabilities on Average Employment Probabilities and Earnings


Little quantitative guidance on the impacts of disabilities is available from currently available research studies, and what is available is not specific to those who remain capable of working. Thus, statistical information on labour market outcomes of the disabled population typically applies to all of the disabled rather than to the smaller subset of those who are not prevented from working by the effects of their disabilities.


Given the lack of general statistical information that could be considered useful in estimating an injured person’s residual earning capacity, we have been conducting our own analysis of data pertaining to the disabled since the late 1980s. To directly address issues like those raised in personal injury cases, we conduct our analysis using data obtained only from those of the disabled who are not completely prevented from working by their disabilities. A brief description of the data we use in our analysis, and of the type of analysis we conduct, follows.


Initially we used information from the 1986 Health and Activity Limitations Survey (HALS) and thereafter from the 1991 HALS. The HALS was not conducted in 1996. Although it was repeated in 2001 (and renamed “PALS”, or “Participation and Activity Limitations Survey”), the crucial variable “completely prevented from working as a result of disability” was rendered unusable because of a data collection error. This means that 2001 HALS data cannot be used to analyze the labour market outcomes of those of the disabled who remain capable of working.


HALS provided a link between the results of the survey that was administered to the disabled population and the Census data, which were collected for the general population in same reference year. That is, the 1986 HALS was linked to the 1986 Census, and the 1991 HALS was linked to the 1991 Census. This linkage makes a comparative analysis of the employment characteristics of the disabled and non-disabled populations possible. Statistics Canada’s release of a public use 1991 HALS micro data file as one of their “for purchase” products enabled us to do an “in-house” analysis of labour market outcomes observed amongst the disabled. We rely on this data set in our estimation of differences in employment probabilities between the disabled and non-disabled populations. To estimate differences in employment incomes, we rely on a custom tabulation of 1991 HALS data provided to us by Statistics Canada.


In addition to information on whether a respondent is capable of participating in the work force, the HALS data permit for a distinction to be made between broad levels of severity or degrees of disability. A set of screening questions (which appears at the end of this discussion) plus two additional questions on the use of aids for seeing and hearing disabilities were scored to determine the degree of disability. The scoring was derived by first adding together the individual severity scores for all screening questions, counting one point for each partial loss of function and two points for each total loss of function (i.e., completely unable to perform the function). The total score then was categorized as follows:


1. Mild - less than 5 points
2. Moderate - 5 to 10 points
3. Severe - 11 or more points


As is obvious from the above description of how the degree of a given respondent’s disability was determined, the terms “mild”, “moderate” and “severe” in the context of 1991 HALS data are measures defined for the purpose of statistical analysis, and merely reflect the number of self-reported limitations. The terms do not, nor are they intended to, correlate with or convey medical terms or opinions. It should also be noted that, because those whose disability completely prevented them from working were excluded, the results of our analysis will not necessarily conform to expectations regarding earnings and employment probabilities that have evolved over a long period of time on the basis of results that pertain to all of the disabled.


Estimates of differences in earnings and employment probabilities reported by persons with disabilities but capable of working and by persons without disabilities are routinely provided in our reports. In conjunction with projections of earning capacity that are based on information pertaining to average (uninjured) persons, these estimated differences can be useful in the assessment of an injured person’s residual earning capacity. The following example illustrates how this can be done.



Suppose the present value of a particular plaintiff’s earning capacity, after applying average labour market contingencies but before considering the impacts of work limitations, is estimated at $500,000. Our analysis shows that males in highly-skilled occupations who, in the 1991 HALS, were considered “moderately disabled” (but who were not completely prevented from working) were about 12.4% less likely to be employed than their non-disabled counterparts. Assuming that this is the only effect of the person’s functional limitations, residual earning capacity would be estimated at $500,000 x (1 - 0.124) = $438,000.


Continuing with the above example, suppose that in addition to now experiencing lower probabilities of employment, the plaintiff also will realize lower wage rates and/or work fewer hours. In that case, it may be more appropriate to apply an adjustment factor that is based on a comparison of incomes. Our analysis shows that males in highly-skilled occupations who, in the 1991 HALS, were considered “moderately disabled” (but who were not completely prevented from working) earned about 15.8% less than their non-disabled counterparts. Residual earning capacity would be estimated at $500,000 x (1 - 0.158) = $421,000.



FOOTNOTES:

1. Four skill level categories are described in the NOC system, designated (from lowest to highest) Level D through Level A. These skill levels often are thought of as “unskilled” (Level D), “semi-skilled” (Level C), “highly-skilled” (Level B), and “professional” (Level A). In keeping with human capital theory, the criteria used by the NOC to assign any given occupation to a particular skill category essentially are the amount of education and/or experience required to perform the duties of a particular job, and whether the job includes significant supervisory, health or safety responsibilities.