SOURCE: Marks Paneth & Shron LLP

Marks Paneth & Shron LLP

September 14, 2011 09:01 ET

Estimates of Lost Wages May Be Incomplete if They Don't Consider Unemployment Trends

Economic Models Designed for the Estimation of Lost Wages Should Take the Probability of Unemployment Into Account, Says Authority in Economics at Marks Paneth & Shron

NEW YORK, NY--(Marketwire - Sep 14, 2011) - Claims for lost wages and other forms of compensation are at the heart of wrongful dismissal, workplace injury, and workplace discrimination lawsuits. But the economic model designed for the estimation of damages may be incomplete if it does not adjust for unemployment trends and the probability of continued "but-for" employment, according to an economics expert.

"There is never a 100% guarantee of continued employment, and the probability of economic fluctuations and recessions, and other factors affecting long-term employment, should always be considered when estimating lost wages. There is a relatively simple approach to considering the risk of unemployment, but lost-wages models do not always reflect this," says Josefina V. Tranfa-Abboud, Ph.D., a director in the Litigation and Corporate Financial Advisory Services Group at New York accounting firm Marks Paneth & Shron LLP (MP&S).

"The problem is this: Estimates of lost wages are in many instances based on the assumption that, if not for the injury or termination, the plaintiff would have been continually employed with 100 percent certainty," Dr. Tranfa-Abboud says.

"The risk of unemployment always exists," Dr. Tranfa-Abboud continues. "Yes, we live in unprecedented times, but we should always be asking the question, 'Can we be certain this individual will always be employed?' A realistic analysis would have to incorporate the probability that a person would have periods of unemployment, and that potential wages would have been lower as a result."

Dr. Josefina V. Tranfa-Abboud is available for interviews and can author a bylined article. She can discuss:

  • How lost wages claims come about: "Many employment law cases -- for example, lawsuits for wrongful dismissal, workplace injury or discrimination -- include a claim for compensatory damages as a result of termination or reduction of employment," Dr. Tranfa-Abboud explains. "They claim that they would have earned more if they had not been let go or become unable to work. In addition, family members sometimes file claims for lost wages if their loved one has died in the workplace, since the family loses income as a result of the wage-earner's death."

  • How plaintiffs set the dollar amount of their claims: "In general, a damages claim is based on an economic model that intends to capture the elements of the plaintiff's 'but-for' compensation. The plaintiff's past wages are established, as well as the rate at which their wages increased while they were employed. Then this rate of increase is projected forward to cover the period during which they were unemployed or underemployed. The difference between their projected wages and the wages, if any, that they actually earned is said to represent the wages they lost. An equivalent model also applies to future wages -- the projection of what they would have earned from the trial date to the end of their working lives."

  • Why these models can be incomplete: "The estimation of the plaintiff's alleged damages may be based on the assumption that, if the plaintiff had not been injured or terminated, he or she would definitely have been employed," Dr. Tranfa-Abboud says. "But such an assumption is not realistic. The plaintiff might have been unemployed, or might have earned a lower wage because of market forces, or industry- or employer-specific downturns, or even personal factors."

  • How damages models can incorporate economic data that could result in more reliable estimates: "Instead of simply projecting past wages into the future with 100% certainty, more complete wage-loss analysis models use real-world economic data to adjust for the probability that over a period of time, the plaintiff might have been unemployed or under-employed.

"Wage-loss analysis that accounts for unemployment risk is far more likely to withstand challenges in court," Dr. Tranfa-Abboud says.

For more information, or to schedule a bylined article, contact Itay Engelman of Sommerfield Communications at (212) 255-8386 or

About Josefina V. Tranfa-Abboud, Ph.D.
Josefina V. Tranfa-Abboud Ph.D. is a Director in the Litigation and Corporate Financial Advisory Services Group at Marks Paneth & Shron LLP. Dr. Tranfa-Abboud has extensive experience in the economic analysis of labor and employment disputes, as well as commercial disputes related to claims of breach of contract, and business interruption. Dr. Tranfa-Abboud provides research, statistical analysis, damages analysis, and expert witnessing services for both plaintiffs and defendants.

Before joining Marks Paneth & Shron, she was a senior economist for an economic consulting services firm in New York City and was responsible for consulting services and analysis in the areas of personal injury, wrongful death, mass torts and commercial revenue forecasting. She also served as a research economist for ERS Group, a nationally recognized labor and employment consulting firm, in Washington, DC and Tallahassee, Florida, and has been an advisor to the Chief of the Central Budget Office of the Venezuelan government.

Dr. Tranfa-Abboud holds a Ph.D. in economics from Florida State University and a BS in Economics from Universidad Central de Venezuela. She taught quantitative methods and econometrics at the doctoral level at Rutgers University. She has also taught at Florida State University and at the Universidad Central de Venezuela. A member of both the American Economic Association and the National Association of Forensic Economics, Dr. Tranfa-Abboud has been published in the Journal of Forensic Economics.

About Marks Paneth & Shron LLP
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