Understand the Truth Behind Your Expert’s Statistics

By Jeffrey Baresciano and Stephen Crandall
Special to the Legal

In the field of forensic accounting and economics, experts utilize government and industry studies and statistics all the time, especially when actual information specific to an individual is unavailable. For example, in calculating the future lost earning capacity for minors, economic damage experts will have no work or earnings history to rely upon and will utilize earnings, fringe benefit and work life statistics in order to determine monetary damages. In applying information from various studies, an expert’s understanding of how the data was gathered, the reliability of the source, how current the statistics are, and the applicability to the case at hand may determine if an entire calculation is deemed to be performed to a reasonable degree of certainty or alternatively if the calculation is excluded by the court.

A routinely used source by economic damage experts in calculating damages is the Bureau of Labor Statistics, which publishes a variety of earnings, employment, consumer expenditure, inflation and several other statistics. The recent BLS report that unemployment fell to 7.8 percent, with the economy adding 114,000 jobs in September, has increased attention on how the government collects its information and what exactly these statistics are telling us. Were you aware the unemployment rate does not include people who are currently neither working nor looking for work, but indicate that they want and are available for a job and have looked for work sometime in the recent past? Just as the unemployment rate has limitations, so do additional statistics published by the BLS and other sources often used by economic damage experts. An expert requires an understanding of the constraints of the statistics he or she uses in order to calculate damages that are reasonable and reliable.

We highlight the following two figures and sources that commonly appear in economic damage reports, of which an expert should have more than a peripheral understanding.

•  “Normal” retirement age of 67. This age is not a statistical work life age, but rather the age at which an individual born in 1960 or later can receive unreduced Social Security retirement benefits. Were you aware the earliest a person can receive Social Security retirement is age 62? According to the Social Security Administration, as of June, there were more than 3.3 million retired worker beneficiaries in current payment status between the ages of 62 and 64. As of June, there were also more than 8.2 million disabled worker beneficiaries in current payment status under the age of 65 receiving Social Security disability benefits. The probability of retiring earlier or leaving the labor force because of disability, among other reasons, is not considered when an expert utilizes the “normal” retirement age.
•  Average earnings statistics from the BLS. When calculating damages for individuals with a work history, experts may opt to use statistical earnings in lieu of historical earnings reported on personal tax returns or other sources. In the case of self-employed individuals, the use of earnings statistics becomes a concern, because the BLS occupational employment statistics exclude all self-employed, owners and partners in unincorporated firms, household workers and unpaid family workers.

Most times, there will be a variety of sources to gather the needed information, but determining which statistics should be used is based on a variety of factors, such as reliability of the source and applicability to the matter at hand, among other factors. As the 18th century lawyer and politician Henry Clay once said, "Statistics are no substitute for judgment."

Overall, no single statistic, regardless of source or content, may be the optimum. However, as economic damage experts, we must determine the most appropriate statistic, given the facts and circumstances of the case, and always apply reasonable judgment.

Jeffrey Baresciano is a senior associate at Forensic Resolutions Inc. in Haddonfield, N.J., and Philadelphia. He can be reached at jbaresciano@forensicresolutions.com.

Stephen Crandall is an associate at Forensic Resolutions. He can be reached at scrandall@forensicresolutions.com.