Loss of Income vs. Lost Earning Capacity: What is the difference?

“What is the difference between loss of income and loss earning capacity?” This is a question we field quite a bit and which tends to be explained in much too complicated legal jargon on the Internet.

The issue frequently arises in personal injury claims, workers compensation claims, and potentially Social Security Disability claims. Simply put, “loss of income” is a limited period of time (”closed period”) missed from work. This is opposed to “lost earning capacity”, which is essentially an inability to ever return to the same type, amount, or level of work. The easiest way to understand the issue is best shown with an example.

Example of Loss of Income

If a construction worker breaks his hand and is off work for eight weeks while it heals he has eight weeks of “loss of income”. This is a closed period of time where income is impacted, after which the injured person can return to the prior job at the same number of pay and hours. Assuming the hand heals completely with an ability to return to full duty after 8 weeks. The calculation is fairly simple. The worker was making $400 per week and was out for 8 weeks so his “loss of income” is $3200.

Example of Lost Earning Capacity

This is in contrast to a construction worker whose broken hand never fully heals or who is told that he cannot return to construction-type work again. In this case, the injured construction worker cannot return to the same type of work and/or the same pay rate and/or the same number of hours per week. If he is permanently restricted to light work and must take a part-time cashier job paying $200 per week he has “lost earning capacity” of $200 per week, and over $10,000 per year. Taken out over a lifetime, lost earning capacity could have a significant impact on an injured person’s ability to financially provide for themselves and their family and could lead to a need to seek Social Security Disability if the restrictions are severe enough.

If you have lost time from work due to the negligence of someone else, an accident at work, or any other serious medical condition, contact Michles & Booth for a free initial consultation to address the issue. We are here to answer any questions you may have on the issue.