Race, Gender & Ethnicity In Estimating Economic Damages
I want to tell you about one part of my recent work, which has the potential of eliminating the negative impact of discrimination in earnings in a narrowly focused area. This area is the amount of compensation people get for lost income when they are unable to work due to injury or some debilitating condition, such as excessive exposure to lead, which reduces their ability to earn.
The current common practice is to consider the race and gender of the injured person. This makes a big difference. For example, a Hispanic woman may get an award that is only 35% of what a white man would get.
The Council of the District of Columbia is considering a Bill that would change the way economists calculate the award. This Bill is similar to but broader than California SB-41, which became effective in CA on January 2020. The DC Bill states:
in an action for personal injury or death caused by wrongful act, neglect, or default, estimations, measures, or calculations of past, present, or future damages for lost earnings or impaired earning capacity should not be reduced based on race, ethnicity, or gender (emphasis added)
This Bill when it becomes law will increase the estimated awards for minorities and women.
The issue we are tackling is: How do we calculate damages under the proposed law? This is key because the law must be fair, and the calculations should be explicit and transparent.
So far, we have look only at earnings capacity, which applies to a young person with no earnings history. This is just to have a workable focus. Later, we will look at the case of people who have an earnings history expectancy, etc.
Our approach is to develop several options, and also define criteria to evaluate these options. We think that there is no need for a definitive solution at this stage. It’s enough to show the Council that this is doable, and we have options. The final choice can come from the actual cases as they proceed.
We have developed four options; others may come up with more. The minorities and women would benefit from any of the options, though not by the same amount.
The options are in two groups. In order of increasing complexity, they are:
Group I. All get same amount
Use historical data, same as being used currently
Option 1. Everyone gets the overall average
Option 2. Everyone gets the average of the highest race/gender group
Group II. Fair differences allowed
Option 3. Use data currently being used to calculate the) higher of the average of
your own race/gender group,
white men, who face no discrimination
Option 4. Use discrimination factors derived from econometric studies, with the factors varying by race and gender
We have developed five criteria to evaluate these options; others may come up with other criteria. In order of decreasing importance, the criteria are:
(i). Consistency with the proposed law
(ii). Consistency with standard economic and financial principles
(iii). Consistency with ongoing practice in estimation of damages
(iv). Use of readily available objective data
(v). Have a clear, simple narrative understandable by all participants