Estimating the Impact of Mid-Career Retraining
This article first appeared in the summer 2005 issue of the Expert Witness.
Vocational psychologists commonly recommend that injured plaintiffs retrain for a new occupation. A problem that this creates for the financial expert is that it is not clear what the individual’s starting wage will be once the training period has been completed.
Specifically, all of our data concerning incomes by occupation suggest that individuals’ incomes increase as they age (usually until their mid-40s). If we assume that this increase occurs either because individuals gain valuable experience in their occupations or because they move up "career ladders" as they age, individuals who change careers will find themselves starting at lower wages than would be suggested by their ages.
For example, Table 1 reports incomes by age (for Alberta males) for two occupations that are commonly recommended as retraining possibilities: partsman (NOC-S B572) and drafting technologist/technician (NOC-S C153). It can be seen there that annual incomes rise continuously from the youngest age group, 20–25, to the second oldest group, 45–54, before declining slightly.
If it has been recommended that, say, a 40 year-old male retrain to enter one of these occupations, the economic expert is faced with determining which of the income levels from Table 1 best represents the income at which the plaintiff will begin his new career. If experience in the occupation, or movement along a career ladder, are important determinants of income, then we would expect that the newly-trained worker would begin at one of the lower incomes suggested by the census data.
Perhaps with his greater maturity the 40 year-old would not start at the income level of a 20-25 year-old; but with no experience in this occupation, it seems unlikely that he would start at the income of a 40 year-old. Fortunately, statistical evidence has recently become available that can help us to determine the impact of a change in career.
Most importantly, Arthur Goldsmith and Jonathan Veum[*] have used a detailed survey that followed 1400 young workers from 1979 to 1996 to compare the effects of additional years of experience on wages when individuals: remained in the same occupation and industry, remained in the same occupation but moved between industries, remained in the same industry but changed occupations, and changed both occupations and industries.
What they found was that the value that was placed on previous experience was approximately the same for all individuals except those that had changed both occupation and industry. In their words:
…experience acquired while a real estate agent is valued similarly as tenure at other occupations, such as accounting, within the real estate industry. In addition, the experience as a real estate agent is valued similarly to tenure at other industries, such as the pharmaceutical industry, if continuing in the occupation of sales. If the real estate agent becomes an accountant in the pharmaceutical industry, however, the experience as a real estate agent is of less value than that within accounting or the pharmaceutical industry. (p. 442)
Referring to the examples in Table 1, Goldsmith and Veum’s findings suggest that the 40 year-old who retrains as a partsman may be able to earn an income comparable to that of a 40 year-old partsman with 15 years experience, if the retrained individual remains within his previous industry. For example, if an individual who had previously worked on oil rigs becomes a partsman in a shop that provides equipment to oil rigs, he can be expected to obtain a starting salary much higher than he would have obtained if he had become a partsman in an automobile dealership.
We would suggest that Goldsmith and Veum’s findings be interpreted in the following way: First, if the plaintiff’s injuries require that he/she retrain for both a new occupation and a new industry, the starting salary should (normally) be selected from the 25-29 year-old census category. This allows for the finding that previous experience is of limited importance, while avoiding the confounding effect that the incomes of 20-24 year-olds will be biased downwards by issues of immaturity.
Second, if the plaintiff’s injuries require that he/she retrain for a new occupation in the same industry he/she worked in prior to the accident, it should be assumed that the experience gained in the previous occupation will be, in large part, transferable to the new occupation. This does not necessarily mean that a 40 year-old plaintiff should be assumed to start his/her new career at the income level of an experienced 40 year-old in that occupation. Most importantly, plaintiffs often experience residual mental and physical difficulties that will reduce their earning capacity below that of the individuals represented in the census data. Also, however, it must be recognised that Goldsmith and Veum’s results referred to individuals who had changed occupations voluntarily; that is, to individuals who had chosen new occupations that met both their interests and their aptitudes. Plaintiffs often are not provided with that opportunity. As the new occupations for which they are retraining are not those that they had chosen when they were healthy, it is possible that they will not perform as well as individuals who had chosen those occupations voluntarily.
Finally, it must be recognised that Goldsmith and Veum’s findings are only suggestive. They can only be interpreted to indicate that, on average, when uninjured individuals make mid-career changes within a given occupation or industry, they tend not to suffer appreciable losses of earnings. They provide less information about specific individuals, particularly those who make significant career changes because of injury. We strongly suggest, therefore, that counsel request an opinion from a vocational psychologist concerning the impact that the injuries suffered by the particular plaintiff in question will have on that individual’s earning capacity. Specifically, if the psychologist recommends that the plaintiff retrain for a different occupation or industry, does the psychologist believe that that individual will be able to begin the new career at a salary that is comparable to other individuals of his/her age? Or will the plaintiff be forced to enter the new career at a salary lower than that of otherwise comparable individuals?
* Goldsmith, A.H. and J.R. Veum (2002). Wages and the Composition of Experience. Southern Economic Journal, 69(2), 429-443. [back to text of article]