By Chang Se-moon

Let us assume that Mr. Kim is injured while working. If the injury is minor, he will probably drink some “soju,” or other traditional Korean spirit, and forget about the injury. If the injury is serious enough to force him to quit his job, even temporarily, he may file a lawsuit against the company for what is known in forensic economics as “wrongful injury.” Lawsuits on wrongful injury are filed all the time in many countries including the United States in which many Korean companies operate. A lawsuit can be costly and be a source of headaches to both sides.

The person who files a lawsuit is called the plaintiff. As a plaintiff, Mr. Kim contacts plaintiff lawyers who specialize in wrongful injuries. These lawyers usually contact medical personnel to have a written assessment on the extent of Mr. Kim’s injury, hire a vocational expert to determine the extent of loss of Mr. Kim’s access to future employment, and hire an economist to put all the figures together and come up with a report showing the amount of monetary losses called the present value of the future stream of lost earning capacity. The company as defendant may rely on in-house attorneys or seek outside attorneys for defense. Defense attorneys usually follow the same procedures that plaintiff attorneys do; contact medical personnel, hire a vocational expert, and hire an economist.

The problem is that the so-called experts often generate vastly different assessments on the plaintiff’s loss in future employability and earnings. This is because several technical procedures require calculating various figures to determine the precise amount of lost earnings. Due to their complexity, they are also prone to abuse. The figures include work life that refers to how long the person would work if they were not injured, discount rate that is needed to convert future values into the present value and earning capacity indicating how much money the injured would be earning in the future without injury. Other figures that need to be determined are fringe benefits, such as the values of health and life insurance, vacation time, and retirement pay, and loss of household services especially if the injured person is a housewife.

Based on my experience of having worked on over 100 lawsuits as an economic expert, I have found that most attorneys agree that if the plaintiff is truly injured, he or she should be properly compensated. If I give a piece of advice to both sides involved in wrongful injury or death cases, it is that they need to hire experts who really, not just claim to, work for plaintiffs as well as defendants. Ideally, the loss estimation one expert calculates for the plaintiff is the same as one that the same expert may calculate for the defendant.

One example of how complicated the issue can become in Korea relates to determining the lost earning capacity. Experts need income figures as reported in annual tax returns. In Korea, a large portion of earnings may be paid in bonuses and thus are not reported as earnings.

For another example, experts need a work life table that shows how many years a person is expected to work according to their gender and age. In the absence of a reliable work life table, the next best approach is to go over the retirement age. In Korea, in the private sector, the average retirement age is 57. However, many actually retire by 53. In the government sector, high-ranking employees retire before 60. The lower-ranking employees will also be able to retire at 60 by the year 2012. Effective retirement ages, by which time workers actually stop working, however, may be different from official retirement ages as mandated by law. According to the July 2009 issue of the Monthly Labor Review by the Korea Labor Institute, the effective retirement age is 71.2 for Korean males and 67.9 for Korean females.

Forensic economics has yet to be introduced in Korea, but Korean firms operating in Korea and other countries may have to deal with the problem every day.

Chang Se-moon is a professor of economics and the director for Center for Business and Economic Research at the Southern University of Southern Alabama.