Explain what is meant by earning capacity. Further, provide an explanation for one of the earning models (the explanation should not come directly from the book, it should be worded in your own words).
SOURCE:
Robinson, R. (2014). Foundations of Forensic Vocational Rehabilitation. New York, NY. Springer Publishing

Sample Solution

Earning capacity refers to an individual’s ability to earn income based on their skills, education, work experience, and other factors. It is often used in legal and vocational rehabilitation contexts to determine the potential earnings of an individual who has been injured or disabled. One earning capacity model is the Human Capital Model.

This model suggests that an individual’s earning capacity is determined by their investment in human capital (i.e., education, training, work experience) and the market value of that human capital. The model assumes that individuals make rational decisions about investing in their own human capital based on expected returns (i.e., higher earnings).

The model also takes into account external factors such as changes in technology or economic conditions that may affect the market value of certain types of human capital. In simpler terms, the Human Capital Model suggests that a person’s earning capacity depends on how much they have invested in themselves through education and training, as well as how valuable those skills are in the job market.

The model also takes into account the individual’s age, as younger individuals may have more opportunities to invest in their human capital than older individuals. The Human Capital Model predicts future earnings by estimating the present value of the individual’s expected earnings over their lifetime.

This model is commonly used in labor economics to analyze the factors that affect earnings, and in forensic vocational rehabilitation to estimate the earning capacity of individuals who have been injured or disabled.