How is loss of earning capacity calculated?

What the Law Says

Japanese law does not define a single universal formula for loss of earning capacity, but relies on statutory frameworks and official calculation standards issued by government agencies. Key provisions appear in the Automobile Damage Compensation Security Act and related administrative guidelines.

Loss of earning capacity is assessed primarily in personal injury cases involving traffic accidents. The calculation considers the injured person’s actual income before the accident, their age at the time of injury, the statutory retirement age (67 years), and the medically certified degree of permanent disability.

The degree of disability is determined using the 'Disability Rating Table' (attached to the Automobile Damage Compensation Security Act Enforcement Regulations), which classifies impairments from Grade 1 (most severe, 100% loss) to Grade 14 (mild, 5% loss), in 5% increments.

A standard discount rate of 2% per year is applied to future lost earnings to reflect present value. The maximum period for calculating lost earnings is generally capped at 30 years — or until age 67, whichever is shorter.

Statutory Text

The amount of compensation for loss of earning capacity shall be calculated by multiplying the annual income that the victim would have earned but for the injury by the number of years remaining until retirement age, adjusted by the disability rate and discounted at an annual rate of two percent.

— Automobile Damage Compensation Security Act Enforcement Regulations, Art. 3 — Calculation of Loss of Earning Capacity

Statutory Text

Disability grades shall be determined in accordance with the Disability Rating Table attached hereto, wherein Grade 1 corresponds to 100% loss of labor capacity and Grade 14 to 5% loss, in increments of 5%.

— Automobile Damage Compensation Security Act Enforcement Regulations, Art. 2 — Disability Classification

What to Do

Sources