The definition of "Earning Capacity" can generally be summarized as how much income you can reasonably earn given your skills, education, age and experience.
For example, "earning capacity" would likely be calculated by taking your annual salary in your current position and considering how much more you could reasonably earn over the remainder of your career (considering possible promotions or potential career trajectory changes that could reasonably be expected from someone in a similar position).
These are the monies that a person is able to earn that results from skills and training.
What are some examples of "earning capacity" in a personal injury case?
Lets say the injuries you suffered from your accident have now resulted in you suffering a concussion and having trouble focusing or working past 5 p.m. Let's also assume you are currently paid by the hour and now have to obtain medical treatment for a number of years to help you recover from your injuries.
In this example, "earning capacity" would be defined as your estimated annual salary during the year of the accident, plus your expected increases to your salary every year assuming your career would continue at that company. So if you make $100,000 and now have to take off an extra 3 weeks off of work to deal with your injuries, you would have a damages claim at a minimum of ~$5,000.
If the injuries you've suffered could impact your ability to obtain a promotion and that promotion might be $20,000 a year, now your "earning capacity" is $120,000 (plus inflation). If you are only expected to earn $95,000 a year following your accident, you have a loss of earning capacity per year of $25,000 (which may be part of your personal injury damages claim).