ECONOMICS (CBSE/UGC NET)

Detailed explanation-1: -Real wage is determined by a specific formula; Real Wage = (Old Wage * New CPI) / Old CPI where (CPI is Consumer Price Index). Nominal wages are not derived from any formula or mathematical calculation. It is simply based on what the organization is willing to pay as compensation under the government regulations.

Detailed explanation-2: -Real Wage Rate: The average hourly wage rate measured in the dollars of a given reference base period. It shows that the quantity of goods and services that an hour work can buy. Real wage rate = (Nominal wage rate in current year/ CPI in current year) x 100%.

Detailed explanation-3: -A nominal wage, also called a money wage, is the money you’re paid by an employer for your labor. A nominal wage is not adjusted for inflation.

Detailed explanation-4: -Wages-(wages * inflation rate) = real income. Wages / (1 + Inflation Rate) = real income.

Detailed explanation-5: -Real wages rise when nominal wages rise faster than the rate of inflation. So for example, if in a given year, nominal wages increase by 4 percent and consumer prices rise by 2 percent, then real wages will have grown by 2 percent.