Inflation-Adjusted Wage Measure
An Inflation-Adjusted Wage Measure is an wage measure that is an inflation-adjusted measure.
- AKA: Real Salaries.
- Context:
- It can be associated with an Inflation-Adjusted Wage Rate Measure.
- …
- Example(s):
- Counter-Example(s):
- See: Purchasing Power, Past Wage, Cost of Living, Relative Prices.
References
2018
- (Wikipedia, 2018) ⇒ https://en.wikipedia.org/wiki/real_wages Retrieved:2018-1-21.
- Real wages are wages adjusted for inflation, or, equivalently, wages in terms of the amount of goods and services that can be bought. This term is used in contrast to nominal wages or unadjusted wages.
Because it has been adjusted to account for changes in the prices of goods and services, real wages provide a clearer representation of an individual's wages in terms of what they can afford to buy with those wages – specifically, in terms of the amount of goods and services that can be bought. However, real wages suffer the disadvantage of not being well defined, since the amount of inflation (which can be calculated based on different combinations of goods and services) is itself not well defined. Hence real wage defined as the total amount of goods and services that can be bought with a wage, is also not defined. This is because changes in the relative prices of goods and services will change the financial comparability of various bundles of goods and services.
Despite difficulty in defining one value for the real wage, in some cases a real wage can be said to have unequivocally increased. This is true if: After the change, the worker can now afford any bundle of goods and services that he could just barely afford before the change, and still have money left over. In such a situation, real wage increases no matter how inflation is calculated. Specifically, inflation could be calculated based on any good or service or combination thereof, and real wage has still increased. This of course leaves many scenarios where real wage increasing, decreasing or staying the same depends upon how inflation is calculated. These are the scenarios where the worker can buy some of the bundles that he could just barely afford before and still have money left, but at the same time he simply cannot afford some of the bundles that he could before. This happens because some prices change more than others, which means relative prices have changed.
The use of adjusted figures is used in undertaking some forms of economic analysis. For example, to report on the relative economic successes of two nations, real wage figures are more useful than nominal figures. The importance of considering real wages also appears when looking at the history of a single country. If only nominal wages are considered, the conclusion has to be that people used to be significantly poorer than today. However, the cost of living was also much lower. To have an accurate view of a nation's wealth in any given year, inflation has to be taken into account and real wages must be used as one measuring stick.
An alternative is to look at how much time it took to earn enough money to buy various items in the past, which is one version of the definition of real wages as the amount of goods or services that can be bought. Such an analysis shows that for most items, it takes much less work time to earn them now than it did decades ago, at least in the United States. [1]
Real wages are a useful economic measure, as opposed to nominal wages, which simply show the monetary value of wages in that year.
- Real wages are wages adjusted for inflation, or, equivalently, wages in terms of the amount of goods and services that can be bought. This term is used in contrast to nominal wages or unadjusted wages.
- ↑ "Time Well Spent: The Declining Real Cost of Living in America" by W. Michael Cox and Richard Alm, pp. 2–24 of the 1997 Annual Report of the Federal Reserve Bank of Dallas.
2017
- Jay Shambaugh, and Ryan Nunn. (2017). “Why Wages Aren’t Growing in America.” In: Harvard Business Review
- QUOTE: The majority of Americans share in economic growth through the wages they receive for their labor, rather than through investment income. … Since the early 1970s, the hourly inflation-adjusted wages received by the typical worker have barely risen, growing only 0.2% per year. In other words, though the economy has been growing, the primary way most people benefit from that growth has almost completely stalled. …
2013
- (Shierholz et al., 2013) ⇒ Heidi Shierholz, Natalie Sabadish, and Nicholas Finio. (2013-04-10). “Class of 2013Young graduates still face dim job prospects.” In: Economic Policy Institute.
- QUOTE: Between 2000 and 2012, the real (inflation-adjusted) wages of young high school graduates declined 12.7 percent, and the real wages of young college graduates declined 8.5 percent.