Nominal Salary: what is it and how is it calculated?

The nominal wage, or money wage, is the literal amount of money you get paid per hour or per salary. There is no way to calculate it literally, for example, if your employer pays you $ 15.00 per hour for your work, your nominal wage is $ 15.00. Similarly, if your employer pays you a salary of $ 50,000 a year, then his nominal salary would be $ 50,000.

Another way to define the nominal wage are wages measured in current money. Current money refers to the amount of a person's income without considering how inflation rates will affect it.

The nominal salary is within the equation to calculate the real salary, which is calculated:

Real salary = nominal salary / CPI * 100

What is a salary?

Salary is any consideration or benefit paid in cash or profit granted directly by the employer to the employee

as a result of the employment contract. This payment is made for the worker's services and time at the employer's disposal.

10 Otherwise, the remuneration is the sum of the payment made directly by the employer with the payment made indirectly, that is, by third parties, also as a result of the employment contract concluded between the employer and employee. A very common example of a remunerative amount paid by third parties is the famous tip

What is the CPI?

The consumer price index (CPI) for all urban consumers it is a measure of the average monthly change in the price of goods and services paid by urban consumers between any two time periods. The CPI can be used to recognize periods of inflation and deflation.

Significant increases in the CPI in a short period could indicate a period of inflation, and significant decreases in the CPI in a short period could indicate a period of deflation. However, because the CPI includes volatile food and oil prices, it may not be a reliable measure of inflationary and deflationary periods. For more accurate detection, the CPI (Consumer Price Index for All Urban Consumers - All Items Minus Food and Energy) is often used.

Why differentiate nominal salary from real?

It is important to understand the difference between the nominal wage and the real wage because you lets you determine how much a particular payment rate will support you in relation to the current value of assets and other living expenses. Here are some specific examples of how your understanding of nominal versus real wages can benefit you:

It allows you to properly evaluate job offers - understanding the difference between nominal salary and actual salary can help you decide what jobs to choose, if you are currently trying to decide between job openings or if you are choosing to apply for jobs based on your needs income.

This is because you can calculate how much your income will actually help you maintain your quality of life. Encourages you to advocate for a higher salary from an employer - You can use the difference between your nominal salary and your actual salary to convince employers to give you a higher salary increase or initial rate high.

For example, your employer may be more willing to increase your salary if he understands that his real salary does not provide him with enough income to maintain his quality of life. Helps you set a realistic spending budget - You have the ability to set a fixed budget for things like rent, bills, groceries, gasoline or transportation and leisure activities based on salary calculations real.

This ensures that you select a property that aligns with his income and ensures that you make purchases within reason. The nominal wage, or money wage, is the literal amount of money that you are paid by the hour or by salary.

Importance of nominal salary

With the amount of the nominal salary, the worker can acquire a certain amount of goods and services that constitutes her real salary. The increase in wages increases purchasing power - the set of goods that will be possible to acquire -, but the price increase, measured by the rate of inflation, reduces your ability to purchase goods, and it is necessary to combine both. effects of determining prices. consequences on real wages.

• If nominal wages rise above the rate of inflation, real wages rise.
• If nominal wages have an increase similar to the rate of inflation, then the real wage remains.
• If nominal wages rise less than the rate of inflation, real wages fall. Economists have differentiated between nominal wages and real wages.

Other types of wages

minimum salary

The minimum wage is the most widely recognized term in the field of employee compensation. It is the lowest hourly wage an employer can pay an employee for her work. While the federal government requires a standard minimum wage of $ 7.25, most states have their own minimum wage rates, many of which exceed the federal rate.

Living wage

Living wage is the lowest wage at which the wage earner and her family can afford the most basic living costs. Because each employee's needs differ based on marital status, number of children, location, and other cost-of-living considerations, the term living wage often pushes many political issues red hot. Talks about legislation and policies surrounding raising the minimum wage often intersect with those about living wages.

Proponents of a higher federal minimum wage, for example, argue that an increase would help workers poor people to achieve a living wage and would reduce the number of full-time workers who depend on the assistance of the government.

Opponents, meanwhile, cite the possibility of job losses with a higher federal minimum wage. Although living wage and minimum wage are often used interchangeably, they differ. For example, the minimum wage is mandatory and is enforced by law, while a living wage is not.