The real wage is the one that corresponds to the real purchasing power, in other words, is the amount of goods that can be purchased with the nominal wage given the cost of living. The real wage is the nominal wage reduced by the rate of currency depreciation (inflation) and is intended to reflect the real purchasing power.
A salary can be defined as the sum of money paid under contract by an employer to the worker for services rendered. In economics, the price paid to labor for its contribution to the production process is called salary.
Advertisements
Labor is an important factor of production. If there is no labor to work, all other factors, be it land or capital, will remain idle. Thus, Karl Marx called labor the "creator of all value."
However, labor alone cannot produce, since most production is the result of joint efforts of different factors of production. Therefore, the part of the product that is paid to work for its production activity is called wages.
Advertisements
In this article you will find:
Definition
Real wages mean the translation of money wages in real terms or in terms of products and services that money can buy. They refer to the advantages of the worker's occupation, that is, the amount of necessities, comforts and luxuries of life that the worker can obtain in exchange for his services.
Advertisements
If the inflation rate is 5% and the nominal wage increase is 3%, the real wage and therefore the real purchasing power has been reduced by 2%.
Also, real income is an important economic indicator to measure purchasing power. Changes in real wages indicate when the purchasing power of employees changes. Therefore, the real wage is a decisive factor for both employees and companies.
Advertisements
Importance of Real Salary
In economics, real wages measure the relationship between nominal wages and price levels. Real income always increases when the nominal wage increases faster than the price of goods. If the increase in the nominal wage lags behind that of the price of goods, the real wage falls as the purchasing power of the employees decreases.
The nominal wage on which real income is based is defined as an average value. Both the net salary after taxes and social security contributions and the gross salary can be used. If net salary is used as the basis for the calculation, changes in real salaries have a corresponding effect on the purchasing power of employees.
Advertisements
If, on the contrary, the gross salary is decisive, the changes in real wages show whether, from the point of view of the company, working in an economy is becoming more expensive or cheaper.
Formula
The real wage is calculated from the relationship between the nominal wage rate and the price level.
Therefore, the formula is:
Real salary = nominal salary / CPI * 100
For consumers, the real wage is always decisive and not the nominal wage, since the decisive factor for them is how many goods and services they can actually purchase from wages. Therefore, real wages can also be called wages in the form of units of goods. Real wages are also decisive for companies, since the relationship between nominal wages and the price of the finished product is relevant for them.
Real salary in other terminologies
In socialist economy: the salary expressed in means of subsistence. showing how many and what individual consumer items and services can be purchased for money. It is determined by the level of the nominal wage. by the price level of consumer goods, services, rents, educational costs and expenses for cultural needs and taxes. It is essentially the standard of living criterion see> standard of living,> salary,> real income
In economic sociology: general real income. It is defined as the relationship between nominal wages or (wage) income at current prices and the price index. The real wage expresses the purchasing power of income.
As a measure of the standard of living, real wages are only adequate because it refers only to monetary income and against the payment of goods and services and as current one-dimensional size, the level of multidimensional well-being (herd size) and its change (current size) are not detected. Nominal salary divided by a price index (deflator).
The real wage corresponds to the amount of goods that can be bought with a nominal wage determined and therefore provides information on the purchasing power of wages nominal.
