Nominal Wages Vs. Real Wages (Distinguish Between Nominal Wages and Real Wages)
Nominal wages vs. Real wages (Distinguish between nominal wages and real wages)
Nominal wages are paid or received in terms of money. But money wages alone do not give a correct idea of the real earnings of a worker. In order to ascertain his real wages, we have to consider several other factors. The term 'real wages' is applied to the total amount of necessaries, comforts, and other facilities which a worker may enjoy by working at a job. The term 'nominal wage', however, simply refers to the amount of money that a worker may be getting. In order to determine the "real wage" of a worker, we must make an allowance for the following factors determining real wages:
(i) Purchasing Power of Money. When comparing wages from place to place and from time to time, changes in the purchasing power of money must be taken into account. Three hundred rupees per month in a village may give a much more comfortable life than a similar amount in a town, where certain necessaries of life may be very dear. Three hundred rupees in 1970 had much greater purchasing power than they have today. Therefore, even an increase of money wage may leave real wages behind if the increase is not proportionate to a rise in the price level.