Real wage
Also called: Real wages · Topic: Inflation and Index Numbers: CPI, WPI, IIP and the Deflator · NCERT: Class 11, Ch 7 "Index Numbers"
Meaning
The real wage is what a money wage can actually buy, measured at base-year prices. It adjusts the wage for the rise in the cost of living.
Real wage = (Money wage ÷ Consumer Price Index) × 100
It matters because a higher money wage does not make a worker better off if prices have risen even faster.
Example
With the CPI (1982 = 100) at 526 in January 2005, a money wage of ₹10,000 equals ₹10,000 × 100/526 = ₹1,901 at 1982 prices. A worker who earned ₹3,000 in 1982 is therefore worse off at ₹10,000 in 2005. To keep the 1982 living standard, the salary would need to be ₹3,000 × 526/100 = ₹15,780.
Don't confuse with
- Money (nominal) wage: this is the rupee amount actually paid, with no adjustment for prices.