What Is The Difference Between Real Wage Rate And Money Wage Rate. I Will Choose Best Answer

What is the difference between real wages and money wages?

Nominal wages are the wages in terms of money. Like how much money you get.Real wages on the other hand are in terms of goods. Like how much goods you can buy from such wages.For eg if an Apple is of RS 10 and your wages are 100 then your money wages is Rs 100 and real wages is 10 as u can buy ten units of apple from it.But if price of apple rises to 20 then your money wage is still 100 but now your real wages have fallen to 5 as now u can buy only five units of apple from it.

Labor Economics: Why is there such a difference in the real wage of a janitor between Third World and Western world countries?

Wages are so different in real terms because janitorial services are not a tradable good.Let's look at a very simplified example.Imagine you have two countries, each producing two goods, one tradable, one not. Lets go with restaurant meals for the non-tradable and cars for the tradable. To keep this really simple, we'll ignore things like capital and transportation, and stick with just looking at productivity and wages. Both the cars and restaurant meals are identical in each country.Country A is extremely good at producing cars. Country B is ok. Country A can make a car with half of the man hours of Country B. In this simplified example, a worker making cars in Country A is therefore twice as productive as a worker making cars in Country B. Since the tradable goods are priced on the world market, the auto workers in Country A are paid twice as much as the auto workers in Country B.This is why, when comparing a generic lawn chair (tradable), in real terms it will be about the same price in China (lower productivity) as in the U.S. (higher productivity. However, in real terms, a haircut (non-tradable) will be much more expensive in the U.S. than in China. Arbitrage conditions drive the tradable prices into parity, but non-tradable goods are left priced differently. This pushes more car production into Country A, tightening the labor market for restaurant workers. In order for people to be willing to work in the restaurant business, instead of all working in the auto industry, wages have to rise. This creates a spillover effect where when a country has high productivity in it's tradable's sector, it will cause wages to rise in its non-tradable sector to keep domestic labor markets in balance.Wages in the non-tradable sector will adjust to keep the domestic labor market in balance, with non-tradable sector workers in high productivity countries having a much higher salary than workers in the same sector of a low productivity country.Therefore, the janitor in Norway has a higher real wage relative to the janitor in Nigeria because the productivity of the Norwegian tradable sector is far higher.Do other factors matter? Sure, they always do. The way the two political regimes view and support unskilled labor makes a difference, for example. However, the lion's share of the difference will he through this mechanism.

Why are real wages adjusted for inflation?

Because if you don’t adjust for inflation, you have nominal wages.These are comparison terms in economics. When you want to compare wages from 20 years ago to wages today, you must also account for the price of goods then and now. If you adjust for inflation, you have a REAL comparison. If you don’t adjust for inflation, you have a nominal comparison, which isn’t useful without context.

Are real wages increasing in America?

Several of the answers here suggest that real wages in the US are being stunted by automation. I don’t think this is correct. We in the US frantically look for scientific, logical sounding, explanations for our intolerable income disparities, but the real culprit is the systematic destruction by the corporations who control economic policy, of the right of the Working Class to negotiate fair wages.Beginning in earnest approximately 40 years ago, as Wall Street and corporations began to cement their control over the US government, anti-worker anti-union legislation was enacted over and over again, to relentlessly strip away the rights of the US Worker, to negotiate fair wages. And that alone explains the fact that in the US, wages for the Working Class have remained stagnant at best. For those at the lower end of the economic ladder, wages have actually decreased in terms of real dollars over that time. It has been about a decade since the US minimum wage has been increased, but costs for everything else continue to rise.As appealing as it might be for us to believe that there are some magical “free market” explanations for this deplorable situation, it just isn’t the case. Our wages are controlled by economic policy, not free market leprechauns. In the US, economic policy is designed and enacted by the corporations, and this is why the US worker in the “richest nation in the world”, cannot negotiate fair wages that address economic realities such as the ever increasing cost of living.

Why would someone work less as a result of a higher wage rate?

Think of two curves. One goes up - higher wages = more work. This is because there’s a trade-off between choosing to work vs choosing to do other things. The higher the wage, the higher the cost of choosing the other thing - that’s called opportunity cost.The second curve, though, goes down - higher wages = less work. This is because the goal of work is to make the money to do the other things. If you want to do X (take your family on vacation, for example) maybe X will cost 10 units of work at one wage, but only 5 units of work at a higher wage.In the real world there are lots of other considerations, but it’s the interaction of these two that leads to choosing more or less work at a higher wage.