Real Wage Rate

See: Wage Rate. See: Real v. Nominal Prices.

Well, first...what's a fake wage rate? Eh, okay. There is no such thing, unless you’re talking about the one you daydream about. There is, however, a "nominal" wage rate.

Let’s say you get paid $15/hour for juggling ice cream cones at a theme park. That’s your nominal wage rate. Your family has been in the ice cream juggling business for many generations. Your great grandmother tells you she’s jealous, because she was only paid $1/hour when she was in her prime ice cream-juggling years. Grandma’s not wrong—that was her wage rate, but it was her nominal wage rate.

You explain, “But grandma, you’re talking about nominal wage rates. If you want to compare what each of us could actually buy with our money, you have to look at our real wage rates, which take inflation into account. Sure you were paid $1/hr, but ice cream was 20 cents a pop. Now ice cream costs $3 a pop. So my wage went up 15x, but so did the cost of ice cream, and the cost of everything else. At least you could afford a house, which means you were actually better off than I am now! Houses are more expensive in real terms now than they were when you were my age.”

Grandma says, “Stop shaming our family. We’re ice cream jugglers, not economists.”