Question

In: Economics

A firm agreed to pay its workers ​$18 an hour in 2016 and $21 an hour...

A firm agreed to pay its workers ​$18 an hour in 2016 and $21 an hour in 2017. The price level for these years was 241 in 2016 and 245 in 2017.

Calculate the real wage rate in each year​ (to the nearest​ cent).

What is the real wage increase received by these workers in​ 2017?

Solutions

Expert Solution

Real wage rate is the nominal wage rate adjusted for inflation or price change.

Real Wage Rate = (Nominal Wage rate / Price Level ) * 100

2016: Nominal Wage = $18 , Price Level = 241

2017: Nominal Wage = $21, Price Level = 245

Now, we will use the above details to find the Real Wage Rate:

Real Wage Rate (2016) = (18 /241)*100 = $7.46

Real Wage Rate (2017) = (21/245) * 100 = $8.57

To find the real wage increase received by these workers in 2017, we will just subtract the real wage rate of 2016 and 2017.

Increase in Real Wages = Real wage in (2017) - Real Wage in (2016) = $8.57 - $7.46 = $1.11

So, the real wage increase received by these workers in 2017 is $1.11.

Rahul Sunny answered 1 year ago
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