In: Economics
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?
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.