The term real wages refers to
wages that have been adjusted for
inflation. This term is used in contrast to nominal wages or unadjusted wages.The use of adjusted figures is in undertaking some form of economic analysis. For example, in order to report on the relative economic successes of two nations, real wage figures are much more useful than nominal figures. If nominal figures are used in an analysis, then statements may be incorrect. A report could state: 'Country A is becoming wealthier each year than Country B because its wage levels are rising by an average of £500 compared to £250 in Country B'. However, the conclusion that this statement draws could be false if the values used are not adjusted for inflation. An inflation rate of 100% in Country A will result in its citizens becoming rapidly poorer than those of Country B where inflation is only 2%. Taking inflation into account, the conclusion is quite different: 'Despite nominal wages in Country A rising faster than those in Country B, real wages are falling significantly as the currency halves in value each year'.
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