Q.Distinguish between nominal wage and real wage.

Real wages are money wages measured in terms of the goods and services they can purchase — the purchasing power of money wages.

Explanation

Money wages (nominal wages) are the amount of money a worker receives for his services. Real wages, on the other hand, are the quantity of goods and services that this money can actually buy. Real wages therefore depend on two things: the amount of money wages, and the general price level of goods and services. If prices rise while money wages stay the same, real wages fall; if prices fall, real wages rise. Real wages, not money wages, determine the true economic welfare and standard of living of the worker. Other factors such as additional (non-monetary) benefits, regularity of work and purchasing power also affect real wages.

Real wages are the purchasing power of money wages — the actual quantity of goods and services a worker can buy with his wages. They depend on the amount of money wages and the price level, and reflect the worker's true standard of living.

Meaning

Money wages (nominal wages) are wages paid in terms of money. Real wages are the goods and services that these money wages can actually buy — i.e. the purchasing power of money wages.

Real wages depend on:

• the amount of money wages, and
• the general level of prices of goods and services.

If money wages rise but prices rise in the same proportion, real wages remain unchanged. If prices rise faster than money wages, real wages fall. Besides prices, real wages also depend on additional benefits (free housing, allowances), regularity of work and the conditions of work. Real wages, not money wages, measure the true welfare and standard of living of a worker.