Reallohn

Reallohn, or real wage, is the purchasing power of wages after adjusting for inflation. In macroeconomics and labor economics, it is typically defined as nominal wages divided by a price index, so that RealWage_t = NominalWage_t / PriceIndex_t. The price index can be the consumer price index (CPI) or the GDP deflator, and measurements may be expressed for an hour, a week, or a year.

Real wages can be reported as a real wage level or as a real wage index. Real wage growth, the rate at which real wages increase or decrease, is often used to gauge changes in living standards over time. The choice of price index and base year affects the calculated value, and different methodologies can yield different assessments of wage movements.

Real wages are influenced by several factors. Productivity growth tends to raise real wages by increasing the value produced per hour of work. Labor market conditions, wage negotiations, and monetary policy affect nominal wages and inflation, thereby shaping real wages. In the short run, inflation can erode real wages even if nominal wages rise, while in the long run, sustained productivity gains are a key driver of higher real wages.

Limitations of the concept include biases in price indices, such as substitution effects and quality changes, and the fact that real wages do not capture non-wage compensation or regional price differences. Despite these caveats, real wages remain a central measure of living standards and a core variable in the analysis of wage determination and economic welfare.