The Key Difference Between Real vs Nominal Wage

real wage vs nominal wage
Feature	Real Wage	Nominal Wage
Definition	Wage adjusted for inflation; reflects the purchasing power of income.	Wage not adjusted for inflation; the actual amount paid to employees.
Reflects	True value of money in terms of goods and services it can buy.	The face value or amount of money received.
Calculation	Real Wage = Nominal Wage ÷ (1 + Inflation Rate).	The gross income stated in paychecks before adjusting for inflation.
Affected By	Inflation and changes in cost of living.	Economic growth, labor agreements, and wage policies.
Purchasing Power	Indicates the actual buying capacity of a worker.	May not accurately reflect what can be bought.
Economic Indicator	Better for understanding standard of living and economic well-being.	Useful for administrative or legal purposes (e.g., contracts).
Example	If nominal wage is ₹50,000 and inflation is 10%, real wage is ₹45,454.	Fixed salary such as ₹50,000 per month regardless of inflation.
Impact on Workers	Helps assess if workers are truly better off over time.	May give a false impression of income growth if inflation is high.
Stability	Can fluctuate with inflation trends.	Stays constant unless revised in contracts or policies.