Friday, May 20, 2022

Real Wages vs. Nominal Wages (Economics 101)

Let's talk some economics 101 in particular real wages versus nominal wages now i realize that sometimes people hear economics their eyes roll back in their heads but just give me a chance here because this is good practical information this is not information that you know is not really ever going to be used in the real world .

The exact opposite actually this is the sort of information that it's just good to have because it has very many you know practical real world applications namely just so you can be an educated citizen no matter what country you're in it i want it's one of those things where it's going to help you be able to think for yourself and not depend on others to .

Think for you because as you're going to see here there's a little bit of puppet strings you know being pulled here in terms of what's being told but when you just understand these basic economic 101 principles you can kind of see through that stuff or who knows maybe you're just watching this because you're in a class right now .

And you've got to figure out what these things are um so i'm going to try to approach this in a more real life practical point of view in the sense of and i should note this is not political my my point here is not to make any sort of political statement it's just to differentiate from a textbook which is gonna pick you know kind of just some .

Sort of random numbers but let's just use some real world events with real world numbers to illustrate this so let me set up the context here a little bit more by showing you what these current real world numbers are and again that the current event is is a side it has nothing to really do about this video other than the fact of it's actually .

Providing us some numbers so that we can figure out how real wages versus nominal wages function so here we have a headline or not a headline excuse me but an article but the key number and the kind of the key dynamic here to point out here comes right here hourly pay for the average worker rose .

Sharply again in september pushing the increase okay here we go increase over the past year up to 4.6 so that's what we care about we care about the fact that this is the average pay or excuse me hourly pay and that hourly pay has gone up 4.6 .

So what that article is talking about here and what you know a government institution you know some sort of financial institution out there is referring to is well they're talking about the nominal wage right the purse or the hourly rate has gone up 4.6 so instead of making x amount per hour people are now making y amount and that .

Percentage increases at 4.6 percent which on the surface that that seems good right it seems like hey that's great people are making more money people's you know per hour rate has gone up that's good people are making more money they are getting more per hour but that's not quite the case now you're .

Not irrational it's logical to think that hey wages went up people are making more money well and this is where economics is pretty cool because whoa whoa what kind of wage yeah i get it the nominal wage went up but there's a very very important question and this from a .

Practical point of view is what you need to from uh if you're out there negotiating a salary negotiating some sort of hourly raise you need to be asking yourself you better be asking yourself this question what is the rate of inflation you need to understand this if you want to make educated decisions .

If you want to make decisions that get you up you know further ahead in life so like i said we're out of the textbook now i understand i was you know i i get it half this more than a lot of the stuff you're like am i ever gonna need this in the real world in this situation yes you actually were and i'm showing it to you right now .

Understanding that when you're somebody is offering you a wage at a job or you know in the news headlines you're reading about hey wages increased hey we're going to pay you this amount they were talking about nominal wages but now you are armed with knowledge and knowledge is power i know that's cliche but here's why it's powerful because you .

Know what you need to ask well what's the rate of inflation and here's why that is so important so referring back to that article just quick recap there we have the nominal wage right 4.6 but let's scroll down a little bit more and you'll see and props to this article .

You know they gave both numbers which is important but you can see down here now the next thing that we care about the prices americans pay for goods and services have jumped 5.3 percent so right here then you see the inflation right so inflation is 5.3 percent now do they really do .

They call it no they call it you know the prices for goods and services have jumped 5.3 percent but in other words that is the to sound technical the inflation rate 5.3 so you now know to ask that question that question has been answered and it comes out to be 5.3 .

So now let's move into real wages now maybe the best news here is that if you can use a calculator or if you're really good at doing mental math and subtraction this is a very straightforward calculation to actually do and all you're going to do is take that nominal rate and subtract out inflation .

To find the real wage some people call it the adjusted wage and this is the adjustment the adjustment adjustment is doing this basic subtraction right here again you're taking the nominal wage and you're subtracting the inflation rate that's it very very straightforward so again real wages and adjusted wages same thing the adjustment just being the .

Subtraction but let's just quickly do this calculation again we're using some real world numbers right now uh now if you're watching this video three years from now hopefully this video you know is popular enough then yes maybe these numbers are going to be different well they will be different but again the actual numbers the current events right .

Now are completely the side point just to illustrate this but 4.6 minus 5.3 equals negative 0.7 so in other words although people are making more money per hour they're actually losing money .

They're actually not making more money and that sounds super backwards right but now hopefully you can see what the problem here is the problem is as the article you know used products or prices for goods and services have increased .

More than what than what the actual wages have increased so yeah those people yeah i gotta raise that work and once again let's let's hop back over in the very practical part of all this if if you're you know negotiating a salary negotiating an hourly wage looking for a job comparing jobs make sure you understand .

How this works because one job may not be nearly as good as what it appears when you start to factor in and calculate calculate out the real wage and no calculus no algebra is needed back to you know first grade learning how to do some subtraction and you got the calculator to do that now i hid the actual title of this .

Article the entire time because you know i wanted to now kind of reveal what it was so u.s wages are soaring uh oh but high inflation is not leaving workers much better off and and that is exactly why now again what are the politicians what what are people going to do well they're going to be there saying look at these .

You know look at the hourly rate it's rising rising rising but of course they're going to leave out oh yeah but inflation is actually faster so technically speaking those people are worse off or they're barely making any progress at all you know they're going to leave that part out .

Which you know like i said that that i don't blame that's their job they got to spin things in their favor right but this is knowledge knowledge is power and this is why you need to just understand how real world or how well yeah real world but real world real wages are calculated so that's the difference nominal is what .

You're going to see in the news right now to be fair maybe some articles do actually calculate out uh you know the the real wages and or the adjusted wages but real and generally speaking when you see in the headlines when you see politicians talk they're gonna be talking about nominal wages but if you want to get to the wage that .

Actually affects you that's where you got to figure out the real wage so nominal wages versus real wages hopefully this video helps not only to explain what they are and to show how to calculate but really the the real life benefits uh to how having an understanding can benefit you in life if you want me to do more videos like this .

Where i just take kind of an economics 101 approach uh then please let me know i'm open for suggestions leave those down in the comment section below and hit that like button so hitting the like button leaving comments communicates to me that you enjoy these sorts of videos and yeah if you want more of these like this then let me know i love to talk .

Economics i love to try to spin economics into showing how they really do have a practical real world effect other than being some like bolded definition in a textbook because i get it that stuff can seem so useless but in in many cases yeah there is a lot of useless bulleted definitions out there but when it comes to this sort of stuff .

It really does matter in the real world so hit that like button and leave a comment down below and i'm totally open to suggestions first off thanks so much for watching the entire video real quick before you go i want to invite you to a live webinar web class training workshop online event whatever you want to call .

It but it will be me live revealing to you what i discovered that has allowed me to transform myself from being an employee to being my own boss including how i had only one losing day out of 73 days in total i'm going to cover three keys that have helped me unlock profitable consistency within the markets the first key is super weird but .

In a productive type of way the second key is super awesome because it quite literally is wired into our dna as humans making it very easy to use but in a cruel way this becomes a pitfall for many traders i'll explain it all though including how to avoid the pitfall that it creates for some and yeah the third key when you hear it sounds way too good .

Way too good to be true but it's not and i'll show you how it all works then at the end i open it up for a question and answer session that is again totally live even if you can't make the live session please still sign up as it will be recorded and you can go back and watch the replay that i will send you click the image on the screen or click .

The link down in the description box so you can get the date and time and claim your spot which i should note is limited due to the fact that this truly is a live event if you have any questions let me know if not i'll be seeing you soon

RELATED ARTICLES

Most Popular