Extra Help with Math & Graphs

Chapter 29. Labor Markets and Wage Rates

#1: Real Wages versus Nominal Wages

If your pay rose from $40,000 in 2008 to $60,000 in 2013, while the CPI rose from 100 in 2008 to 120 in 2013, then how much is your real pay in 2013, and by what percentage has it increased since 2008?

This is a two-part question. First we need to find out your real wage in 2013. To do that, we use this formula:

Real wages (current year) =	Money wages (current year)
	CPI (current year)

Then we plug in the numbers for money wages (current year) and CPI (current year):

$60,000	= $50,000
120

So real wages in 2013 are $50,000. Next question: By what percentage did real wages rise since 2008 (when wages were $40,000). To find that percentage, we use the percentage change formula, substitute the numbers, and solve:

Percentage change =	Change	=	$10,000*	=	1	= 25 percent
	Original number		$40,000		4

*The change in real wages was $10,000 ($50,000 - $40,000).

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