Question

The measure of a worker's real wage is?

• A. The change in his productivity over a given time
• B. His earning after deduction at source
• C. His daily earnings
• D. The purchasing power of his earnings

Answer 1

Answer: (D)

The purchasing power of his earnings

A real wage rate is a nominal wage rate divided by the price of a good and is a transparent measure of how much of the good an hour of work buys. It provides an important indicator of the living standards of workers, and also of the productivity of workers.
While differences in earnings or incomes may be misleading indicators of worker welfare, real wage rates are comparable across time and location. Nominal wages are not sufficient to tell us if workers gain since, even if wages rise, the price of one of the goods also rises when moving to free trade. The real wage represents the purchasing power of wages— that is, the number of goods the wages will purchase.