What do real wages reflect?

Real wages reflect wages adjusted for inflation. This means that real wages take into account the purchasing power of income by considering how much goods and services can be purchased with that income at current price levels. When inflation rises, nominal wages (the face value of wages paid to employees) may also rise, but if they do not increase sufficiently to outpace inflation, the actual purchasing power of those wages can decline.

By adjusting nominal wages for inflation, real wages provide a more accurate measure of economic well-being for workers, as they indicate whether individuals can maintain or improve their standard of living over time. This adjustment is crucial for economic analysis, particularly when comparing wage data across different time periods or between different economic environments.