Question

A firm agreed to pay its workers ​$2525 an hour in 2016 and ​$4141 an hour in 2017. The price level for these years was 241 in 2016 and 245 in 2017. Calculate the real wage rate in each year​ (to the nearest​ cent). What is the real wage increase received by these workers in​ 2017?

Answer 1

(a) 10.4%; 16.73%

(b) 6.33%

Step-by-step explanation:

Given that,

Wages paid to the workers in 2016 = $25 per hour

Price level in 2016 = 241

Wages paid to the workers in 2017 = $41 per hour

Price level in 2017 = 245

Real wage rate in 2016:

= (Nominal wages ÷ Price level) × 100

= ($25 ÷ 241) × 100

= 0.104 × 100

= 10.4%

Real wage rate in 2017:

= (Nominal wages ÷ Price level) × 100

= ($41 ÷ 245) × 100

= 0.1673 × 100

= 16.73%

Therefore, the real wage increase received by these workers in​ 2017 is calculated as follows:

= Real wage rate in 2017 - Real wage rate in 2016

= 16.73% - 10.4%

= 6.33%

Hence, these workers do get a raise between the two years.