One headline says wages rose; another says workers became worse off. Both can be describing the same period if one uses nominal wages and the other adjusts for changing prices. Before deciding that the reports contradict each other, check what each number measures.
The US Bureau of Labor Statistics explains nominal and real income: nominal income is the money amount, while real income adjusts that amount using a price index. The adjustment addresses purchasing power, not the number printed on a payslip.
Work through a small example
Suppose an illustrative wage rises from 100 to 105 while the relevant price index rises from 100 to 108. Nominal growth is 5 percent. Relative purchasing power is 105 divided by 108, or about 97.2 percent of the starting level. That is a decline of roughly 2.8 percent, not exactly three percent.
These are invented numbers. The calculation shows why subtracting inflation from wage growth is an approximation rather than always the exact result.
Check the comparison before sharing it
- Are both figures for the same dates?
- Is the measure hourly, weekly or annual?
- Does it cover the same workers?
- Which price index supplies the adjustment?
Average weekly earnings can change because hours change, even if hourly pay does not move in the same way. An average also does not describe every worker’s pay rise. Changes in the mix of jobs can affect the series.
A national price basket is not your household’s exact shopping list. It gives a consistent statistical comparison, while individual costs may move differently. When summarising the story, preserve that distinction: say what happened to the published measure, then explain its scope. Avoid turning one national statistic into a claim about every reader’s personal finances.